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Customer Satisfaction in Islamic Banks of Pakistan



Introduction.. 1
1.1 Overview of Research1
1.2 Research Objectives...2

Literature Review..3
2.1 Theoretical Framework.3
2.2 Conceptual Framework.....6
2.3 Research Questions.8
2.4 Hypotheses Testing.8

Research Methodology..9
3.1 Research Design9
3.2 Development of Instrument...9
3.3 Sampling and Data Collection9

Questionnaire .11

Data Analysis..15



Customer Satisfaction in Islamic Banks of Pakistan

1.1 Overview of the Research
The Islamic Banking industry in Pakistan has shown growth over the past few years and it is
expected that such positive growth record will continue over time. The Islamic Banking System
was first implemented in Pakistan in 1980 by state bank as it introduced some Islamic
regulations in the banking ordinance (Sheikh, Taseen, Haider, & Naeem, 2011). Meezan
Investment Bank was the very first Islamic Bank that started its operations in 2001. According
to a report by McKinsey & Co. (2008), the growth rate of the Islamic banking industry is around
20% per year which is very attractive.
In their study, Raza, Saddique, Farooq, & Awan (2012) said that the concept of Islamic banking
is very old and was initially established centuries back but it has been introduced in the modern
world as a proper banking system in the twentieth century. The Muslim population all over the
globe required an Islamic financial institution in order to satisfy their banking needs while
following the principles of Islam which is why Islamic banking was introduced. Khattak &
Rehman (2008) reported that the major difference between conventional banking system and
Islamic banking is that conventional banking is an interest based system while Riba or interest
is strictly prohibited in Islam which is why Islamic banking focuses on activities and provision of
Islamic products that discourage interest.
As customers are the main source of income for every industry including the banking system, the
success of all banks, including Islamic ones, relies on the level of customer satisfaction (Raza et
al., 2012). If customers are satisfied with the Islamic banking services the operations of Islamic

Customer Satisfaction in Islamic Banks of Pakistan

banks would continue successfully, however if the customers are hesitant to adopt Islamic
banking products, this industry might soon face its downfall (Doraisamy, Shanmugam, &
Raman, 2011). The Islamic banking products introduced by various Islamic banks must be able
to satisfy the needs and wants of the customers. Various studies have been conducted in order to
determine the key influential factors that can affect the satisfaction of Islamic banking customers.
Nasir, Jamal and Khalid (1999) conducted a study in Jordan and determined that due to
increasing competition in the banking industry, it is essential for Islamic banks to focus on the
satisfaction of their customers. It has also been reported that religion is not the primary factor
due to which people opt for Islamic banks; there are various other factors that are involved
(Metawa & Al Mossavi, 1998).
This research would be focused on the customer satisfaction of consumers who are currently
using Islamic Banking services. The purpose of this study is to determine the key factors which
can have an impact on customer satisfaction of Islamic Banking customers.
1.2 Research Objectives
The main objective of this study has been defined as follows:
To identify major the factors influencing customer satisfaction in Islamic Banks of
Through this research paper, we aim to achieve this main objective and conduct a proper
quantitative analysis in order to come up with well established results regarding the purpose of
our study. The remainder of our research would consist of a literature review, methodology, data
analysis and finally we would be providing a conclusion of our research.

Customer Satisfaction in Islamic Banks of Pakistan

2.1 Theoretical Framework
The theoretical framework of this research paper would focus on the main aspects of Islamic
banking and customer satisfaction.
Islamic Banking & Customer Satisfaction
According to Gaith and Worthington (2010), Islamic banking is based on the teachings of The
Holy Quran and Sunna along with relative events from Islamic history using certain guidelines in
the Shariah such as Riba, Gharrar, Halal or Haram etc. Sharia (Islamic Law) is one of the most
rapidly growing segments in the global finance industry. Starting from a few Middle Eastern
Muslim countries from 1975, the number of Islamic financial institutions worldwide now
exceeds over 300, with operations in 75 countries and assets in excess of US$400 billion (Gait &
Worthington, 2008).
Islamic Banking is different from conventional banking because Riba (interest) is prohibited in
Islam i.e. banks are not allowed to offer a fixed rate of return on deposits and are not allowed to
charge interest on loans (Abduh, Kassim, & Dahari, 2012). Trabelsi (2011) said that the unique
feature of Islamic banking is its PLS principles, which is predominately based on Mudarbah
(Profit Sharing) and Musharkah (Joint Venture). Under the PLS paradigm, the assets and
liabilities of Islamic banks are integrated in the sense that borrowers share profits and losses with
the banks, which in turn share profits and losses with the depositors (Khattak and Rehman,
2008). Advocates of Islamic banking, thus, argue that Islamic banks are theoretically better
positioned than conventional banks to absorb external shocks because the banks financing losses
are partially absorbed by the depositors (Trabelsi, 2011).

Customer Satisfaction in Islamic Banks of Pakistan

Customer satisfaction can be regarded as fulfilling the requirements of the customers and is a
major factor that influences the buying behavior of customers. Satisfied customers tend to come
back to purchase more and do positive publicity by telling their family and friends about their
good experience (Naser, Jamal, & Al-Khatib, 1999). Those who are not satisfied tend to give
negative feedback to others. Customer satisfaction is a determining factor due to increasing
Butt and Aftab (2012) studied that there are certain pre-purchase expectations that a customer
has and if they are met then the customer is satisfied. Customer satisfaction is closely related to
(however not dependant on) the quality of service being provided. The customer compares the
actual performance with perceived expectations to determine the quality (Naser, Jamal, & AlKhatib, 1999). There are two major aspects: process aspect and outcome aspect which deal with
the actual process and final results of services. Customers judge the quality in relation to their
Customer Satisfaction in Islamic Banks
A study conducted by Butt and Aftab (2012) showed that the Islamic banking system should
govern by the principles of Sharia (Islamic laws). Sharia can be translated as the "path or way"
which governs every aspect of a Muslim's life. These laws are grounded on the Quranic
philosophy of what is permissible (Halal) and what is not permissible (Haram) for a true believer
of its teachings. These laws have significant influence on the consumption behaviours of a
devoted Muslim. For example, prohibition against charging or paying interest in Islamic Sharia
laws creates difficulties and challenges for devoted Muslims to deal with most of the
conventional banking products and services. Therefore, a bank that proclaims and promises

Customer Satisfaction in Islamic Banks of Pakistan

provision of similar products and services as offered by a conventional bank, but also asserts
compliance with the Sharia principles, adds value for its Muslim customers (Butt & Aftab,
Naser, Jamal & Khatib (1999) argued that the criterion via which a customer selects a bank
affects the satisfaction. Some of the most important factors are: - Location of the bank Reputation and image of bank profit rates - Staff friendliness and efficiency and other factors
include parking facilities, confidentiality, employee skills, word of friends and relatives,
efficiency of services etc. If service is not good enough on these criteria then customer would not
be satisfied (Kettell, 2011). Banks need to do effective marketing in order to increase awareness
and satisfaction.
According to a previous study, consumers preferred banks who offered low service charges and
high interest rates for greater profitability. A fast and efficient service was also an attractive
feature valued by current and potential customers but the most important element, considered by
many, was of feeling secure (Abedniya & Zaeim, 2011). Still in a more competitive environment
customer satisfaction was seen as the main driving force. Even after conducting a selfadministered questionnaire the above mentioned things were proven. The new finding was that a
religious motivation in bank selection did not appear very important (in Jordan) Muslims living
in a notionally Muslim country have a greater awareness and knowledge of Islamic banking than
immigrant Muslims (Gait & Worthington, 2008). Even though these Muslims (in UK) are ill
informed about Islamic banking still prefer Islamic banking over conventional banking. In such
instances religion is the primary factor of choice for Islamic banks.

Customer Satisfaction in Islamic Banks of Pakistan

A Pakistani Perspective
According to Khattak and Rehman (2010), in Pakistan the first step regarding IBS
implementation was taken in 1980, when State Bank of Pakistan made some changes in the rules
and regulations of banking ordinance. In December, 2001 the first certificate had been issued to
Meezan Investment bank as the first stand alone Islamic Bank in Pakistan. And now with the
blessing of Allah in Pakistan till the end of 2007 there were six (6) full-fledged Islamic Banks.
(Meezan Bank, Albarka Islamic Bank, Dubai Islamic Bank, Dawood Islamic Bank, Global
Emirate Islamic Bank, Bank Islamic Pakistan). The study shows that most of the customers are
not aware of the different Islamic banking products such as Ijara financing, Murabaha financing.
It means that Islamic banking industry have to give consideration to providing awareness to their
customers (Khattak & Kashif-Ur-Rehman, 2010).
2.2 Conceptual Framework
The variables that influence customer satisfaction in Islamic banks of Pakistan in our study can
be divided in two main types: Independent and Dependent variables. The dependent variable in
this study would be identified as Customer Satisfaction whereas the five important independent
variables that are known to influence the customer satisfaction can be identified as with the help
of the main concepts: Profitability, Confidentiality, Shariah Compliance, Reputation of the bank
and Service Efficiency. These are also known to be our Constructs.
In a research conducted by Naser, Jamal and Khatib (1999), various variables were identified and
analysed in order to determine their impact and importance on customer satisfaction. Butt and
Aftab (2012) also came to the conclusion that religion is not the only factor which can influence
the choice of the customers.

Customer Satisfaction in Islamic Banks of Pakistan

Fig 1.0 Conceptual Framework

According to Bashir (2013), these contructs can be converted into variables in order to gauge
their importance in by operationalizing them in the following ways:



Provision of Islamic Banking Products

and Services
Following of Islamic laws and
High profits on savings

High return on investments

Speed of transactions

Prompt Resolution of Complaints

Privacy of Information

Security in conducting transactions

Attractive promotional activities

Experienced and efficient management

Shariah Compliance


Service Efficiency

Banks Reputation

Table 1.0

Customer Satisfaction in Islamic Banks of Pakistan

2.3 Research Questions

Based on the above Research Objectives and findings of the literature review, our main research
question would be as follows:
What are the major factors that influence customer satisfaction in Islamic banks of Pakistan?
2.4 Hypotheses Testing
Based on the literature review and formulation of objectives and research questions, the
hypotheses that we would be testing in our research can be defined as follows:
H1: Customer Satisfaction in Islamic Banking is positively associated with service efficiency of
the bank.
H2: Customer satisfaction in Islamic banking is positively associated with Shariah compliance of
the bank.
H3: Customer satisfaction in Islamic banking is positively associated with reputation of the bank.
H4: Customer satisfaction in Islamic banking is positively associated with the profitability of
customer investments.
H5: Customer Satisfaction in Islamic banking is positively associated with the confidentiality of

Customer Satisfaction in Islamic Banks of Pakistan

3.1 Research Design
The study investigates the various factors that influence customer satisfaction in Islamic Banks.
This research paper aims at testing the different hypotheses that we have formed in order to come
to a conclusion. Our research design based on literature review is descriptive in nature working
our way through the details and extracting data for explaining our proposed paper in the best
possible manner. We are taking the quantitative approach to analyze the position of Islamic
banks within Pakistan by the using the survey instrument in the form of a questionnaire.
3.2 Development of Instrument
After the review of our literature and identification of key variables, we created a questionnaire
containing 15 questions for us to find out the factors that are associated with satisfaction of
Islamic banking customers. Our questionnaire is structured and consists of closed ended
questions in order to gain quantitative data for our analysis. There are two parts of the
questionnaire; the first part focuses identification of key factors that influence customer
satisfaction. There are 2 questions allocated for each variable. The second part consists of
demographics in order to determine the respondents profile.
3.3 Sample and Data Collection
We are going to use a sample size of 200 customers that have been obtaining Islamic Banking
services via non-random sampling technique. The survey would be conducted by distributing
questionnaires in different Islamic Banks of Pakistan and the respondents would be selected nonrandomly from the population. The scales that would be used in the questionnaire are: nominal
scale for demographics and Likert scale for customer satisfaction. Each variable would be

Customer Satisfaction in Islamic Banks of Pakistan


assessed by a 5 point Likert scale where 1 stands for strongly agree and 5 stands for strongly
Data collection is done through electronic surveys and manual handout questionnaires that would
be distributed to the customers of different Islamic Banks. The quantity of electronic surveys
would be about 100 and the handout questionnaires about 100 too.
Assessing reliability of sample collected
The probability of response rate of customers that would be reasonable to help in analysis of the
collected data is estimated around 85%. After collecting data from the respondents, the improper
samples would be discarded and the usable questionnaire data would be utilized to formulate our
findings with the help of our literature review.

Customer Satisfaction in Islamic Banks of Pakistan


Purpose: The purpose of this survey is to determine and identify the factors that influence
customer satisfaction in Islamic Banks. The survey aims at finding the most important aspects of
Islamic banking considered by the customers.

1. Please choose the Islamic Bank that you are currently a consumer of (choose all that
Al Baraka Bank
Bank Islami Pakistan Limited
Burj Bank
Dubai Islamic Bank Pakistan Limited
Meezan Bank Limited
Askari Islamic Bank
2. How long have you been obtaining the services of your current Islamic Bank?
Less than 1 year
1-3 years
4-6 years
More than 6 years

3. How would you rate your satisfaction level with your current bank based on the
following factors?

Provision of
Islamic Products
Following Islamic
Privacy of
Security of
Return on
Profit on Savings






Customer Satisfaction in Islamic Banks of Pakistan

Speed of
Experience of







4. Do you feel secure while conducting transactions with your bank?

5. Do you trust your bank in keeping your important information private?

6. In your opinion, is it important for an Islamic bank to follow Islamic principles?

7. Do you think that your bank provides sufficient Islamic banking products to choose

Customer Satisfaction in Islamic Banks of Pakistan

8. Do you believe that the promotional activities conducted by your bank are satisfactory?

9. Do you believe that your bank has an experienced management?

10. Do you believe that your bank helps you in conducting speedy transactions?

11. Do you believe that your bank is quick in handling your complaints?

12. Do you believe that your bank provides you a satisfactory return on your investments?

13. Do you believe that your bank provides you a satisfactory profit on your savings?


Customer Satisfaction in Islamic Banks of Pakistan

14. Age:
18-25 years
26-33 years
34-41 years
42-50 years
Above 50 years

15. Level of education:

Other (Please Specify): ______________
16. Monthly Income Level:
Less than Rs. 20,000
Rs. 20,000-50,000
Rs. 50,000-80,000
Rs. 80,000-110,000
Above Rs. 110,000


Customer Satisfaction in Islamic Banks of Pakistan


A statistical package for social sciences (SPSS) version 17.0 will be used to analyze the data
from the questionnaires. SPSS would be used to record the data and also perform a statistical
analysis on the responses received from the customers.
In order to initially check the reliability of the data we would be applying Cronbachs alpha.
Internal consistency of the whole scale is the most widely accepted measure of reliability. It
is obtained by coefficient alpha known as Cronbachs alpha.
Factor analysis technique will be applied to help in reducing the variables in order to get the
effective results. The prime factors will be computed through the compute variable technique.
The questionnaire consists of questions that would help in establishing the primary factors that
influence customer satisfaction in Islamic Banks.
Descriptive statistics via SPSS will be used to shape the respondents profile and arithmetic mean
of each category as well as each factor will be calculated separately to rank the factors on the
basis of respondents responses. Descriptive analysis will be used to carry out the data analysis
on the respondents profile. The profile is one of the sections in the questionnaire in this study.
In order to test the hypotheses formulated previously, the linear regression analysis will be

Customer Satisfaction in Islamic Banks of Pakistan


In contrast to the world growth of Islamic banks, the Islamic banks in Pakistan are somewhat
underdeveloped and there is still a lot of potential in this market that is yet to be tapped into and
nurtured in a systematic way that involves people being informed and educated about the
importance of Islamic banking. The dual banking system is effectively doing its job in the
current economy of Pakistan but with Pakistan being a sovereign Islamic state, Islamic banks can
really prosper if it is brought forward across the general public in a way most acceptable to us
all. While religious conviction is a logical key determinant of Islamic finance services, it is often
not the only concern that people have, with most customers identifying that a banks reputation,
service efficiency, privacy and returns on their investments plays an integral part in their
satisfaction with Islamic banks in Pakistan.
Our efforts through this research will help in identifying that though there is one driving factor
that influences customer satisfaction in Islamic banks there are always sub-factors that are
always supporting the driving factor that really seals the deal, meaning turning customer
satisfaction into customer delight. In our case the major determinant is believed to be Shariah
compliance which is basically the religious aspect of Islamic banks that they have to be
following the Islamic teachings and not have any conventional bank items involved but this
alone is not enough for customer satisfaction. There are various supporting factors to be explored
in the research.
There are however certain hurdles and limitations that can be faced as researchers. The
limitations of the current research study are: due to scarce resources the research would be
restricted to some cities of Pakistan. In addition, there can be some non-response and respondent

Customer Satisfaction in Islamic Banks of Pakistan

error that would have to be sorted. The last one is the lack of experience and limitation of time
since within the short period of four months we would be unable to perform a better quality for
our research.
In conclusion, it could be said that the focus of the research would completely be on the
important factors that can influence the customer satisfaction in Islamic banks.


Customer Satisfaction in Islamic Banks of Pakistan


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