- Paper written in Arabic. Translated into English by an anonymous translator. The
editors have reviewed it for correction of any gross mistakes and slightly edited for
improving the exposition and organization. Heavy editing would have involved a re-
rendering of the text.
** Independent financial consultant. Formerly, Islamic Development Bank.
Monzer Kahf **
Introduction
Islamic banks, in terms of their legal modalities, structures, objectives and
means of achieving those objectives, are not any different from other
financial institutions. Their main difference lies in their being described as
Islamic. This entails that the Islamic banks have enjoined on themselves to
conduct their affairs within the limit of the rulings of Shari[ah and to comply
with its overall objectives. This definition of Islamic banks would make our
approach easy as we make an attempt to explore the success factors of
Islamic banks as financial institutions. It must be realized that maximization
of profit is an objective of the highest priority for all private investment
institutions. Consequently, all private-sector financing institutions have a
fundamental objective: to make as much profit as they can.
However, profit maximization is a general proposition that must be
narrowed down and explicated in detail. This has been undertaken in the
Section 2 of the present paper. In brief, there are different factors which are
important in affecting profit maximization of Islamic banks such as boosting
of all forms of deposits, improvement in the quality of customer services,
expansion in the base of banking services, protection of capital, provision of
humanitarian and social services, etc. and the factors that raise the profit
margin, or which may be called the rules of profitability management of an
Islamic bank.
The Section 3 will discuss the experience of some selected Islamic banks
in achieving their objectives and measure the extent of their success.^1 This