THE KUWAIT FINANCE HOUSE: VIABILITY AND GROWTH AS AN INTEREST-FREE FINANCIAL INSTITUTION

The Problem. The Kuwait Finance House (KFH), founded in 1977, is one of several financial institutions worldwide that follow the Islamic sanction against charging or paying interest. There is little comparative research on those interest-free institutions. This study was undertaken to evaluate and compare the financial performance of the KFH with interest bearing investment and banking sectors in Kuwait; to explore the banking needs and attitudes of the KFH's and other established banks' customers; and to discover the accuracy of KFH officials' predictions about their customers' needs and wants.;Results. Overall, the interest-free KFH showed substantially better financial performance than interest bearing investment sector means. While it performed less well than banking industry means according to financial ratio comparisons, it did show generally better annual growth rates than banking industry means.;Opinion polling revealed significant differences between the KFH's customers and the other banks' customers on 13 (of 26) factors, between business customer subgroups on eight factors, and between non-business customer subgroups on 13 factors. Mixed results were found in the accuracy of the KFH officials' predictions.;The results suggested that, if the interest-free KFH is to remain viable, it must (1) develop new investment opportunities, (2) clarify, to the public, its philosophic (i.e. Islamic) base, and (3) be more responsive to customers and to the local culture's changing needs.;Method. Official documents for 1979-1984 provided financial data on the KFH, the seven investment firms, and the eight banks examined. Comparisons of the KFH to industry means used several widely accepted growth rates and financial ratios. Opinion polling, conducted among 555 KFH customers and 210 customers of other banks in ten cities, used two similar researcher-designed instruments, each with 22 demographic elements plus 26 religious, social, economic, and service factors. Analysis used one-way ANOVA (p (LESSTHEQ) .05). Predictions were also obtained from 35 KFH officials about the degree of importance their customers would give to the presented factors.