Success Factors of Islamic Banks: An Empirical Studythat of farm products which is 10 per cent of the net profit. Regardless of the
juristic views, we know that there are needs for much more contributions for
humanitarian activities and social aid and assistance. This represents an open
area for institutions and individuals; i.e., to give, in order to improve the
social environment in which they live. The value of contributions made by
the Islamic banks are too little and incomparable to donations made by
western companies for humanitarian and social services in their countries.
4. Success Factors of Islamic Banks
In this section I will try to derive lessons from the theoretical criteria of
success and their practical application to seven Islamic banks. This section is
divided into six sub-sections: banking efficiency, increasing confidence in a
bank, efficiency in investment management, financial engineering and
marketing, preservation of shareholders and depositors’ equity, provision of
humanitarian and social services and other factors.
4.1 Banking Efficiency
Banking efficiency is the extent to which a bank’s management is able to
increase its assets and maximize its profits in both the long-run and the short-
run. There is no doubt that the Islamic bank is fundamentally different from
the conventional bank in the nature of its relationship with its depositors - a
relationship of partnership. This different nature of bank/depositor relations
suggest that the management policy of an Islamic bank should be
fundamentally characterized by the maximization of both shareholders profit
and depositors’ profit.
While efficiency in conventional banks is defined as the gap between the
average profit of a given bank and the highest profit average in other banks,
adding the element of depositors’ share of profit to this definition is
necessary for Islamic banks. Such an addition is also consistent with the long-
term consideration for measuring bank’s efficiency in all cases, because
depositors’ share of profit positively influences the size of deposits as we
noticed earlier. This addition may be measured, at least in a comparative static
manner, by holding one of the two indices constant while we examine
changes in the other.
Profit efficiency of a bank is usually measured in the same way as in other
productive firms, where we assume that prices and structure of inputs (bank’s
expenses) and outputs (bank’s services) are constant. To examine efficiency
we measure the gap between average profit in the Islamic bank and the