ABSTRACT

There are many new products and services offered by the Islamic banking in Malaysia .The
products and services of the conventional banking either in assets or liability are competitive
with the products and services of the Islamic banking. Islamic Banks are required to comply
with Syariah principles of Islam based on Holy Quran and the Sunnah of Prophet
Muhammad (pbuh). The focus of this study is to understand the consumers’ satisfaction
towards the service quality of Islamic banking system in Malaysia. This study adopted
service quality model from CARTER as suggested by Othman and Owen (2001) to measure
service quality in Islamic banking in Malaysia. The original model is based on thirty four
attributes under six dimensions such as compliance, tangibility, reliability, responsiveness,
assurance and empathy. Liberalisation, deregulation and technological advancement have
led to an integrated banking industry. This created a highly competitive market place. Since
the products and services provided by Islamic banks are generally undifferentiated to
conventional banks, they have to been seen as banks that offer high quality products and
services. For this reason the management of Islamic bank must be sensitive to its customers’
satisfactions when using their facilities. Applying CARTER model this study measures the
perceptions of Malaysian Islamic bank’s retail customers and found that the level
ofsatisfaction is significant.

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 OVERVIEW OF THE TOPIC

Banking system is the largest component of the financial system. It consists of Bank
Negara Malaysia (BNM), banking institutions, other financial institutions and The Offshore
banks. Along with the rapid development of financial system in the world, the consumers are
demanding for something that could satisfy their various need and wants, especially in terms
of having permissible transactions and trading. Thus, Islamic Banking System is the answer
to their demands. Islamic Banks are referred as banking institutions. Islamic Banks are
required to comply with Syariah principles of Islam based on Holy Quran and the Sunnah of
Prophet Muhammad (pbuh). Basically, there are eight Islamic Banking principles in the
operation of Islamic Banking System in Malaysia, namely as;

a. Al-Wadiah

b. Al-Mudarabahah

c. Al-Musyarakah

d. Al-Bai Bithaman Ajil

e. Al-Ijarah

f. Al-Wakalah

g. Al-Murabahah

h. Al-Kafalah

Muslims throughout the world have not been able to avoid interest based transactions
which cover almost all aspects of their lives.

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 In March 1983, Islamic banking has become reality when Bank Islam Malaysia Berhad
has been established. The act associated with Islamic Banking in Malaysia is Islamic
Banking Act (IBA), which came into effect on 7th April 1983. Instead of introducing many new
Islamic banks, the government introduced a concept of Islamic window which allows the
existing conventional banks to introduce Islamic banking products of customers. The concept
of Islamic window started in March 1993 when the Central Bank of Malaysia introduced the
“interest-free banking scheme”.

BACKGROUND OF THE STORY

The banking industry has become increasingly integrated in recent years.

Liberalisation and deregulation of the financial sector, coupled with rapid technological
advancement and improved communication systems, have contributed to the integration
process. As a result, banks are now faced with very high and intense competition. This study
focused on understanding the level of satisfaction of consumers towards service quality of
Islamic banks in Malaysia. There problem statements of this study. First, Islamic Banking is
rather new to Malaysians, thus it is not really popular and widely used. Customers are not
really confident with Islamic banking system. We prefer to use conventional banking system
because the system has been established in Malaysia. Second is lack of knowledge among
Malaysians about Islamic banking. We are not exposed to the Islamic banking system
because the reading materials about this issue are limited. Third is consumers are not aware
of the system, products and services offered by Islamic Banking. There is lack of promotion
by banks about Islamic products offered by them. Lastly, conventional Banking offers rather
attractive interest rates for depositors, which is actually usury. However, Islamic Banking
does not practice something that does not comply with Syariah Principles. This study aims to
understand the consumers’ perceptions towards the quality of services provided by Islamic
banks in Malaysia and to understand consumers’ satisfaction towards quality of services
provided by Islamic Banks in Malaysia.

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 PROBLEM STATEMENT

1. Islamic Banking is rather new to Malaysians, thus it is not really popular and widely
used.

2. Lack of knowledge among Malaysians about Islamic Banking.

3. Consumers are not aware of the system, products and services offered by Islamic
Banking.

4. Conventional Banking offers rather attractive interest rates for depositors, which is
actually usury. However, Islamic Banking does not practice something that does not
comply with Syariah Principles.

OBJECTIVES

1. To understand the consumers’ perceptions towards the quality of services provided by

Islamic Banks in Malaysia

2. To understand consumers’ satisfaction towards quality of services provided by Islamic

Banks in Malaysia.

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 RESEARCH METHODOLOGY

OVERVIEW

Research methodology is a plan for collecting and utilizing data so that desired information
can be obtained with sufficient precision or so that a hypothesis can be tested
properly.

POULATION AND STUDY SAMPLE

Population refers to the entire group of people, events or things of interest that the
researcher wishes to investigate. A sample is a subset of the population. It comprises
some members selected from it.

SAMPLE SIZE AND SELECTION OF SAMPLE

The sample size of this study is about 100 of peoples in Malaysia which represent teenagers
or adult. The selection of sample is being conducted through the sampling frame.

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SOURCES OF DATA

There are two types of sources of data. First, primary data where individuals provide
information when interviewed, administered questionnaires, or observed. Then,
secondary data refer to the information gathered by someone other than the
researcher conducting the current study.

COLLECTION OF DATA

The method that used in this study is questionnaires. A questionnaire is a reformulated

written set of questions to which respondents record their answers, usually within
rather closely defined alternatives. Examples of questionnaires are personally
administered, mail or electronically distributed.

EXPOSURE ASSESMENT

Exposure assessment research in the Applied Research Program concentrates

primarily on improving self-reports and objective ascertainment of health
behaviours and analytical procedures for processing reported information.

DATA MANAGEMENT

Administrative process by which the required data is acquired, validated, stored,

protected, and processed, and by which its accessibility, reliability,
and timeliness is ensured to satisfy the needs of the data users.

DATA ANALYSIS STRATEGIES

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The first data analysis strategy is relevance. A second strategy is data quality where a
degree which data represent the true situation. Third, timeliness is where the data are
current enough to still be relevant. Lastly is information completeness. It refers of
having right amount of information

ETHICS AND HUMAN SUBJECTS ISSUES

The researcher should not misrepresent the nature of the study to subjects, especially in lab
experiments. The purpose of the research must be explained to them. Moreover,
personel or seemingly intrusive information should not be solicited and if it is
absolutely necessary for the project, it should be tapped with high sensitivity to the
respondent offering specific reasons. Next is whatever the nature of the data
collection method, the self-esteem and self-respect of the subjects should never be
violated.

TIMEFRAMES

The timeframes for this study took about 3 weeks in order the accurate and right amount of
data can be collected in order to achieve all the objectives of the study.

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 SCOPE OF STUDY

Purpose

1. To improving the ways products and services are offered to their customer.

• It is for this reason that concluded that there exists a need for Islamic banks to
adopt service quality program.

2. To measure the level of service quality provided by BIMB.

• The importance of service quality and its role as the key factor in
differentiating service products and gaining competitive advantage have been
documented in a number of studies.

3. To measure customer’s perceptions on quality of services provided by BIMB.

• This relationship known as perceived service quality. Perceived quality of a
given service is the result of an evaluation process since consumer makes
comparison between the services they expect with perceptions of the services
they receive.

4. To distinguish themselves from the competition.

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 • Positive relationship between high levels of service quality and improved
financial performance has been established. Similarly, it documented that
improvement in quality of service is related to expansion of market share.

5. To see how customers attitudes towards services has focused on the relationship
between customer expectations of a service and their perceptions of the quality of
provision.

6. To give customer satisfaction on the services provided, personal contacts with the
staffs and the quality of service.

Limitation

1. They do not build quality culture.

• They may build their quality culture by adapting a quality system in its
managerial and operational sides if it is to maintain this competitive edge.

2. Run on Islamic law and principle.

• Run on Islamic law and principle for instance is riba’ that prevented by Islamic
principle.

3. They do not try a new model to measure service quality called CARTER, which is an
extension of the SERVQUAL model.

4. The compliance dimension was reported to be most important by BIMB’s customers.

• This clearly shows the importance for Islamic banks to place cultural
difference in front when adopting service quality. Also, the strong link between
service quality and customer satisfaction has been discussed and the study
defined it as a system of CARTER items processes inputs and overall
satisfaction outputs.

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 5. There is no interest neither paid nor taken on savings and loans.

6. Provision of Islamic products and services, provision of free interest loans and
provision of profit-sharing products.

EXPECTED RESULT OF THE STUDY.

After we have done the studies we have assumed that Islamic Banking has become
more popular among all of the customers not only for the Muslims but to all of the people
throughout Malaysia. Islamic Banking has the potential to being widely used as Islamic
Banking is suitable services to every customers who claims for the services promotes in the
Islamic banking sector. It is true that this sector faced a difficulty in convincing customers
about their services, but through a systematic promotions done by both government and the
banking sector itself, Islamic Banking has renowned as one of the potential services ever in
Malaysia. As been explained in this report, in Malaysia we faced difficulties in explaining to
other religion that Islamic Banking is suitable for any kind of banking transaction. Therefore it
is hard to improve the sector as there is no support from the customers. Most of the
customers said that they lack of knowledge about Islamic Banking is all about. Therefore
they do not want to use the services as they are not in the position to hold the risks. As the
result, Islamic banking sector has improved the promotions and had convincing the

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customers about Islamic Banking, and right now it has been received by every person in
Malaysia.

According to the research, Islamic Banking sector is not only facing external
problems, but they facing also internal problems that could contribute in promoting Islamic
Banking services. Therefore the Islamic bank should conduct a research and analyze their
services and also their management regularly. This will result a steady management and
smooth services relating to the customers problems. As what we can see, through this study
Islamic bankers are not readily to promote their services as they lack of confident in
themselves. This should be recognised by the sector and come up with systematic solutions
to overcome the problems.

Islamic banking has gained their popularity from time to time due to interest free
products, risk sharing activities and strong ties with the religion. With the improvement
strategy used by bank manager will increase the popularity of Islamic Banking sector in
Malaysia. Nowadays the Islamic banking sector has gain the trust from the Malaysian
Citizens. This will be the good start to be the main services provider in Malaysia.
These results support the reliability of these instruments. Hence, all 35 items listed in the
model were incorporated into the survey. These findings prove that the CARTER model is a
valid instrument to measure service quality in the Islamic banking industry. reports the
average important mean of BIMB’s customer satisfaction on the services provided, personal
contacts with the staffs and the quality of service, which are 4.09, 4.13 and 4.00 respectively.

The results indicate that BIMB is doing well in satisfying its customers. However, BIMB
should build quality culture by adapting a quality system in its managerial and operational
sides if it is to maintain this competitive edge.

As the conclusion both conventional and Islamic banks have their owned strengths
and weaknesses. Improvement in their weaknesses will result a better acceptance from their
customers. Therefore Islamic banking sector has to improve from time to time as they are still
need to compete with conventional bank.

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 CONCLUSION AND RECOMMENDATIONS

The operations of Islamic banks are based on Islamic Law which is different in terms
of spirit, cultural background and practice from conventional banks. However, both
conventional and Islamic banks operate in a globally integrated banking industry which is
characterised by strong competition and rapid changes in technology. Since the products
and services provided by both banks are generally undifferentiated, Islamic banks will have
to compete on the basis of high quality of products and services offered to its customers if
they want to gain a competitive edge against their rivals. This study suggests a new model to
measure service quality called CARTER, which is an extension of the SERVQUAL model.
The findings of this study showed significant validity for all CARTER’s 35 items and six
dimensions in terms of their importance in both weights and percentages. Amongst all six
dimensions included in the model, the compliance dimension was reported to be most
important by BIMB’s customers. This clearly shows the importance for Islamic banks to place
cultural difference in front when adopting service quality. Also, the strong link between
service quality and customer satisfaction has been discussed and the study defined it as a
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system of CARTER items processes inputs and overall satisfaction outputs. Hence, the
results of this study support the works of Othman and Owen. The major insight gained from
the study suggests the adoption of service quality by Islamic banks. Islamic banks’ managers
can use the CARTER model and the information included in this paper to identify those areas
where improvement could be made and resources could be allocated. For instance, by
knowing the level of service quality in their banks, managers can use such information to
make bank wide improvement in quality performance. It can also be used as a benchmark to
compare the performances of other banks that adopt quality programme. Since the CARTER
model is found to be a valid instrument to measure service quality, the model can be further
exploited to investigate other matter such as issues pertaining to Islamic banks’ performance,
environment and culture. It is recommended that further research be carried out to ascertain
how quality relates to the Islamic banking industry and who should be responsible for
implementing service quality in Islamic banks the Board of Director,General Manager, mid
management or all of them.

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10)Professor Sudin Harun,(Dean School Of Finance & Banking,UUM)

11)Norafifah Ahmad(senior lecturer school of finance & banking,UUM)

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