Determinants of the financial strategy of Islamic banks

A study was undertaken of two Islamic banks, Faisal Islamic Bank of Sudan and Kuwait Finance House, over the period of 1979-1985. The two institutions, which avoid interest in all their dealings in accordance to the dictates of al-Qur'an, were monitored to see what mode of financing they seek when they are in varying strategic positions. What was finally discovered is that when conditions reflect high strategic choice, Islamic banks prefer to draw in investment deposits rather than equity capital. In conditions of low strategic choice, however, the primary source of funds for these banks is equity capital. Faisal Islamic Bank, when established in 1978, enjoyed some exemptions regarding central bank credit policy compliance. Such exemption was lost in 1983. Kuwait Finance House was established in 1979 and is owned 49% by the government. The institution's oversight is by the finance ministry rather than by the central bank. The study uses only two banks and thus the findings shou