Deposits Profitability Relationship Of Islamic Banks Finance Essay


The intent of this research survey is to analyse the impact of Islamic Banking Deposits ( Investment, Savings and Current histories ) on the profitableness step ROE of the Islamic banking industry in Paksitan. For this intent, clip series informations of 11 quarters covering the period 2007 to 2009 is taken for the needed variables from State Bank of Pakistan ‘s quarterly editions of the ‘Islamic banking bulletin ‘ . The consequences showed that all the sedimentation variables had a important positive relation with the profitableness of Islamic Bankss. The purpose is to lend to the literature on deposit-profitability relationship of Islamic Bankss.

Measuring Deposits-Profitability Relationship of Islamic Banking industry in Pakistan


Islamic banking is a banking activity based on Islamic rules, which do non let the paying and having of involvement ( riba ‘ ) and promotes net income sharing in the behavior of banking concern. ( Ghazali, 2008 ) . Harmonizing to the latest quarterly edition of State Bank of Pakistan ‘s “ Islamic Banking Bulletin ” , the entire Shariah-compliant assets worldwide have grown to about US $ 700 billion – with one-year growing transcending 10.0 per centum during the past decennary and are projected to turn to US $ 1.6 trillion by 2012. State Bank of Pakistan ‘s strategic program for Islamic banking industry launched in 2008, aims to increase the size of the Islamic banking industry to 12.0 per centum ( of sum banking assets ) by 2012.

Islamic fiscal establishments do non merely play a critical function in resource mobilisation, resource allotment and employment but are besides actively involved in the class of implementing authorities pecuniary policy. Apart from offering about all traditional banking installations, Islamic Bankss besides assist domestic and international trades. Sing the potency of the Islamic market, western conventional-based fiscal establishments such as Citibank, JP Morgan, Deutsche Bank, ABN Amro and American Express have introduced interest-free merchandises to clients. Similarly, transnational corporations such as General Motors, IBM and Dewoo Corporation have already begun to utilize interest-free services. ( Haron and Azmi, 2003 ) .

Surveies that assess the influence of assorted factors that determine Muslim Bankss profitableness are still at initial phase. Few efforts have up till now been made to through empirical observation analyse the Islamic Bankss ‘ public presentation. In the Islamic banking literature, the work of Haron ( 1996a ) was the first effort to analyze factors that contributed towards Islamic Bankss ‘ profitableness. Most of the research used multiple arrested development analysis technique in mensurating the relationship among the finding factors and profitableness ratios.

Widening the old work in Muslim Bankss ‘ public presentation, this paper examines the strength of relationship between sedimentation variables and profitableness of Islamic Bankss utilizing univariate arrested development methodological analysis. By analyzing the association between Islamic banks’aˆY public presentation and the sedimentation variables, this paper contributes to the ongoing treatment on the sedimentations and profitableness relationship of Islamic Bankss.

The paper is divided into seven subdivisions. The literature reappraisal on determiners of Islamic bank public presentation is highlighted in Section 2. Section 3 examines the methodological analysis used in analysing the relationship between the sedimentations variables used in this survey and the public presentation of Islamic Bankss. Section 4 presents the treatment and deduction. The mentions are listed in subdivision 5. The tabular arraies are listed in subdivision 6 and figures in subdivision 7.

Literature Review

The whole foundation of Islamic Finance is that the two sides of the equation ( i.e. the fund-providers and the fund-users ) work in understanding as spouses, without depositors being assured of any return from those who use their money. In pattern, Islamic Bankss draw about three-fourthss of the capital from their depositors, and do non vouch any precise degree of return to these fund-providers. ( Shubber and Alzafri,2008 ) .

Ghafoor ( 1995 ) states that all Islamic Bankss have three sorts of sedimentation histories: current, nest eggs and investing. Current or demand sedimentation histories are about the same as in all conventional Bankss. Deposit is assured. Savingss sedimentation histories function in different ways. In some Bankss, the depositors permit the Bankss to do usage of their money but they attain a warrant of being paid the complete sum back from the bank. Banks adopt a figure of methods of bring oning their clients to lodge with them, but net income is non promised. In others, nest eggs histories are treated as investing histories but with less rigorous conditions as to backdowns and minimal balance. Capital is non assured but the Bankss take attention to put capital from such histories in reasonably riskless short-run undertakings. Therefore, lower net income rates are expected and that excessively merely on a subdivision of the mean minimal balance on the land that a high degree of modesty financess need to be kept at all times to run into up backdown demands. Contrastingly, Investment sedimentations are accepted for a preset or indefinite period of clip and the investors consent in progress to portion the net income ( or loss ) in an in agreement proportion with the bank. Capital is non assured. ( Ghafoor, 1995 ) .

Some IFIs ( Islamic Financial Institutions ) classify sedimentations in footings of wadiah or amanah. Current histories of IFIs are regarded as qard hasan or qard ( instead, as wadiah/amanah ) . ( Farooq, 2008 ) . Qard al-Hasana is defined as sedimentations whose full refund on demand is guaranteed by bank. ( Ahmad, 1994 ) . The sedimentations in the current history are regarded as if they are loans from the clients to the bank and hence, bear no output to the history holders. ” ( Al-Jarhi and Iqbal. 2001 ) . Deposit histories are neither a liability nor equity capital. They are a “ intercrossed ” beginning of capital, and must be acknowledged as such. Depositors are spouses with the bank, but enjoy no ownership rights. ( Shubber and Alzafri,2008 ) .

Sudin Haron ( 1996 ) references that the jurisprudence allows the Bankss to accept two types of sedimentations, i.e. , qard al-hasanah sedimentations and term investing sedimentations. The qard al-hasanah sedimentations includes current every bit good as nest eggs histories which vary in their operational regulations. ( Ahmad, 1994 ) . If it is allowed that the borrower can pay excess money voluntarily, so handling sedimentations as qard-hasan allows the Bankss as the borrowers to pay excess money to the depositors ( loaners ) . Unlike nest eggs history services at conventional Bankss, where depositors are automatically rewarded upon assignment of their financess, returns to nest eggs history holders are reliant on the Shariah ( Islamic Torahs ) rules which are practiced by Islamic Bankss when offering this service. When wadiah ( trust territory ) or qard hassan ( benevolent loan ) are used, the returns are wholly at the discretion of the Bankss. ( Sudin Haron, 1996 ) .

Nienhaus, ( 2004 ) argues that if the clients of Islamic Bankss desire a return on their financess, they should pay into investing histories ( besides called ‘participation histories ‘ or ‘PLS ‘ , net income and loss sharing histories ) . Whereas, recognition balances on these histories are non considered sedimentations in the conventional sense. The returns on Muslim Bankss ‘ investing histories are non fixed in progress ; the clients take part by a certain proportion in the fiscal result of the use of their investing financess by the bank. These consequences could besides ensue in a loss. In instance of loss, the clients will hold to bear a part of the loss which would cut down the nominal value of the recognition balances of their several investing histories. In such a state of affairs, the clients can non claim a full reimbursement of the money paid in. The full reimbursement, nevertheless, is constitutional for a sedimentation in the rigorous sense. ( Nienhaus, 2004 ) .

Rosly and Zaini, ( 2008 ) say that the populace in general put their money in Bankss for either fulfilling transactional demands or for investing demands. To do the transactional aim, Muslim Bankss offer services such as wadiah yad dhamanah sedimentation, which facilitates safekeeping of their sedimentation money with warrant services. In this merchandise, depositors no longer lodge financess to have a fixed income. Alternatively, they place their sedimentations for protection.`Wadiah yad dhamanah ‘ agencies safekeeping with warrant. Wadiah yad dhamanah depositors permit the Islamic bank to put their money in return for sedimentation safety that they got for free. Since the caretaker service is given without a fee, the Islamic bank holds no legal irresistible impulse to pay depositors a preset return and may make so merely on voluntary footing. In this manner, the bank holds pick on net income distribution policy in the signifier of gift ( hibah ) . The same is non right for Islamic fixed sedimentations, often known as mudarabah investing sedimentations. In this partnership composing, no warrant is given to capital protection and fixed income, as it runs under equity rule. It is a unstable merchandise as the underlying contract is based on profit-loss sharing system. Net incomes are shared merely in instance of executing investings, while capital may deprecate or even shrivel if the investing ends in losingss. ( Rosly and Zaini, 2008 ) .

Haron and Azmi, ( 2004 ) discuss that similar to conventional Bankss, Islamic Bankss besides rely on depositors ‘ money as a cardinal beginning of fund. Bank Muamalat Malaysia Berhad for illustration, had entire sedimentations amounting to 94 per centum of entire liabilities and stockholders ‘ equity at the terminal of December 2003. While in the instance of Jordan Islamic Bank, Islamic Bank of Bangladesh, Bank Muamalat of Indonesia, and Bank Shariah Mandiri of Indonesia, the corresponding sums were 94 % , 86 % , 76 % , and 79 % , severally. These figures reveal the huge high sum of the depositors ‘ money as a supply of finance for Islamic Bankss. Hence, it becomes indispensable for the direction of Islamic Bankss to place the factors that are most likely to convert clients ‘ determination devising in lodging their capital with Islamic Bankss. ( Haron and Azmi, 2004 ) .

With the exclusion of a survey done by Metawa and Almossawi ( 1998 ) where faith was seen as a ground act uponing clients ‘ pick to back up Islamic Bankss in Bahrain, other surveies have proven counter wise. The grounds from surveies done in Sudan and Turkey, for illustration, revealed that faith was non the chief motivation for clients taking Muslim Bankss ( Erol and El-Bdour, 1989 ) . Likewise, surveies conducted in Malaysia and Singapore revealed both faith and net income as the account for people keeping their association with Islamic Bankss ( Haron et al. , 1994 ; Gerrad and Cunningham, 1997 ) . Since depositors are attracted by net incomes, it is critical for Muslim Bankss direction to be cognizant of the fact that return rates on sedimentations persuade their clients ‘ determination to lodge. ( Haron and Azmi, 2004 ) .

Associating to commercial Bankss ‘ sedimentation composing, Hester and Zoellner ( 1966 ) and Heggested ( 1977 ) found that clip and nest eggs sedimentations had a important reverse correlativity with profitableness. Smirlock ‘s ( 1985 ) findings demonstrated a important positive relationship amid demand sedimentations and net incomes. In contrast, Fraser and Rose ( 1971 ) found that loan rate ; clip sedimentation rate and loan-to-deposit ratio had no result on profitableness. Haron ( 1996a ) found grounds to propose that current, nest eggs and investing histories of Muslim Bankss are positively related to profitableness. Fraser et Al ( 1974 ) considered operating costs, sedimentation and loan constructions as factors within the control of direction and found that the factor which had the biggest control on bank public presentation was bank cost followed by bank ‘s sedimentation and loan composing.

Heggested ( 1977 ) proved that Bankss to a great extent devoted to clip and nest eggs sedimentations earned well lower returns than Bankss which have higher trust on demand sedimentations. Smirlock ( 1985 ) confirmed that demand sedimentations were a cheaper beginning of financess and had a positive impact on bank net incomes.

In the literature, the bulk of surveies found that nest eggs and clip sedimentations have a negative relationship with profitableness, while a positive relationship has been found for current history sedimentations. Haron ( 2004 ) found that about all sedimentation construction variables had no important relationship with the profitableness ratios. Deposits in current history, was the lone variable which had a important relationship with Bank ‘s part of income as a per centum of entire assets and Net net income earlier revenue enhancement as a per centum of entire assets. Each 1 % addition in the current history retentions increased the bank ‘s income by 0.034 % and net income before revenue enhancement by 0.036 % . This terminal consequence was in line with the findings reported by Smirlock ( 1985 ) . Since a current history service is considered a cost-free installation, it is anticipated that the more financess deposited into this history, the more Muslim Bankss would stand to gain. Interestingly, no important relationship was found between current history sedimentations and Entire income as a per centum of entire assets, which implied that an addition in current histories does non bring forth more returns to the bank as a whole but lone maps as a cost economy step. That is, no returns are paid to these depositors. In the instance of nest eggs and investing histories, even though their relationships with all profitableness ratios were at an undistinguished degree, the marks of their arrested development coefficients warranted farther elucidation. No contradiction with the findings of conventional banking literature with respect to salvage histories was evident. A negative relationship was found between Savings history sedimentations and the profitableness measures. This consequence suggests that any addition in savings histories will cut down net incomes and it corresponds to the findings in the current banking literature ( see for illustration Hester and Zoellner, 1966 ; and Heggested, 1977 ) .

The consequences on Investment history sedimentations in Haron ‘s ( 2004 ) survey are non similar to those findings reported in earlier researches. Hester and Zoellner ( 1966 ) and Heggested ( 1977 ) , for illustration, found that fixed sedimentation installations had an opposite relationship with profitableness. Since some of the features of investing sedimentations at Islamic Bankss are similar to the fixed sedimentation installations of conventional Bankss, it is expected that more financess deposited into these histories would ensue in less net income to the bank. In contrast, Smirlock ( 1985 ) believed that an increasing sum in fixed sedimentations would hold a positive relationship with a bank ‘s profitableness. Haron ‘s ( 2004 ) survey found that Investment history sedimentations had a positive relationship with all profitableness steps and therefore, confirmed Smirlock ‘s hypothesis.

Haron and Azmi ( 2004 ) attempted to look into the strength of influence between both internal and external variables and profitableness of Islamic Bankss in selected states utilizing timeseries techniques of cointegration and error-correction mechanism. They found a important long-term relationship between profitableness steps of Islamic Bankss and finding variables such as liquidness, sedimentation points, assets construction, rising prices and money supply. They besides found that ‘Investment history sedimentations ‘ was the lone variable which had a important relationship with all three profitableness ratios. For Current history sedimentations, a positive relationship was found with ‘Bank ‘s part of income as a per centum of entire assets ‘ . The consequence indicated that a 1 % addition in current history retentions increased the bank ‘s part of income by 0.064 % . Given that current history installation is a cost-free service, the more financess deposited into this history, the higher net incomes will be made available to Islamic Bankss. Interestingly, current history sedimentations had no important relationship with ‘Total income as a per centum of entire assets ‘ implying that an addition in current histories does non bring forth more income to the bank, but merely maps as a cost economy step. On other words, Islamic Bankss do non pay any wagess to their depositors. These consequences were in line with the findings of Haron ( 1996a, 2004 ) . Savings sedimentations variable was found to hold a important positive relationship with ‘Total income as a per centum of entire assets ‘ . For every 1 % rise in nest eggs account, entire income increased by 0.26 % . This was in line with normal banking patterns whereby Islamic bank could utilize the financess deposited in this history for productive intents and therefore, bring forthing extra gross for the bank.

Additions in sedimentations size has a positive impact on Net incomes per portion ( EPS ) , as a part of depositors ‘ net incomes is minused as a fee for the benefit of the bank and its stockholders. ( Shubber and Alzafri, 2008 ) . Tax returns on Islamic sedimentations are though flexible in nature since returns are based on public presentation instead than contracted upfront as apparent in all involvement bearing sedimentations. Although the mudarabah rates ( investing sedimentation rates ) are quoted utilizing the rates given in the old months, they are non fixed beforehand and service as an declarative rate of return on Mudarabah sedimentations ( ROMD ) . The Mudarabah ( investing sedimentations ) contract works along profit-loss sharing rules while fixed sedimentations of conventional Bankss are based on the contract of debt. As an equity merchandise, a Mudarabah sedimentation offers no principal protection and legal claims against any signifier of returns. To do up for the hazard exposure of the merchandise, Mudarabah depositors are expected to be given higher returns relative to that of commercial Bankss ‘ fixed depositors who avoided hazard. ( Rosly and Zaini, 2008 ) .

Haron and Shanmugam ( 1995 ) in their survey attempt to associate the net income rates to Islamic bank ‘s sedimentations. Using Pearson ‘s Correlation and First Order Autoregressive theoretical account, they found strong negative relationship between the two variables. Likewise, their determination showed a positive linear relationship between conventional and Islamic bank sedimentations.

Haron and Ahmed ( 2000 ) argue that people who placed their sedimentations at salvaging and investing history installations were guided by the net income motivation. The public-service corporation maximization theory amongst the Muslim clients was further confirmed by the negative relationship between the rate of involvement in conventional Bankss and the amount deposited in interest-free sedimentation installations. Moslems should be guided by Islamic philosophies when doing their economic determinations. Therefore, function of educating people sing Islamic banking system should be played globally. It is so a ambitious undertaking. ( Haron and Ahmed, 2000 ) .

Shubber and Alzafri, ( 2008 ) say that EPS ( Earnings per portion ) improves as the degree of sedimentations additions, as depositors were viewed as partakers in the net income and loss, instead than being entitled to a fixed involvement rate. This supports that increasing sedimentations have a positive impact on EPS ( Earnings per portion ) . Increasing sedimentations, hence, do non direct any increase in the cost of equity. In fact, equity holders benefited from larger sedimentations, as proprietors of the latter wage out direction fees, which is deducted from the depositors ‘ portion of the net incomes. Besides, the market value of Islamic Bankss is independent of WACC. ( Shubber and Alzafri,2008 ) .

Haron and Azmi ( 2004a ) demonstrated that with the exclusion of fixed and investing sedimentations, any addition in rates of involvement, sedimentations at conventional system will increase and sedimentations at Islamic system will diminish, and vice-versa. As for the fixed and investing sedimentations, equivocal consequences were found. One possible account for this is that rates of net income for sedimentations at Islamic system are known at the terminal of the sedimentation period and non at the beginning as opposed to the conventional system. Any upward alterations in involvement rate of conventional system will hold an inauspicious impact to the sedimentation degrees in the Islamic system. Therefore, rates of net income of Islamic system must at any clip be similar to those of the conventional system. Finally, spiritual dimension can be considered as an of import component to pull more people to lodge their financess in the Islamic system. This could besides be the ground why more and more conventional Bankss are get downing to offer Islamic banking installations to their clients non merely in Malaysia but besides to other parts of the universe. ( Haron and Azmi, 2004a ) .

Hasan and Bashir ( 2003 ) argue that the lifting competition and uninterrupted invention to supply fiscal services, all contribute to a increasing involvement in a elaborate rating of Islamic Bankss. Depositors are interested in measuring the public presentation of their Bankss since they are non given fixed returns and the nominal values of their sedimentations are non assured. In seeking to do best usage of the value of stockholders ‘ investing, Islamic Bankss are exposed to hazards. Hence, analysing the Islamic Bankss ‘ public presentation is of import from economic and public policy positions. ( Hasan and Bashir, 2003 ) .


This survey uses univariate arrested development analysis to analyze the relationship between sedimentations and profitableness of Islamic banking industry in Pakistan. Univariate arrested development is a method of arrested development analysis that uses one explanatory variable to foretell values of a individual dependant variable. SPSS package is applied to obtain the univariate arrested development. In this survey, three independent variables titled Fixed sedimentations, Savings Deposits and Current history sedimentations have been used. The dependent variable of profitableness is measured by ROE which is the ratio of a bank ‘s net after-tax income divided by its entire equity capital. The return on equity ( ROE ) is considered to be one of the profitableness public presentation ratios ( Tarawneh, 2006 ) . It indicates how efficaciously the direction of the bank is able to turn stockholders ‘ financess ( i.e. equity ) into net net income. ROE ( Return on Equity ) has been tested individually for the three independent sedimentation variables to avoid the issue of multicollinearity since all the sedimentation variables are extremely correlated to each other.

This paper attempts to prove three hypotheses. Harmonizing to Becker ( 1995 ) , hypothesis testing is the procedure of judging which of two contradictory statements is right.

Hypothesis 1: Investing Deposits increase the profitableness of Islamic Bankss.

Hypothesis 2: Salvaging Deposits increase the profitableness of Islamic Bankss.

Hypothesis 3: Current Account Deposits increase the profitableness of Islamic Bankss.

The information for this survey is clip series informations taken from the quarterly editions of the “ Islamic banking bulletin ” published by the State Bank of Pakistan. These bulletins publish the amalgamate fiscal statement variables stand foring the full Islamic banking industry of Pakistan including all the full fledge Islamic Bankss ( Al Baraka Islamic bank, Bank Islami Pakistan limited, Dawood Islamic bank Limited, Dubai Islamic bank limited, Emirates Global Islamic bank Ltd and Meezan Bank Ltd. ) every bit good as the Islamic subdivisions of conventional Bankss ( Askari Bank Limited, Bank Al Falah Ltd. , Bank Al Habib, Faysal Bank, Habib Metropolitan bank, MCB Bank Ltd, National bank of Pakistan, Soneri Bank Ltd, Standard Chartered Bank, The Bank of Khyber, Royal bank of Scotland, United Bank Ltd ) . The sample period for this survey is limited from 2007 to 2009 as most of the Islamic Bankss started operations from 2007 in Pakistan. Hence, the amalgamate information of the 11 back-to-back quarters has been used in this survey.

The general equations of the three theoretical accounts are:

Profitability = b0 + b1 ( ID ) — — — — – ( 1 )

Profitability = b0 + b1 ( SD ) — — — — – ( 2 )

Profitability = b0 + b1 ( Cadmium ) — — — — – ( 3 )


b0 = intercept ( changeless )

Dependent variable:

Profitability = ROE ( Return on Equity )

Independent variables:

ID = Investment Deposits

SD = Savings Deposits

Cadmium = Current Account Deposits


The consequences of the arrested development analysis for model.1, 2 and 3 are shown in Tables 1, 2 and 3 severally. All the three theoretical accounts were important at the 5 % degree of significance. The value of the adjusted coefficient of finding ( adjusted R2 ) for ROE in model.1 is 0.4 which demonstrates that 40 % of the variableness in entire is explained by its additive association with Fixed sedimentations variable. As for theoretical account 2 and 3, the matching values of adjusted R2 are 0.399 and 0.377 severally. A comparatively little value of adjusted R2 does non needfully intend that the theoretical account is inappropriate to mensurate the relationship between independent and dependent variables. ( Haron, 2004 ) .

The value of adjusted R2 is normally influenced by a figure of prognostic variables relative to the sample size and it becomes smaller as we have fewer observations per forecaster variable ( Hair et al. , 1995 ) . To supply a principle for the discrepancy in R2 and adjusted R2 values, the Dublin-Walter trial was conducted. The Dublin-Walter statistics values for all the three values were less than two which proves that the discrepancy was due to negative autocorrelation in the sample observations. Besides, the adequateness of a theoretical account for foretelling is validated by the F-test. ( Haron, 2004 ) . As presented in Table 1, 2 and 3, all F-ratio values are statistically important at 5 % significance degree for all profitableness theoretical accounts. Hence, these consequences confirmed that the theoretical accounts applied were utile for mensurating the relationship between sedimentations variable points and the profitableness variable.


The consequences supported all the three hypotheses that Investment, Savings and Current history sedimentations increase the profitableness of Islamic Bankss. This consequence is in line with Haron ( 1996a, 2004 ) who founded grounds to propose that all three beginnings of financess ( current, nest eggs and investing histories ) for Muslim Bankss are positively related to profitableness.

Hypothesis 1 of this survey suggested that investing sedimentations increase the profitableness of Islamic Bankss. The consequences show that the value of the adjusted coefficient of finding ( adjusted R2 ) for ROE in model.1 is 0.4 which demonstrates that 40 % of the variableness in entire is explained by its additive association with investing sedimentations variable. Hence, consequences support Hypothesis 1.

Similarly, hypothesis 2 stated that nest eggs sedimentations increase the profitableness of Islamic Bankss. The consequences show that the value of the adjusted R2 for ROE in model.2 is 0.399 at 5 % significance which shows that 39.9 % of the variableness in entire is explained by its additive association with nest eggs sedimentation variable. Hence, consequences besides support Hypothesis 2.

Finally, hypothesis 3 proposed that current history sedimentations increase the profitableness of Islamic Bankss. The consequences show that the value of the adjusted R2 for ROE in model.3 is 0.377 which shows that 37.7 % of the variableness in entire is explained by its additive association with nest eggs sedimentation variable at 5 % degree of significance. Hence, consequences support Hypothesis 3 besides. All these consequences were important at a 5 % degree of significance.

Mentioning to old literature, the consequences are assorted. In the literature, most surveies found that nest eggs and investing sedimentations have an opposite relationship with profitableness, while a positive relationship has been found for current history sedimentations. In this survey, the current history sedimentation variable had important positive relationship with profitableness. This consequence is in line with the findings reported by Smirlock ( 1985 ) , Haron ( 1996a, 2004 ) and Haron & A ; Azmi ( 2004 ) . Since a current history service is considered a cost-free installation, it is expected that the more financess deposited into this history ( current ) , the more Muslim Bankss will stand to gain.

In the instance of nest eggs sedimentations, a positive relationship was found between these sedimentations and profitableness. This consequence suggests that any addition in savings histories will increase net incomes and this is in line with Haron ( 1996a ) and Haron & A ; Azmi ( 2004 ) as Muslim Bankss can utilize these nest eggs financess deposited in this history for productive intents and hence, bring forthing extra gross for the Islamic Bankss.

The consequences on investing sedimentations in this survey are non similar to most of the findings reported in commercial banking literature. For illustration, Hester and Zoellner ( 1966 ) and Heggested ( 1977 ) found that fixed sedimentation installations had an opposite relationship with profitableness. In contrast, Smirlock ( 1985 ) , Haron ( 1996a, 2004 ) , Haron and Azmi ( 2004 ) believed that an increasing sum in fixed sedimentations would hold a positive relationship with a bank ‘s profitableness. This survey found that investing sedimentations had a positive relationship with all profitableness steps and therefore, confirmed Smirlock ‘s, Haron ‘s and Azmi ‘s hypothesis.

In visible radiation of the above findings, Islamic banking provides a better and ethical option that is non merely Riba-free harmonizing to the regulations of Shariah but besides profitable to depositors and investors since all the sedimentation histories are positively correlated to profitableness. Since, Islamic banking provides three different interest-free sedimentation installations to its depositors and investors to ease them harmonizing to their fiscal demands, people should put in these sedimentation histories in order to sponsor the Islamic banking industry and to have good returns in the signifier of ‘hiba ‘ from these Islamic Bankss.

In add-on, Ghazali ( 2008 ) suggests that Islamic banking is so relevant to the current economic crisis. The planetary fiscal meltdown stemming from the US really poses an chance for the Islamic banking system to show its peculiarity. The fiscal meltdown revealed the despairing demand for a system like Islamic finance, based on the rule of profit-sharing where both parties are subjected to likely losingss and returns. It is a just and merely system. This is contrasting to the conventional system, where Muslim Bankss do non get or merchandise debt ; instead they manage significant assets which are tied to existent economic activities.. This is truly an chance for the Islamic fiscal community to uncover to the planetary market that the Islamic fiscal system is really a robust and executable option to the conventional interest-based system.

Hence, people should back up the Islamic banking industry worldwide since sedimentations are positively related to the profitableness of Islamic Bankss. Hence, increased sedimentations would ensue in higher profitableness of Islamic Bankss which in return would supply higher returns to its depositors. This would eventually take to implement a justified and ethical economic system which encourages a just distribution of wealth and resources throughout the society.

This survey can be extended to include more clip series and cross-sectional informations of Islamic Bankss of other states. The survey may besides be extended to cover other determiners of Islamic banking profitableness.