Monzer Kahfassurance of growth of Islamic banking. In this regard, financial engineering
management becomes the strong engine that moves banking marketing.
Without the engineering activity, marketing management cannot attract new
deposits on a continuous basis as to guarantee continuous growth for the
Islamic bank’s activities and profits.
A measurement of expanding base of banking services is possible by
meaning the growth of non-conventional investments, especially off-balance
sheet investments through the agency contract with fixed or declining
commissions. It can also be done by measuring the growth of new
innovations through reckoning the volume of operations in the invented
products.
2.1.4 Preservation of Capital
Protection of capital is one of the important considerations in
maximizing profit in the long run because evaporation of capital not only
causes banks to loose new deposits, it also deprives them of the means to
achieve the very objectives of their existence.
Undoubtedly, two most important elements in capital preservation are
the extent of the bank’s diversification of its investments and the extent of
synchronization between the maturity of its investments and the maturity of
its deposits. One of the common errors in the circles of Islamic banking
theorists is their continuous call for financing through partnership
(musharakah) and non-voting equity (mudarabah) that are both of a long-term
nature, while the greater part of the banks deposits are short-term deposits in
current accounts and short-term investment accounts. Although there are
attempts to reduce financing through murabahah in favor of an increased
financing through mudarabah and musharakah, these attempts should take into
account that musharakah and mudarabah financing should not exceed the safe
limit in terms of proportionality with the sources of financing and their
maturities.
In addition, protection of deposits requires setting of clear red lines that
should not be crossed with regard to the degrees of risks the Islamic bank
cannot bear, whether they are investment risks or foreign currency risks.
Even though it is clear that Islamic banks are moving towards taking
generally conservative positions towards investment risks, some of them have
landed investors and depositors into pure failure because of the absence of
these red lines and the weakness of check and balance processes in their
management style.