Monzer KahfIn fulfilment of its Islamic character, the Islamic bank should always set
aside for righteous causes some money since it carries the banner and ideals
of the Islamic values. Prophet (Pbuh) has promised replacement for every
spending and that money is not going to diminish as a result of spending. The
compensation or reward may be in the form of customers’ confidence in the
bank and their conviction about its Islamic characteristics. Consequently,
their interest in dealing with the Islamic bank is going to grow.
2.2 Short-Term Considerations
Profits, higher than the competing Islamic and conventional banks, is in
the final analysis, are the ultimate objective and the quantitative criterion for
measuring the success of any bank. Besides the role that every human being
or every group of people plays in participating in righteous deeds in the
society, of which the Islamic bank is expected to do more because of its
identity and character, any talk about non-profit objectives is either a rhetoric
about interim objectives that are mere means to the primary objective or it is
a form of marketing or public relations propaganda that serves the objective
of profit maximization.
We shall devote the remaining part of this Section to recall the rules of
managing the profitability of Islamic banks. These rules can be summarized
under the following six points: pricing of banking services, cost/earning
efficiency of bank’s operation, selecting high return investments, reducing
idle assets as much as possible, benefiting from economies of scale,
compliance with institutional process for the flow of information to
management to make timely decisions.
2.2.1 Pricing of Banking Services
It is usual for new banks to seek to use the pricing list of existing banks.
But a bank that is keen on offering quality services must set its own price list
on the basis of analytical studies of its own architectural cost, compare it with
other banks, set its own fees to be commensurate with the value of banking
service provided and the affordability of the proposed price to the average
client (statistically it is preferable to take the mode because it is the most
frequent), and then work to increase the price of banking services to the
highest level possible, without sacrificing the bank’s competitiveness. Pricing
of banks’ services includes setting the rage of charges on non-investment
services and determining the share of mudarib/agent of the returns on
unrestricted, restricted and special investment deposits.