Success Factors of Islamic Banks: An Empirical StudyA look at Table 3 reveals that all banks are capable of increasing their
investment rates. This is so since for 6 of them, this index in 2001 did not
reach the rates they actually attained in the previous years. This reinforces our
earlier conclusion that there is a genuine need for these 6 Islamic banks to
review their management and investment policies. More important, this index
helps understand the success factors because it shows clearly the need and
benefit of finding highly qualified investment management as one of the
success factors of an Islamic bank. What is required of this management is to
continuously work to raise the investment index shown in Table 3.
3.2 Increasing Cash and Bank Assets
Table 4 depicts the growth of cash and deposits with other banks in the 7
Islamic banks during the three years that ended in 2001. It indicates that the
efforts of Islamic banks to minimize idleness of their funds have produced
uneven results.
While some banks achieved temporary success in some years, only bank
G was able to introduce genuine reduction of its available cash during the
period covered by the study. But with bank F, despite of the negative value
that indicates a drop in its cash assets. This decline was accompanied by a
bigger drop in its invested assets, which means that the ratio of cash to total
assets has increased instead of dropped. Additionally, three other banks have
reached disturbing high figures in the average increase of their cash and
deposits with other banks to an extent that one doubts the very existence of
departments for liquidity and investment management in these banks!
Table 4: Percentage increase in Cash and Deposits with Banks
BANK 1998/99 1999/2000 2000/01 1998/2001 Average
A 18.83 12.55 11.31 48.87 16.29
B -10.61 103.39 -39.17 10.61 3.54
C -26.83 54.60 61.65 82.86 27.62
D 206.98 10.61 -9.59 206.98 68.99
E 31.79 -14.72 54.42 73.56 24.52
F --- -13.31 0.42 -12.94 -6.47
G 1.47 13.35 -39.53 -30.46 -10.15
Average 36.94 23.78 5.64 54.21 17.76Ongoing awareness of the need to make reduce funds idling has special
interest in the Islamic banks because they can’t resort to the money market
very short-term investment since it is normally interest-based. As such its
liquidity management should take a very different course from what is in