Arabian Journal of Business and Management Review (OMAN Chapter)

Vol. 1, No.6; January 2012

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. 2 Master in Gender Studies, Session: 2009-2011, Department of Gender Studies, University of the Punjab, Lahore Pakistan. 3 M.Com Scholar, Session: 2011-2013, Hailey College of Commerce, University of the Punjab, Lahore Pakistan. 4 M.Com Scholar, Session: 2011-2013, Hailey College of Commerce, University of the Punjab, Lahore Pakistan. 5 Lecturer 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 and find out relationship between customer satisfaction and identified factors. A structured questionnaire was developed to attain the responses of Islamic banking customers. Correlation technique and T-test was applied in order to examine the relationship between studied variables. Study found a positive relationship between customer satisfaction and identified factors such as service quality, product quality, customers care and financial benefits to customers, competitiveness of Islamic banks with conventional banks, and bank reputation. People are more inclined towards conventional banking although Islamic banks are providing Islamic banking services under separate windows but still less awareness about Islamic banking is the main problem of users. This study will provide Islamic bankers with the idea of increasing their recognition by doing campaign regarding awareness towards Islamic banking and to bring diversification 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 market places. Now this banking system has divided into two banking systems named as: conventional banking system; 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 unique products 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 banking has become a reality that cannot be ignored. By the end of 2004, the size of Islamic banking industry reached to a billion and total value of Shariah compliant accounts worldwide are almost USD $500 billion and 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 producing the wide range of the products as they are the best substitute against the products which the conventional banks provide. In Pakistan, Islamic banks providing many services and product so as to compete with the conventional 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 the Shariah principles of Islam to carry out their businesses (Henry &Wilson, 2004). The main contradiction between Islamic banking and conventional banking is Riba because any kind of giving and taking of interest is strictly prohibited in Islam, therefore, Islamic banks were established and Shariah principles were 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 of Muslims to enjoy banking services in compliance with Islamic principles" (Khan et al, 2008). Today Islamic banks are progressing at double rate (15-20% per annum) because their business is based on sharing profit and losses on equal values and risk is not associated with any single party although they are providing the services like current accounts, issue of credit cards, and providing opportunities for investment 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 North America and in Europe in order to attract Muslims community % and they are now gaining reputation in Non-Muslims communities like in Hindus and Chinese in Malaysia. Pakistan has 86% Muslim population and now progressing in its banking industry with the injunction of Islamic banking culture. During the period of 1950 to 1970, downfall was there in this sector of economy while after the nationalization process, the progress was insufficient for economic growth of the country and privatization resulted a turbulent downsizing in this industry. Now after period of 1992 with the introduction of first Islamic Bank named Meezan Islamic bank the progress in this sector is going to be seen and still the competition is being seen from the conventional banking sectors but the potential to grow in Islamic banking system is greater in Pakistan (Khan, 1987). There is a large potential for growth for Islamic banks to meet customer satisfaction and increase the market reputation. They provide state of Art services and they should have innovation regarding their products and services keep in view of Shariah principles and they have to meet the competition from conventional banks that also started providing 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 firstly introduced in Malaysia and only conventional banking system was prevailing in Pakistan from the independence of Pakistan. It is essential for Islamic banks to sound their customers' base through retaining existing customers and attracting new customers in order to prevail in Pakistan in such a competitive market. For this purpose, it is required to identify those factors which are directly related to the 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 with conventional banking services through recognizing those factors which are directly linked with the satisfaction 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 of customers towards Islamic banking services; rank the determined factors on base of Islamic banking customers' 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 are enlightened in section 6.

2. LITERATURE REVIEW
Twenty first century has bring many opportunities as well as many threats for the sector of banking because 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 of organizations' 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 retain existing 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 into view while selecting a bank (e.g. experienced and knowledgeable bank personnel, effectiveness and efficiency in transactions handling, and friendliness of staff). Kuehn and Bley (2004) surveyed students while examining the knowledge and perception towards Islamic banking of students. They tested hypotheses on: cultural differences; aspect of religion; and basic Islamic product knowledge etc. and found interesting results. Study found that "due to language barriers it prohibits students to learn Islamic financial system. Nevertheless, the study was mainly concentrated towards 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 and affirmed important factors that are much important while selecting a bank such as provision of quality services; 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 found that "average 55% of the respondents pointed religion as the premier reason behind selecting of Islamic banking. However, about 75% think that Malaysian government should promote Islamic banking through marketing channels". Zeithaml (2000) and Anderson et al. (1994) studied customer satisfaction with reference to Islamic and conventional banking. In their studies, they found a significant relation of customer satisfaction with accounting based measures of financial performance. In the same manner, Ittner et al. (1996) found a significant relationship between customer satisfaction and shareholders' wealth. Bolton (1998) conducted study in order to examine the relationship of customer satisfaction with financial as well as non-financial measures of Islamic and non-Islamic banks. In the study, he found a direct significant 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 satisfaction and 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 while choosing a bank. He found Shariah principles as most important factor. Similarly, Gerrard and Cunningham (1997) concluded that twenty five percent respondents ranked religion as most important factor but no difference is found between Muslim and Non-Muslims respondents regarding bank selection criteria. Haron et al. (1994) also examined behavior of customers and found friendliness, speed and efficiency as three most important factor of bank selection. But forty percent respondents ranked Islam as important criteria while selecting Islamic Banks. Likewise, Naser at al. surveyed 206 customers in Jordan. He also found 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 sixdimension model for service quality with twenty seven items. These twenty seven items were reduced to seventeen 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 ascertains which 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 by customers. In his study, he found factors named as: available services, company structure and access to

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workable ATMs, and employees/customers interactions. Leeds (1992) also examined customers' satisfaction and found that customers' satisfaction enhanced as the result of service quality and professional behavior and it become a cause to decrease in the erosion of customer.

3. HYPOTHESES MODELING
In order to accomplish research objectives, this study was organized as: H1 Fig. 1
Female

Homogeneity exists between the factors selected by Male and Female.

Service Quality Product Quality

Homogeneit

Islamic Banking Customers

Islamic Banking Factors

Customer Care Financial Benefits Bank Reputation Competitiveness

H2 A significant positive relationship exists between customer satisfaction and Islamic banking determinants. Fig. 2 Independent Variables Dependent Variable Service Quality Product Quality Customer Care Financial Benefits Bank Reputation Competitiveness Islamic Banking Customers' Satisfaction

4. RESEARCH METHODOLOGY 74

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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 the factors 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 demographic information. 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 to strongly agree and cronbachs alpha of the instrument was 0.842. This study was related to the behavior of Islamic banking customers; therefore, the reliability (0.842) of this instrument was acceptable otherwise it should be closer to one.

4.2 Sample & Data Collection Process

Total 120 Islamic banking customers were selected as sample. Approximately 150 copies of questionnaire 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. Descriptive statistics was used to shape the respondents profile and arithmetic mean of each category as well as each factor was calculated separately to rank the factors on the base of respondents responses. In the last, correlation technique was used to examine the relationship between Islamic banking factors and customers' satisfaction.

5. ANALYSIS & RESULTS 5.1 Respondents' Profile

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

Table 1
Demographics Gender Total Age Total Marital Status Total Occupation

Respondents Demographics
Male Female 18-24 25-34 Above35 Unmarried Married Student Govt. Employee Pvt. Employee Businessman N 108 12 120 28 68 24 120 52 68 120 17 3 72 13 Percentage (%) 90 10 100% 23.3 56.7 20.0 100% 43.3 56.7 100% 14.2 2.5 60.0 10.0

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Others Total Higher Secondary Diploma Under Graduate Post Graduate Others Below 15000 15001-30000 30001-45000 Above 45000

Education

Total Income Levels Total

16 120 11 1 29 75 4 120 28 44 19 15 120

13.3 100% 9.2 8 24.2 62.5 3.3 100% 23.3 36.7 15.8 12.5 100%

According to the sample 90% respondents were male and 10% consists of female. Age group of (18-24 years) is 23.3% of the total samples, 56.7% were between (25-34) years, and 20% respondents were above 35 year. Age group of 25-34 years is dominant age group according to the descriptive results in terms 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 employees as 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 have educational degree other than the degrees stated above. 41.5% of the respondents have salary in range of RS.15001-30000, 17.9% have salary in bracket of RS. 30001-45000, 26.4% of the population of the sample 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 to one factor and six main factors were identified by using factor analysis technique.

Table 2

Ranking of Computed Factors

N 120 120 120 120 120 120 Mean 2.58 1.66 1.63 1.61 1.42 1.40 Rank 1 2 3 4 5 6

Determinant Factors Financial Benefits Product Quality Customer Care Bank Reputation Service Quality Competitiveness

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 and competitiveness of islamic banks with other conventional banks at sixth.

Table 3

Ranking of Computed Factors Relative to Gender 76

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Determined Factors Financial Benefits Customer Care Product Quality Bank Reputation Competitiveness Service Quality

Male Mean 2.58 1.65 1.64 1.61 1.43 1.42 Rank 1 2 3 4 5 6

Female Mean Rank 2.50 1 1.50 4 1.83 2 1.58 3 1.17 6 1.50 5

t. -.270 -.801 1.118 -1.110 -1.462 .148

Sig. .024 .504 .170 .635 .002 .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 female independently. According to table 3, male and female both ranked first to financial benefits given to customers by the banks. Remaining ranking of factors was different in male and female and these results were opposite to H1 of this study.

Table 4
Customer Satisfactio n Customer Satisfaction Financial Benefits Product Quality Customer Care Bank Reputation Competitiveness Service Quality 1 .622** .433** .476** .356** .540** .471**

Correlation Analysis
Financial Benefits Product Quality Customer Care Bank Reputation Competitiveness Service Quality

1 .183** .456** .172 .446** .388** 1 .096 .142 .261** .234* 1 .147 .321** .384** 1 .084 .096 1 .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 other factors 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 of Pakistan. However, Islamic banks was started to establish in Pakistan before a decade. In order to prevail in Pakistan for a long period of time and to compete with conventional banking system it is very necessary for Islamic banks to identify important factors that must satisfy their customers. Results indicated six major factors which are linked with customers' satisfaction named as: financial benefits to customers, 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 H2 accepted because a highly significant correlation exist between customers' satisfaction and all other factors. Responses were only attained from Muslims. Non-Muslims were not included into the analysis and number of respondents was small. Results might be changed by increase in number of respondents.

REFERENCES
1. Anderson, Fornell, & Mazvancheryl. (2004). customer satisfaction and share holder value. Journal of marketing, 68(4), 172-185. 2. Avkiran N. (1994). Developing an Instrument to Measure Customer Service Quality in Branch Banking. International Journal of Bank Marketing. 12(6), 10-18. 3. Bolton, R. N. (1998). A dynamic model of the duration of the customer relationship with a continuous 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. International Journal of Bank Marketing, 15(6), 204-216. 6. Haron, S., Ahmad, N., & Planisek, S. (1994). Bank patronage factors of Muslim and non- Muslim customers. International Journal of Bank Marketing, 12(1), 32-40. 7. Henry, C. M., & Wilson, R. (2004).The politics of Islamic finance. Edinburgh: Edinburgh University Press. 8. Ittner, Christopher, D. & Larcker, D. F. (1996). Measuring the impact of quality initiatives on firms financial performance. JAI Press, pp. 1-37 9. Keuhn, K. & Bley, J. (2004). Conventional Versus Islamic Finance: Student Knowledge and Perception in the United Arab Emirates. International Journal of Islamic Financial Services, 5(4). 10. Khan, M. S. N., Hassan, M. K. & Shahid, A. I. (2008). Banking behavior of Islamic Bank Customers in Bangladesh. Journal of Islamic Economics, Banking and Finance, (Forthcoming). 11. Khan, S. R. (1987). Profit and Loss sharing: An Islamic Experiment in Finance and Banking. Oxford University Press, Oxford (UK). 12. Khattak, & Rehman. (2010). Customer satisfaction and awareness of Islamic banking system in Pakistan. African Journal of Business Management. 4. (5), 662-671. 13. Leeds, B. (1992). Mystery shopping offers clues to quality service. Bank Marketing, 24(11), 2427. 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 and preferences in Jordan. International Journal of Bank Marketing, 17(3), 135-150. 16. Oliver, R. (1997). Satisfaction: A behavioral perspective on the consumer. New York: McGraw Hill.

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17. Stafford, M. (1994). How customers perceive SQ. Journal of Retail Banking, 17(2), 29-38. 18. Stafford, M. (1996). Demographic discriminators of SQ in the banking industry. Journal of Services Marketing, 10(4), 6-22.

19. Zeithaml, V.A. (2000). Service Quality, profitability and the Economic Worth of customers: what
we know and what we need to learn. Journal of the academy of marketing science, .28(1), 67-85.

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