Success Factors of Islamic Banks: An Empirical Studycompulsory zakah. We mentioned earlier that the contributions of Islamic
banks are not of the size expected of them. But we would like to add here a
word about al-qurud al-hasanah (interest-free loans), which is a pioneering
project, with a balance close to 10 per cent of paid-up capital or four times its
net profit for year 2001 in bank A. This bank granted loans for education,
health care, marriage and other social services. It also opened the fund for
donors from outside of the bank although external donations were meagre
compared with the bank’s contribution.
4.6 Other Minor Factors with Substantial Promotional and Moral
Impact
There are some Shari[ah and moral issues whose neglect had a negative
effect on more than one Islamic bank. I consider them important because
they are genuine factors that affect the distinguished image of Islamic banking
that is the main promotional and confidence building consideration for an
Islamic bank.
First, there is a potential conflict of interest between shareholders who
are represented by the management and depositors who are represented by
no body! For instance, most Islamic banks leave it to the management to
decide on: the per cent of mudarabah deposits that is kept liquid (un-invested);
the share of the bank as a mudarib/agent—even in the absence of any
competitive conditions in that market; and the ratio of profit distribution
between the different types of investment deposits. The report of one Islamic
bank states that the management decides on the share of profit assigned to
each of deposits in savings, 3 month deposits, 6 months and or one year.
Leaving issues like these to the management disturbs the contractual balance
that is required in Shari[ah.
Second, the accounting methods of calculating shareholders’ profit
sometimes overlook certain important conceptual issues. For instance, several
of the Islamic banks calculate shareholders’ profit on the assumption that
“what does not belong to mudarabah depositors is the right of shareholders.”
Hence the profit of investing funds accumulated in the reserve fund for
investment risk and in the mutual debt insurance fund (both are furnished
with deductions from customers’ accounts) is assigned to shareholders! In
2001, in bank A the total amount accumulated in these two accounts was
equal to 60 per cent of net equity. Balance in these two funds should be
treated as mudarabah deposits and given their share of profit!
Third, the little attention usually paid by the Shari[ah boards of Islamic
banks to fulfilment of justice in distribution of profits between depositors