Success Factors of Islamic Banks: An Empirical StudyOne of the most important criteria in capital preservation is the structure
and power of the bank’s risk management department and its professional
conduct. This should not be limited to central bank guidelines and to what is
usually known, in a conventional banking, as the rules of banking prudence,9
but should also include tying mudarabah and musharakah investments to long-
term investment deposits, setting up red lines of potential risks and rules for
checks and balances in taking investment decisions. Such rules of prudence
must be applicable to all decision makers in the bank including the CEO.
2.1.5 Humanitarian and Social Services
There is no doubt that providing humanitarian and social services to the
local community increases the bond between the bank and its local
environment. This has a positive effect on the volume of deposits and other
banking transactions. We should however note that banks are like other
institutions in any society. They are made up of a group of individuals dealing
with people in a particular social environment. There is no way that this
group will not be influenced by its social environment or affected by the
ideas, concepts and events that emerge in that environment. This is why
banks participate in many charitable works and set programs of participation
in charitable and social work, regardless of, and indeed above the demands of
the principle of profit maximization. Banks contribute to public charitable
works and set aside funds in their annual budgets for such purposes.
Islamic banks are also looked at to participate in the charitable activities
in their societies. In fact, that is more expected from them than from
conventional banks because they are governed by the Islamic Shari[ah which
requires the wealthy to contribute to social and humanitarian works. Surely it
is possible -and may even be better- that the distribution of zakah is left to
the individuals -investors or shareholders- to spend it on causes they consider
closer to Allah. But it is erroneous to think that good deeds are limited only
to the enjoined zakah. One of the distinguishing factors of the Islamic bank is
its commitment to Qur’anic morals and values all of which are based on
goodness, righteousness and benevolence. Islamic banks must portray these
values in the same way as required of individuals.
We must note that the social charitable objective is distributive not
productive by its very nature. In other words, Islamic banks deal with their
customers on the basis of fairness, justice and kindness then spend money on
the path of righteousness and charity. Thus spending on charitable social
objectives is a form of redistributing net resources, even though the bank,
purely for tax purposes, categorizes such expenses as part of its public
expenses.