customer satisfaction towars islamic banking

7/31/2019 Customer Satisfaction Towars Islamic Banking

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Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 1, No.6;January 2012

71

CUSTOMERS' SATISFACTION TOWARDS ISLAMIC BANKING:PAKISTAN'S PERSPECTIVE

Ali Raza1, Urooj Saddique2, Umar Farooq3, Saqib Awan4, Atif Amin5

1

M.Com Scholar, Session: 2009-2011, Hailey College of Commerce, University of the Punjab,Lahore Pakistan.2Master in Gender Studies, Session: 2009-2011, Department of Gender Studies, University of

the Punjab, Lahore Pakistan.3M.Com Scholar, Session: 2011-2013, Hailey College of Commerce, University of the Punjab,

Lahore Pakistan.4M.Com Scholar, Session: 2011-2013, Hailey College of Commerce, University of the Punjab,

Lahore Pakistan.5Lecturer Faculty of Commerce, Govt. College Ravi Road, Lahore Pakistan

Abstract

The purpose of this study was to identify those factors which are linked with customers' satisfaction andfind out relationship between customer satisfaction and identified factors. A structured questionnaire wasdeveloped to attain the responses of Islamic banking customers. Correlation technique and T-test wasapplied in order to examine the relationship between studied variables. Study found a positive relationshipbetween customer satisfaction and identified factors such as service quality, product quality, customerscare and financial benefits to customers, competitiveness of Islamic banks with conventional banks, andbank reputation. People are more inclined towards conventional banking although Islamic banks areproviding Islamic banking services under separate windows but still less awareness about Islamicbanking is the main problem of users. This study will provide Islamic bankers with the idea of increasingtheir recognition by doing campaign regarding awareness towards Islamic banking and to bringdiversification to be more innovative regarding their services in competition to conventional banks.

Keywords: Customer satisfaction, Islamic banking, Pakistan.

1. INTRODUCTION

A banking system was introduced by Jews who were doing large banking practices in open marketplaces. Now this banking system has divided into two banking systems named as: conventional bankingsystem; and non-conventional / Islamic banking system. With the injunction of Islamic banking system,the customer base of conventional banks has going to reduce due to offering of Islamic and uniqueproducts by Islamic banks and conventional banking system is now under great ups and downs.

Before 1970, Islamic banking was almost unknown; in early years of twenty first century Islamic bankinghas become a reality that cannot be ignored. By the end of 2004, the size of Islamic banking industryreached to a billion and total value of Shariah compliant accounts worldwide are almost USD $500 billionand are growing at an average rate of 10-15%. Now Islamic banks are trying to make as many customer

as possible in order to compete with the interest base conventional banks therefore they are producingthe wide range of the products as they are the best substitute against the products which the conventionalbanks provide. In Pakistan, Islamic banks providing many services and product so as to compete with theconventional banks and to attract the future customer and potential customer.

Firstly Islamic banks were introduced in Malaysia during the period of 1970s to 1990s which followed theShariah principles of Islam to carry out their businesses (Henry &Wilson, 2004). The main contradictionbetween Islamic banking and conventional banking is Riba because any kind of giving and taking ofinterest is strictly prohibited in Islam, therefore, Islamic banks were established and Shariah principleswere adopted. The Quran defines that "profit must be earned from exchange of goods and services but


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not from exchange of money itself. Islamic banks fundamentally emerged to fulfill this basic need ofMuslims to enjoy banking services in compliance with Islamic principles" (Khan et al, 2008). TodayIslamic banks are progressing at double rate (15-20% per annum) because their business is based onsharing profit and losses on equal values and risk is not associated with any single party although theyare providing the services like current accounts, issue of credit cards, and providing opportunities forinvestment like Modaraba and Musharakah, etc. but they are free from interest. Different Islamic financial

institutions and banks have now opened up having ratios of 25% in different part of World like NorthAmerica and in Europe in order to attract Muslims community % and they are now gaining reputation inNon-Muslims communities like in Hindus and Chinese in Malaysia.

Pakistan has 86% Muslim population and now progressing in its banking industry with the injunction ofIslamic banking culture. During the period of 1950 to 1970, downfall was there in this sector of economywhile after the nationalization process, the progress was insufficient for economic growth of the countryand privatization resulted a turbulent downsizing in this industry. Now after period of 1992 with theintroduction of first Islamic Bank named Meezan Islamic bank the progress in this sector is going to beseen and still the competition is being seen from the conventional banking sectors but the potential togrow in Islamic banking system is greater in Pakistan (Khan, 1987). There is a large potential for growthfor Islamic banks to meet customer satisfaction and increase the market reputation. They provide state ofArt services and they should have innovation regarding their products and services keep in view ofShariah principles and they have to meet the competition from conventional banks that also startedproviding the Islamic banking services under their separate windows.

1.1 Problem Statement

Islamic banking system in Pakistan is introduced in Pakistan before a decade because it was firstlyintroduced in Malaysia and only conventional banking system was prevailing in Pakistan from theindependence of Pakistan. It is essential for Islamic banks to sound their customers' base throughretaining existing customers and attracting new customers in order to prevail in Pakistan in such acompetitive market. For this purpose, it is required to identify those factors which are directly related tothe satisfaction of customers towards Islamic banking.

1.2 Significance of the Study

This study will provide help to prevail in Pakistan for a long period of time and to compete withconventional banking services through recognizing those factors which are directly linked with thesatisfaction of customers towards Islamic banking services.

1.3 Objectives of the study

The purposes of this study were: to identify those factors which are directly linked with the satisfaction ofcustomers towards Islamic banking services; rank the determined factors on base of Islamic bankingcustomers' responses and examine relationship of determined factors with Islamic banking customers'satisfaction.

This study is organized as: introduction is described in section 1. Literature is reviewed in section 2.Hypotheses of the study are demonstrated in section 3. Research methodology is explained in section 4.

Analysis and results of the study are briefed in section 5. Conclusion and limitations of this study areenlightened in section 6.

2. LITERATURE REVIEW

Twenty first century has bring many opportunities as well as many threats for the sector of bankingbecause of the inception of practices of Islamic banking in many countries of the world like Pakistan,Bahrain, Malaysia and in Bangladesh and around all the Non-Muslim countries of the world. Therefore,many researchers studied Islamic banking and conventional banking from different dimensions.


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Khattak & Rehman (2010) conducted a study and found customers satisfaction as an important factor oforganizations' strategy because customers are the main source of revenues for any industry regarding.Therefore, bankers are now paying more attention to the satisfaction of their customers in order to retainexisting customers and compete with other banks in such a competitive market.

Dusuki and Abdullah (2007) conducted study and found ability of employees to convey trust onto

customers, and courtesy and competence of employees as important factors which customer took intoview while selecting a bank (e.g. experienced and knowledgeable bank personnel, effectiveness andefficiency in transactions handling, and friendliness of staff).

Kuehn and Bley (2004) surveyed students while examining the knowledge and perception towardsIslamic banking of students. They tested hypotheses on: cultural differences; aspect of religion; and basicIslamic product knowledge etc. and found interesting results. Study found that "due to language barriers itprohibits students to learn Islamic financial system. Nevertheless, the study was mainly concentratedtowards having an adequate marketing and education policy on Islamic banking and economics".

Ahmad and Haron (2002); Naser et al. (1999); and Metawa and Almossawi (1998) conducted study andaffirmed important factors that are much important while selecting a bank such as provision of qualityservices; friends and family influences; confidentiality; and banks name and image.

Ahmad and Haron (2002) conducted a study on attitude of corporate customers in Malaysia and foundthat "average 55% of the respondents pointed religion as the premier reason behind selecting of Islamicbanking. However, about 75% think that Malaysian government should promote Islamic banking throughmarketing channels".

Zeithaml (2000) and Anderson et al. (1994) studied customer satisfaction with reference to Islamic andconventional banking. In their studies, they found a significant relation of customer satisfaction withaccounting based measures of financial performance. In the same manner, Ittner et al. (1996) found asignificant relationship between customer satisfaction and shareholders' wealth.

Bolton (1998) conducted study in order to examine the relationship of customer satisfaction with financialas well as non-financial measures of Islamic and non-Islamic banks. In the study, he found a directsignificant relationship of customer satisfaction with financial measures of bank and customer retention.

As same to Bolton (1998), Oliver (1997) also proved a direct relationship between customer satisfactionand customer retention by a growing body of empirical work.

Customers' satisfaction is largely depends upon some factors like operational diversification, efficiency,religion etc. Metawa and Almossawi (1998) examined the behavior of customer which they adopt whilechoosing a bank. He found Shariah principles as most important factor. Similarly, Gerrard andCunningham (1997) concluded that twenty five percent respondents ranked religion as most importantfactor but no difference is found between Muslim and Non-Muslims respondents regarding bank selectioncriteria.

Haron et al. (1994) also examined behavior of customers and found friendliness, speed and efficiency asthree most important factor of bank selection. But forty percent respondents ranked Islam as importantcriteria while selecting Islamic Banks. Likewise, Naser at al. surveyed 206 customers in Jordan. He alsofound similar results and seventy percent respondents ranked religion as most important factor to choose

a bank.

Avkiran (1994) conducted a study and examined the service quality of banking system by developing six-dimension model for service quality with twenty seven items. These twenty seven items were reduced toseventeen empirically and developed four factors named as: access to teller, communication, credibility,and staff conduct. Afterward, Stafford (1996) "identified the distinct elements of bank SQ and ascertainswhich of those elements are most important to different demographic groups of customers".

Stafford (1994) also examined the importance and identified the service quality dimensions perceived bycustomers. In his study, he found factors named as: available services, company structure and access to


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Service ualit

Product ualit

Customer Care

Financial Benefits

Com etitiveness

Bank Re utation

Independent Variables

Islamic Banking Customers'

Satisfaction

Dependent Variable

Islamic

Banking

Factors

IslamicBanking

Custom

er

Male

Female

Service Quality

Homoge

neit

Product Quality

Customer Care

Financial Benefits

Bank Reputation

Competitiveness

workable ATMs, and employees/customers interactions.

Leeds (1992) also examined customers' satisfaction and found that customers' satisfaction enhanced asthe result of service quality and professional behavior and it become a cause to decrease in the erosionof customer.

3. HYPOTHESES MODELINGIn order to accomplish research objectives, this study was organized as:

H1 Homogeneity exists between the factors selected by Male and Female.

Fig. 1

H2 A significant positive relationship exists between customer satisfaction and Islamic bankingdeterminants.

Fig. 2

4. RESEARCH METHODOLOGY


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4.1 Development of Instrument and Scale

After review of literature, an instrument contained 29 questions was developed in order to know thefactors which are associated with satisfaction of customers. Questionnaire was divided into two parts.Questions about the factors were asked in first part and second part was related to demographicinformation. Factor analysis technique was used reduced the questions by using SPSS 16. In results, 21

questions were remained. Moreover, five point Likert scale was used ranging from strongly disagree tostrongly agree and cronbachs alpha of the instrument was 0.842. This study was related to the behaviorof Islamic banking customers; therefore, the reliability (0.842) of this instrument was acceptable otherwiseit should be closer to one.

4.2 Sample & Data Collection Process

Total 120 Islamic banking customers were selected as sample. Approximately 150 copies ofquestionnaire were distributed. In response, 120 copies were received so response rate was 80%.

4.3 Analysis Tools

Factor analysis technique was used to reduce the questions of instrument in order to get the effective

results and six prime factors were computed through the compute variable technique. Descriptivestatistics was used to shape the respondents profile and arithmetic mean of each category as well aseach factor was calculated separately to rank the factors on the base of respondents responses. In thelast, correlation technique was used to examine the relationship between Islamic banking factors andcustomers' satisfaction.

5. ANALYSIS & RESULTS

5.1 Respondents' Profile

All demographic and behavioral information of respondents was tabulated in Table 1. A structuresquestionnaire was developed in which eight questions were asked about the demographics of therespondents. The demographic factors consist of questions related to the personal information of therespondents such as age, gender, salary etc. Non-probability random sampling is adopted to collect theresponses of various respondents having sample size of 120. This size is relatively small but deemed tobe good according to various studies. All questionnaires were collected from respondents which had theiraccounts in Islamic banks and then screened for errors such as missing responses to purities our resultsof research study.

Table 1 Respondents Demographics

Demographics N Percentage (%)

GenderMale 108 90Female 12 10

Total 120 100%

Age18-24 28 23.325-34 68 56.7

Above35 24 20.0Total 120 100%

Marital StatusUnmarried 52 43.3Married 68 56.7

Total 120 100%

Occupation

Student 17 14.2Govt. Employee 3 2.5Pvt. Employee 72 60.0Businessman 13 10.0


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Others 16 13.3Total 120 100%

Education

Higher Secondary 11 9.2Diploma 1 8Under Graduate 29 24.2Post Graduate 75 62.5

Others 4 3.3Total 120 100%

Income Levels

Below 15000 28 23.315001-30000 44 36.730001-45000 19 15.8Above 45000 15 12.5

Total 120 100%

According to the sample 90% respondents were male and 10% consists of female. Age group of (18-24years) is 23.3% of the total samples, 56.7% were between (25-34) years, and 20% respondents wereabove 35 year. Age group of 25-34 years is dominant age group according to the descriptive results interms of the age distribution as shown in demographic profile. Descriptive results shows that 56.7% of the

respondents are married and 43.3% are unmarried. Most of the respondents are the private employeesas they are the 60% of the sample size, students, government employees and business men are 14.2%,2.5% and 10% respectively. 13.3% respondents have activity other than the activities stated above.62.5% respondents have post graduate degree, 9.2% have complete their matriculation, 224.2%respondents are under graduate, only .8% of respondents are diploma holders, 3.3% respondents haveeducational degree other than the degrees stated above. 41.5% of the respondents have salary in rangeof RS.15001-30000, 17.9% have salary in bracket of RS. 30001-45000, 26.4% of the population of thesample has salary below RS.15000 and 14.2% of the sample has salary above RS. 45000.

5.2 Hypotheses Testing

A structured questionnaire was developed contained twenty one questions. Each question was related toone factor and six main factors were identified by using factor analysis technique.

Table 2 Ranking of Computed Factors

Determinant Factors N Mean RankFinancial Benefits 120 2.58 1Product Quality 120 1.66 2Customer Care 120 1.63 3Bank Reputation 120 1.61 4Service Quality 120 1.42 5Competitiveness 120 1.40 6

Table 2 represents the ranking of six major factors on the base of arithmetic mean. According to table 2,Islamic banking customers ranked first to financial benefits given by banks to their customers, product

quality at second, customer care at third, bank reputation at fourth, service quality at fifth andcompetitiveness of islamic banks with other conventional banks at sixth.

Table 3 Ranking of Computed Factors Relative to Gender


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Determined FactorsMale Female

t. Sig.Mean Rank Mean Rank

Financial Benefits 2.58 1 2.50 1 -.270 .024Customer Care 1.65 2 1.50 4 -.801 .504Product Quality 1.64 3 1.83 2 1.118 .170

Bank Reputation 1.61 4 1.58 3 -1.110 .635Competitiveness 1.43 5 1.17 6 -1.462 .002Service Quality 1.42 6 1.50 5 .148 .893

Table 3 shows the ranking of six major factors on the base of arithmetic mean relative to gender.Furthermore, independent T-test was applied in order to know the behavior of male and femaleindependently. According to table 3, male and female both ranked first to financial benefits given tocustomers by the banks. Remaining ranking of factors was different in male and female and these resultswere opposite to H1 of this study.

Table 4 Correlation Analysis

CustomerSatisfactio

n

FinancialBenefits

ProductQuality

CustomerCare

BankReputation

CompetitivenessServQua

CustomerSatisfaction

1

FinancialBenefits

.622** 1

Product Quality .433** .183** 1

Customer Care .476** .456** .096 1

Bank Reputation .356** .172 .142 .147 1

Competitiveness .540** .446** .261** .321** .084 1

Service Quality .471** .388** .234* .384** .096 .287** 1

*.Correlation is significant at the 0 .05 level (2-tailed)**.Correlation is significant at the0.01 level (2-tailed)

Table 4 shows the correlation analysis. Here customers' satisfaction was dependent variable and all otherfactors were independent variable. Results showed a highly significant correlation between customers'satisfaction and all other independent variables and support to H2.

6. Conclusions

Pakistan is a Muslim country but conventional banking was prevailing in Pakistan from independence ofPakistan. However, Islamic banks was started to establish in Pakistan before a decade. In order to prevailin Pakistan for a long period of time and to compete with conventional banking system it is verynecessary for Islamic banks to identify important factors that must satisfy their customers. Resultsindicated six major factors which are linked with customers' satisfaction named as: financial benefits tocustomers, product quality, customer care, bank reputation, bank competitiveness, and service quality of


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bank. Furthermore, H1 is rejected because ranking of male is different from ranking of female but H2accepted because a highly significant correlation exist between customers' satisfaction and all otherfactors.

Responses were only attained from Muslims. Non-Muslims were not included into the analysis andnumber of respondents was small. Results might be changed by increase in number of respondents.

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3. Bolton, R. N. (1998). A dynamic model of the duration of the customer relationship with acontinuous service provider. Journal of marketing science, 17, 45-65.

4. Dusuki, A. W., & Abdullah, N. I. (2007). Why do Malaysian customers patronize Islamic banks?International Journal of Bank Marketing, 25(3), 142-160.

5. Gerrard, P., & Cunningham, J. B. (1997). Islamic banking: a study in Singapore. InternationalJournal of Bank Marketing, 15(6), 204-216.

6. Haron, S., Ahmad, N., & Planisek, S. (1994). Bank patronage factors of Muslim and non- Muslimcustomers. International Journal of Bank Marketing, 12(1), 32-40.

7. Henry, C. M., & Wilson, R. (2004).The politics of Islamic finance. Edinburgh: Edinburgh UniversityPress.

8. Ittner, Christopher, D. & Larcker, D. F. (1996). Measuring the impact of quality initiatives on firmsfinancial performance. JAI Press, pp. 1-37

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10. Khan, M. S. N., Hassan, M. K. & Shahid, A. I. (2008). Banking behavior of Islamic BankCustomers in Bangladesh. Journal of Islamic Economics, Banking and Finance, (Forthcoming).

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12. Khattak, & Rehman. (2010). Customer satisfaction and awareness of Islamic banking system inPakistan. African Journal of Business Management. 4. (5),662-671.

13. Leeds, B. (1992). Mystery shopping offers clues to quality service. Bank Marketing, 24(11), 24-

27.

14. Metawa, S. A. & Almossawi, M. (1998). Banking behaviour of Islamic bank customers:perspectives and implications. International Journal of Bank Marketing, 16,(7), 299-313.

15. Naser, K., Jamal, A. & Al-Khatib, L. (1999). Islamic banking: a study of customer satisfaction andpreferences in Jordan. International Journal of Bank Marketing, 17(3), 135-150.

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17. Stafford, M. (1994). How customers perceive SQ. Journal of Retail Banking, 17(2), 29-38.

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customer satisfaction towars islamic banking

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