Journal of US-China Public Administration, ISSN 1548-6591

June 2012, Vol. 9, No. 6, 654-670

DAVID

PUBLISHING

Non-Muslims Perceptions Toward Islamic Banking

Services in Saudi Arabia
Sutan Emir Hidayat, Nouf K. Al-Bawardi
University College of Bahrain, Saar, Bahrain

Saudi Arabia is home to millions of expatriate workers, and a significant proportion of the expatriates are
non-Muslims. In the increasingly competitive Saudi banking sector, both local and multinational banks are trying to
widen their customer base by marketing their Islamic banking products to these non-Muslim customers. In this
study, a survey was conducted to evaluate the perceptions of non-Muslim expatriates in Saudi Arabia toward
Islamic banking products and services. Data gathered through self-administered questionnaires from non-Muslim
expatriate bank customers (n = 103) in Saudi Arabia was used for the study. Results of the study indicate that all the
respondents are aware of and have or had prior Islamic banking exposures. The study also reveals that cheaper
transaction costs and better service delivery are the main reasons that attract them to use Islamic banking services.
Though majority of the respondents are convinced of the social benefits that can accrue from the interest-free
Islamic banking principles, they are however not the primary reasons for their utilization of Islamic banking
services in Saudi Arabia. Furthermore, the findings indicate that majority of non-Muslim customers in Saudi Arabia
perceive current Islamic banking services as diverse and suitable in satisfying their banking needs. This positive
image has to be seen as an opportunity for Islamic banks to expand their businesses into this market segment.
Therefore, Islamic banks in Saudi Arabia should tailor their non-Muslim customer acquisition strategies
accordingly and intensive product awareness campaigns should be made if the Islamic banks want to capture a
larger share of non-Muslim customer market in Saudi Arabia.
Keywords: non-Muslims perceptions, Islamic banking, Saudi Arabia

During the last two decades, there has been a rapid expansion of banking services in Saudi Arabia. The
kingdoms financial scene has been transformed, due to tremendous proliferation of local banks, a rapid
expansion of branch networks, private-owned banks and an enormous widening in the range of financial
services provided by financial institutions. In Saudi Arabia, the consumption of banking products and services
has exhibited an extra ordinary increase in the recent years. This increase has also been evident in the realm of
Islamic banking. Initially, local banks such as Al-Rajhi Bank, which are wholly owned by Saudis, have taken
the initiative to launch Islamic banking products into Saudi banking market. At present, multinational
(joint-venture) banks operating in Saudi Arabia have also started offering Islamic banking products leading to
stiff competition in the Islamic banking sector in Saudi Arabia (Al-Hussaini, 2009).
Corresponding author: Sutan Emir Hidayat, senior lecturer, Department of Business Administration, University College of
Bahrain; research field: Islamic banking and finance. E-mail: sutan@ucb.edu.bh.
Nouf K. Al-Bawardi, postgraduate student, Department of Business Administration, University College of Bahrain; research
field: Islamic banking and finance. E-mail: nouf@albawardi.com.

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The population of Saudi Arabia was estimated to be about 27.1 million in 2010. This includes an estimated
8.4 million resident expatriate workers (Sambridge, 2010). A large portion (one third) of this significant
expatriate workforce is drawn from South and Southeast Asia. The largest expatriate communities in Saudi
Arabia include one million to 1.5 million people each from India, Philippines, Bangladesh and Pakistan, and
another 900,000 each from Egypt, Sudan, Yemen and Lebanon. There are also some people from North
America, South America, and Europe. A large segment of the Saudi expatriate population consists of
non-Muslims. In 2009, the Saudi non-Muslim expatriate population included about 1.5 million Christians and
1.3 million Hindus (Al-Hussaini, 2009). Both Saudi and foreign banks have been trying to market their Islamic
banking products to this significant (30%) non-Muslim expatriate population and in the process capture a larger
share of the Islamic banking market in Saudi Arabia.
Keeping in view the rising expectations of customers in the face of stiff competition, it is necessary for
Saudi Islamic banks to understand the non-Muslim customers perceptions of the banking services offered and
refine their approach in dealing with the customers. Customer is the nucleus around whom the banks must
operate and develop. When competition intensifies and when banks start to offer more or less similar products
and services, it is the customers satisfaction and his/her perceptions about the nature of the bank products that
can influence the banks performance and determines its competitiveness and success (Ali & Syed, 2010).
Hence it is of paramount importance to assess the perceptions of the non-Muslim customers toward Islamic
banking products and services offered by banks in Saudi Arabia. Therefore, this study will evaluate the
non-Muslims perceptions about Islamic banking through a market survey. Based on the analysis of the survey
results, the study will recommend the appropriate strategies that should be adopted by Saudi Islamic banks.
The primary objective of the research is to identify the perceptions of non-Muslim customers toward the
Islamic banking services offered by Islamic banks operating in Saudi Arabia. The secondary objective of the
study is to identify the perceptions of the non-Muslim customers toward the principles of Islamic banking and
also identify the factors, which motivate them to use the Islamic banking services. The outcomes of this study
are expected to benefit Islamic banks in Saudi Arabia as they enhance the Saudi Islamic banks awareness of
the non-Muslim customers perceptions about their services. Finally, banks can compete successfully only if
they are aware of the banking requirements and perceptions of their customers.
The paper is organized into six main sections. In section one, the background for the research study,
objectives of the study and significance of the study are presented. Section two presents the literature review on
customers perception toward Islamic banking. Section three highlights the Saudi Arabian commercial and
Islamic banking industry in general. The research design and methodology are described in section four. In
section five, the data analysis and results of the study are described. Finally, the conclusions and
recommendations are presented in section six of the paper.

Literature Review
There are few numbers of studies about customers perceptions toward Islamic banking services. The
studies of Erol and El-Bdour (1989) and Erol et al. (1990) are considered as the earliest which investigated the
factors that influence customers to choose Islamic banking. Using both conventional and Islamic bank
customers as the respondents, the study found that the provision of a fast and efficient service, banks
reputation and confidentiality were the most important bank selection criteria for customers who patronize
Islamic banks. In their studies, religion was found to play a less important role in customers decisions to

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

transact with the Islamic bank.

Haron et al. (1994) found that Muslim bank customers in Malaysia selected banks based mainly on
non-religious criteria such as: (1) provision of fast and efficient services; (2) speed of the banking transaction;
and (3) the reputation and image of the bank. However, the study found that religion was the primary
motivating factor for nearly 40% of the respondents for using Islamic banking products and services. The study
also revealed that though there was a high degree of awareness of Islamic banking in Malaysia at the time they
conducted the study, a majority of the respondents were unable to clearly distinguish or understand the
principle differences that existed between traditional interest-based banking and usury-free Islamic banking
products and services.
Naser et al. (1999) conducted a study in Jordan and found a high level of ignorance among the Muslim
respondents with regard to what constitutes acceptable Islamic finance principles. In addition to the bank
selection criteria noted in the study of Haron et al. (1994), a banks reputation and perceived level of
confidentiality was also found to be an important factor in Jordanian customers decision to choose a particular
bank.
Ahmad and Haron (2002) studied the perception of Malaysian corporate customers toward Islamic
banking products. The study was only in the area of corporate customers where it examined the perception of
the persons responsible for the financial affairs of the public companies which were listed in Kuala Lumpur
Stock exchange. Almost 80% of the respondents are non-Muslims, therefore the study reports mostly the
opinion of corporate non-Muslim clients toward Islamic banking. The findings of the study prove that Islamic
banking products are not very popular among Malaysian corporate customers and only a few maintains a
banking relationship under the Islamic banking system. Moreover, almost 65% of respondents indicate that
their knowledge of the Islamic banking system is very limited. The study indicates that there is a misconception
among the respondents about the objective of the establishment of Islamic banking. While 38.1% of the
respondents are unsure of the nature of profit sharing system in Islamic banking, 50% believe that this principle
is the only principle adopted by Islamic banks as a replacement of Riba. Respondents are not familiar with
other principles such as Musharakah, Ijarah, Wakala, and Istisnaa. Overall, the conclusion of the study is that
there is a general inadequate knowledge of Islamic corporate banking products and services amongst the study
respondents.
Bley and Kuehn (2005) studied the perception of the graduates and under-graduate students of the
American University in Sharjah (United Arab Emirates) toward Islamic financial services and banking. The
study concludes that the students awareness and knowledge of conventional banking terms is more advanced
than the Islamic banking terms. It also ascertains that being a non-Muslim has a significant negative impact on
the level of knowledge and perception toward Islamic banking. The study also reveals that the interest in
Islamic finance generally is less in the non-Muslim community. The study suggests that the Muslim students in
general, and those who take their religion seriously, perceive Islamic finance more favorably than conventional
finance.
Amin and Isa (2008) examined the relationship between service quality perception and customers
satisfaction in Malaysian Islamic banking and suggested that the standard model of Islamic banking service
quality dimensions should consist of the six dimensions and good determinants of satisfaction. In the study it is
shown that there is a significant relationship between service quality and customer satisfaction. It is also shown
that when compared to non-Muslims, the Malaysian Muslim customers have greater awareness of Islamic

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

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banking and are satisfied with the overall service quality provided by their banks.
Haque et al. (2009) investigated the major factors that influenced customers perception and satisfaction
toward Islamic banking products in Malaysia. However, the study does not take into account the religious
affiliation of the respondents. Although the collection of respondents showed that 89.4% of respondents know
about Islamic banking, only 34.6% reported that they have Islamic banking accounts. Moreover, the study
examines the essential factors that affect individual perception toward Islamic banking products and concludes
that the availability of high quality of service and social as well as religious perspective at a higher level could
make Islamic banking easier and more comfortable.
Sumar (2009) investigated the level of awareness and knowledge of customers toward the Islamic
financial system and banking in the United Kingdom. The study samples 15 Muslims and 15 non-Muslims in
order to form a general opinion. Though 100% of Muslims and 86% of non-Muslims are aware of the Islamic
banking system, the analysis reveals that only participants with special circumstances such as an occupation
providing exposure, an explicit interest or actually owning an Islamic financial product are likely to have high
level of awareness and understanding of the Islamic banking products. For the non-Muslim sample, only one
respondent supports the implementation of Islamic financial system if it could accommodate everyone and not
just Muslims. Other non-Muslims respond negatively as they feel Islam is being negatively portrayed in the
media. The study indicates that the majority of non-Muslims perceptions and knowledge toward Islamic
banking are extremely minimal.
Khan et al. (2007) studied the banking behavior of customers who availed Islamic banking services in
Bangladesh. The study results reveal that Islamic banking customers in Bangladesh are generally young (25-35
years old), highly educated and maintain long-term relationships with their banking service providers. The key
criterions for choosing Islamic banking are religious beliefs and customer willingness to adhere to Sharia
banking principles. The study findings indicate that income category and education play a significant role in
customers utilization of various Islamic bank products. The study finds that while the Bangladeshi customers
are aware of the Islamic deposit mobilization instruments, their knowledge and understanding of individual
financing facilities in Islamic banking are still limited.
Khattak and Kashif-Ur-Rehman (2010) analyzed the customers satisfaction and awareness level toward
the Islamic banking industry in Pakistan and also studied the relationship between different demographic
variables and the satisfaction and awareness of customers. In the study, the respondents express their
satisfaction to some of the Islamic banking services and express dissatisfaction with few. Some of the
respondents also indicate that though they are aware of the availability of different Islamic banking products,
they still utilize conventional banks for catering to their banking needs.
Haque (2010) studied the impact of attitudinal differences on Islamic banking in Malaysia and stated that
banking service providers could benefit by identifying these differences and tailoring the Islamic banking
strategies. In the study it is proved that gender is a measurable variable which plays a significant role in the
Islamic banking decision processes. The study findings further indicate that males seem to exhibit greater
positive attitude toward Islamic banking, relative to females.
From the literatures reviewed above, it can be concluded that: (1) the level of knowledge of the salient
features of the various Islamic banking products or services seems weak amongst bank customers; and (2) the
customers perceptions and attitudes toward Islamic banking are at least partly influenced by religious
considerations and other individual preferences. Furthermore, no study so far investigates the perceptions of

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

non-Muslim expatriates toward Islamic banking services in Saudi Arabia. The next section describes the Saudi
Arabian conventional and Islamic banking highlights.

The Saudi Arabian Commercial Banking

Saudi Arabia has a well-developed banking system consisting of 11 commercial banks. These include a
number of local banks which are wholly-owned by Saudi nationals/entities and joint-venture banks which have
foreign stakeholders. Three of the commercial banks are wholly Saudi-owned, including the largestNational
Commercial Bank (NCB) and second largestRiyad Bank. Unlike Kuwait, which effectively expelled foreign
banks in the 1970s, Saudi Arabia allowed foreigners to maintain a stake in the Kingdoms financial system.
City Bank (SAMBA), HSBC (Saudi British Bank), Banque Indosuez (Al-Bank Al-Saudi Al-Fransi), ABN
AMRO (Saudi Hollandi Bank), and Arab Bank (Arab National Bank) continue to have investment in Saudi
banks. This has facilitated the introduction of modern technology and the development of competitive banking
services and products. The 1990s produced a more flexible attitude to foreign management of Saudi banks.
Seven of the foreign banks have non-Saudi chief executives or general managers (Al-Dukheil, 2001).
During the past few years, an expansion also has been seen in the range of Islamic banking products,
which are offered to customers in Saudi Arabia. Out of the 11 banks operating in Saudi Arabia, three banks
namely Al-Rajhi, Al-Jazira and Al-Bilad are operating their businesses in accordance to Shariah. The
popularity of the Islamic banking system is not limited to the local Saudi banks only. Instead, increasingly the
conventional foreign banks also show their interests in Islamic banking system. Al-Rajhi, the main player, has
been active in promoting its Islamic Positioning in the market.
Table 1
Sharia-Compliant Credit Facilities of Saudi Banks, December 31, 2006
Name of the bank

Total loan and advances,

net of provisions
(Saudi Riyal Million)

Total Sharia-compliant
facilities, net of provisions
(Saudi Riyal Million)

Sharia-compliant
facilities % total
(loans and advances)

Al-Rajhi
National Commercial Bank
Samba Financial Group
Riyad Bank
Banque Saudi Fransi
Arab National Bank
Saudi British Bank
Saudi Hollandi Bank
Saudi Investment Bank
Bank Al-Bilad
Bank Al-Jazira
Total

89,132.3
77,244.6
67,027.7
52,183.1
51,019.0
49,747.2
42,450.2
26,479.8
20,691.3
9,658.9
6,271.1
491,905.2

89,132.3
34,364.0
22,140.1
19,934.0
10,547.0
n/a
21,547.0
6,100
3,870.0
9,658.9
6,271.0
223,481.3

100.0
44.5
33.0
38.2
20.2
n/a
50.8
23.0
18.7
100.0
100.0
45.4

Note. Source: Cunningham (2007).

NCB has also extended their Islamic offerings in the last two years, by opening more Islamic branches.
Saudi British Bank has also been active in promoting Islamic banking products and has opened/converted four
branches to Islamic and planning to convert more Islamic branches. At the end of 2006, 45.4% of Saudi banks
credit facilities were extended through Sharia-compliant facilities. Through the system as a whole, Murabaha is
by far the most commonly used credit instrument by banks in Saudi Arabia (Cunningham, 2007). The break-up

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

659

of the Sharia-compliant credit facilities of Saudi banks is presented in Table 1.

Leaving aside the three wholly Sharia-compliant banks, it can be seen that 34.7% of loans and advances
extended by the eight conventional banks were Sharia-compliant in 2006. Saudi British Bank leads the pack
with just over half of its credit facilities being Sharia-compliant, closely followed by NCB with 44.5%. Riyad
Bank and Samba Financial Group had 38.2% and 33% respectively. The consequence of this is that Islamic
(local) banks operating in Saudi Arabia are faced with strong competition not only from Islamic banks but also
from non-Islamic rivals (multinational joint-venture banks). However, foreign banks operating in Saudi Arabia
are not generally perceived as leading banks in terms of Islamic banking products (5% of the market share).
Currently, Al-Rajhi and NCB continue to dominate a large part of the Islamic banking market (Cunningham,
2007).

Research Design and Methodology

This study is conducted with the objectives of identifying the perceptions of non-Muslim expatriates
toward the Islamic banking services and its principles and identifying the factors, which motivate them to use
the Islamic banking services. An explorative research design is adopted for the study. Based on the literature
review, various banking service factors which delight the customers in the service industry are identified and
used to develop the questionnaire.
The primary data for the research is gathered by means of a self-administered questionnaire. The
questionnaire consists of two parts. Part 1 seeks information on the following demographic factors: age, level of
monthly income, level of education, profession, religion and nationality of the respondents. Part 2 is formulated
to gather the respondents perceptions about Islamic banking features, such as the universal goodness of Islamic
banking principle of prohibiting interest, the source of information about the Islamic banking services, the
nature of Islamic banking services and his/her perceptions about the quality and benefits of Islamic banking
services. The responses for perception analysis are sought on a five-point quality type: Likert-scale ranging
from 1 to 5 (with 1 meaning very poor and 5 meaning very good). A pilot study was first carried
out in which the questionnaire was pre-tested on a small study sample (n = 25) consisting of non-Muslim
expatriates who availed Islamic banking services in the city of Al-Khobar. Based on the preliminary feedbacks
received, the study questionnaire was finalized, adjusted and implemented with some minor changes in the
sequence and wording of the questions. Secondary data for the research is collected through published articles,
journals and bank records.
The population of the study comprises of non-Muslim expatriate bank customers in Saudi Arabia. The
criteria that is set for the selection of the respondents is that they should be adults (18 years old and above) who
use and understand the services offered by banks and who may be mature enough to think critically about
Islamic banking and its principles. A comprehensive list of non-Muslim bank customers is not available for the
study. Such a comprehensive list of customers would have required the Saudi banks to reveal their customers
list along with the customers contact details. However, such a list could not be obtained from the banks due to
confidentiality reason. Hence, the study adopts a non-probability sampling method, instead of a probability
sampling.
A total of 160 questionnaires are distributed to the non-Muslim bank customers in Saudi Arabia. The
survey data collection process was not smooth as expected since many reminders had to be sent to those
respondents who were late in completing the questionnaire. Completed questionnaires were later screened for

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

errors, incomplete or missing responses. Questionnaires that had more than 50% of the questions left
unanswered or incorrectly answered were abandoned as invalid and excluded from the process of data analysis.
After the final screening process, 103 responses were effectively considered complete and valid for data
analysis. This represents a response rate of 64%, which can be considered to be good in view of the time and
cost constraints.
The 103 completed questionnaires form the database for the study. The questionnaires selected for the
study are coded, edited and tabulated for statistical analysis. Descriptive and frequency analyses are conducted
to create and represent the respondents demographic profiles and perception analysis is conducted to evaluate
the non-Muslim customers perceptions about the Islamic banking services. Pearson correlation analysis is used
to test the correlation among the variables used in the perception analysis. SPSS version 10.1 software is used
for the data tabulation and analysis. The next section describes the findings and analyses of the study.

Findings and Analyses

This section is divided into demographic profiles, perception and correlation analysis.
Demographic Profiles
Demographic profiles consist of descriptive and frequency analyses.
Descriptive analysis. The age analysis of the respondents was done to identify the age group of
non-Muslim customers using the Islamic banking services in the Kingdom. The age profile of the respondents
indicate that a majority of the non-Muslim customers are in the age group of 31-40 yrs (67%), followed by
20.4% of the customers falling in the age group of 41-50 yrs and 14.6% of the customers are in the age group of
21-30 yrs. Table 2 describes the age of respondents in this study. The finding indicates that a majority of the
customers are in the middle age group and active working class.
Table 2
Age of Respondents
21-30 yrs
31-40 yrs
41-50 yrs
Total

Frequency
15
67
21
103

Percentage
14.6
65.0
20.4
100.0

The educational profile of the respondents was analyzed to identify the level of ability to understand the
principles of Islamic banking or the ability of the consumer to search for the information related to Islamic
banking. The finding indicates that about 56% of the respondents in the study have a Bachelor degree, while
26% of them have a Masters degree and about 15% of them have a Diploma. About 3% of the respondents
have only a high school certificate. The finding also indicates that a majority of the respondents have the ability
to understand the principles of Islamic banking and to differentiate between Islamic and non-Islamic banking
operations. Table 3 describes educational profile of the respondents.
The profession of the respondents was analyzed as part of the demographic analysis to profile the types of
non-Muslim customers using the Islamic banking services at Saudi Arabia. The finding indicates that about
74% of the respondents are working for private sector firms in the Kingdom, while 19% of them work for
government or ministry departments. About 6% of the respondents are working in family-owned firms while

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

661

one of the respondents is found to be temporarily without a job. The finding indicates that a majority of the
respondents are working in private sector firms. Table 4 describes the job profile of the respondents.
Table 3
Educational Profile
High school
Diploma
Bachelor degree
Master
Total

Frequency
3
15
58
27
103

Percentage
2.9
14.6
56.3
26.2
100.0

Frequency
1
20
76
6
103

Percentage
1.0
19.4
73.8
5.8
100.0

Table 4
Job Profile
Unemployed
Government employee
Private sector employee
Family-owned business
Total

The annual income of the respondents was analyzed to identify the possible savings capabilities and the
nature of banking services they usually prefer. The finding indicates that a majority of the customers have an
annual income between SAR 101,000 to 125,000 (37%), followed by 32% of the customers having an annual
income of SAR 126,000 to 150,000. About 24% of the respondents have an annual income between SAR
76,000 to 100,000, while 4% have an annual income between SAR 50,000 to 76,000 and 2% have an annual
income greater than SAR 150,000. The finding indicates that a majority of the customers are capable of having
a good bank savings as well as the ability to invest in time deposits. Table 5 describes the income profile of the
respondents
Table 5
Income Profile
Annual income (SAR)
< 50,000
51,000-75,000
76,000-100,000
101,000-125,000
126,000-150,000
> 150,000
Total

Frequency
1
4
25
38
33
2
103

Percentage
1.0
3.9
24.3
36.9
32.0
1.9
100.0

Though the Kingdom is a Muslim nation, it has multi-religious workforces. The religion of the
respondents was analyzed to identify the distribution of the non-Muslim customers who are utilizing the
Islamic banking services in the Kingdom. The finding indicates that about 55% of these non-Muslim
respondents are Christian, followed by 25% Hindus. About 8% of the respondents are Buddhists. Further about
8% of the respondents are atheists. About 4% of the non-Muslim customers are Jains. The analysis of the

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

respondents religious affiliations provides banks with profiles of other religions that are practiced in Saudi
Arabia hence helps them to understand the cultural background of the non-Muslim customers. Knowledge of
the religious beliefs and customs of potential non-Muslim bank customers will facilitate improved planning,
designing and positioning of Islamic banking services in Saudi Arabia. Table 6 describes the religion profile of
the respondents.
Table 6
Religion Profile
Religions
Hindu
Christian
Buddhist
Atheist
Jain
Total

Frequency
26
57
8
8
4
103

Percentage
25.2
55.3
7.8
7.8
3.9
100.0

An analysis of the nationality was performed to identify the citizenship of the non-Muslim expatriate
workers who were using the Islamic banking services in the Kingdom of Saudi Arabia. The finding indicates
that a large majority (47.6%) of non-Muslim customers who avail Islamic banking services are expatriate
workers from India. About 10% of the non-Muslim Islamic banking users are from U.S., Europe, Philippines
and Far-East Asian countries respectively. About 8% of the mainly Christian respondents are Egyptian
nationals while 4% are from Pakistan. Bangladesh contributed the least number (2%) of non-Muslims to the
expatriate workforce in Saudi Arabia. The finding indicates that Indian non-Muslims are the largest users of
Islamic banking services in Saudi Arabia. This can also be attributed to the fact that Indians form the largest
percentage of the foreign nationals currently working and residing in Saudi Arabia (Al-Hussaini, 2009). Table 7
describes the nationality profile of the respondents.
Table 7
Nationality Profile
Nationality
Indian
American
Philippines
Egyptian
European
Far-East Asian
Pakistan
Bangladesh
Total

Frequency
49
10
10
8
10
10
4
2
103

Percentage
47.6
9.7
9.7
7.8
9.7
9.7
3.9
1.9
100.0

The study also identified the most common sources of information used by non-Muslim respondents to
obtain information about Islamic banking and the nature of its services. A large majority of the non-Muslims
(35%) respondents reported that they obtained the information about the Islamic banking principles, nature of
services and the bank branches from the customer service department of the banks. About 16% of the
respondents reported that they came to know about Islamic banking from their friends and relatives. About 16%

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

663

of the respondents were aware about Islamic banking services from TV commercials and Internet. About 13%
of respondents gained information about Islamic banking services through trail personal usage. About 12% of
the respondents reported that Islamic banking services were available in their home country. Therefore, they are
already aware about Islamic banking prior to their exposure to Islamic banking services in Saudi Arabia. Ten
percent of the respondents reported that they learned about the principles of Islamic banking services from
articles in journals and newspapers. Table 8 describes the sources of information about Islamic banking
services for the respondents.
Table 8
Islamic Banking Information Sources
Sources of information
Banks
Articles
Friends and relatives
Personal usage
Internet and TV
Available in home country
Total

Frequency
36
10
16
13
16
12
103

Percentage
35.0
9.7
15.5
12.6
15.5
11.7
100.0

The respondents were asked to identify the nature of Islamic banking services used by them frequently.
About 43% of the respondents reported that they utilized the Islamic corporate banking services mainly due to
the requirements of their workplace or employers. About 25% of the respondents reported that they had used
Islamic banking mainly for investment services. These respondents had used the Islamic mode of investments
for higher gain. And 18% of the respondents had used the Islamic banking services to operate their regular
savings and current accounts. About 9% of the respondents had utilized the Islamic venture capital services and
4% had availed interest-free personal financing from the banks in the Kingdom. Table 9 describes major
Islamic banking services used by the respondents.
Table 9
Major Islamic Banking Services Used
Savings and current account
Investments
Corporate services
New venture capital
Personal financing
Total

Frequency
19
26
44
9
5
103

Percentage
18.4
25.2
42.7
8.7
4.9
100.0

Frequency analysis. The respondents were asked to indicate the percentage of the usage of Islamic
banking services to total banking services they regularly use. The finding indicates that a large majority of the
respondents (72%) use Islamic banking services to an extent of 21%-30% from the total banking transactions.
And 26% of the respondents reported that Islamic banking transactions constituted less than 20% of their total
banking transactions. Only 2% of the respondents reported that about 31%-40% of their banking transactions
were Sharia-compliant while traditional banking transactions constituted the remainder.
This indicates that a majority of the respondents are using the Islamic banking services at a lesser level

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

compared to conventional forms of banking. This also indicates that conventional banking is still dominant or
predominantly used by the non-Muslims in Saudi Arabia. Table 10 describes the extent of Islamic banking
services used by respondents.
Table 10
Extent of Islamic Banking Services Used by Respondents
< 20%
21-30%
31-40%
41-50%
51-60%
Total

Frequency
27
74
2
0
0
103

Percentage
26.2
71.8
1.9
0
0
100.0

The number of years of experience of using Islamic banking services among the respondents is important
as it will provide them the ability to rate and compare the Islamic banking services with conventional banking
services. The analysis indicates that a majority (46.6%) of the non-Muslim respondents have about 1-5 years
experience in using Islamic banking services. And 32% of the respondents have used the Islamic banking
services for about 6-10 years while 21.4% have less than 1 year experience of using the services. No one of
them have more than 10 years experience of using the Islamic banking services. The finding indicates that a
majority of the respondents have substantial experience of using Islamic banking services and therefore possess
the ability to rate and make a critical judgment about the quality of Islamic banking services offered in the
Kingdom. Table 11 describes the number of years of the respondents using Islamic banking services.
Table 11
Years of Using Islamic Banking Services
< 1 yrs
1-5 yrs
6-10 yrs
11-15 yrs
> 15 yrs
Total

Frequency
22
48
33
0
0
103

Percentage
21.4
46.6
32.0
0
0
100.0

Perception Analysis
Before the perception analysis is conducted, the respondents are asked if they have any awareness about
the Islamic banking, its nature of operations and the basic principles of Islamic banking. The finding indicates
that 100% of the respondents are aware of the nature of Islamic banking services and its guiding principles of
interest-free banking transactions and equitable sharing of risks and rewards.
The respondents are asked how convinced they are that the prohibition of interest (Riba) is good for
society and that this driving force behind the Islamic banking services makes it different from conventional
banking. About 46% of the respondents report that they are highly convinced with the prohibition of Riba as
good for society, about 38% of the respondents report that they are moderately convinced, about 14% of the
non-Muslim respondents are not convinced with the Islamic banking principle and 3% of them are strongly
unconvinced about the social benefits of the prohibition of interest. Table 12 describes the respondents

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

665

perceptions toward prohibition of interest.

Table 12
The Perception of Respondents About the Prohibition of Riba
Very poorly
Poorly
Neutral
Moderately
Highly
Total

Frequency
3
14
0
39
47
103

Percentage
2.9
13.6
0
37.9
45.6
100.0

The respondents were asked to indicate the primary reason for using the Islamic banking services. The
objective is to find the factors which motivate the respondents to use the Islamic banking services offered in the
Kingdom. The finding indicates that although a majority of the respondents are convinced about the social good
of interest-free banking, this is not the primary reason for them to select the Islamic banking services. The
finding indicates that a majority of the respondents prefer to use the Islamic banking services mainly because
they found it cheaper as compared to the conventional interest-based banking services. About 48% of the
respondents report that they prefer to use Islamic banking services as the service charges are less compared to
conventional banking services. The relatively low service charges are the main reasons that a large majority of
non-Muslim customers use Islamic banking services.
About 38% of the respondents report that the good service quality is the reason behind their usage of
Islamic banking services. They found the Islamic banking staff more professional and found the speed and
quality of services delivered at Islamic banks better than conventional banks. Only 12% of the respondents are
compelled by ideological reasons and prefer to use Islamic banking services mainly because of its policy of
avoidance of Riba or interest. About 2% of the respondents report that the presence of a number of Islamic
bank branches in their residential and factory locations make it more convenient for them to use Islamic
banking services. Table 13 describes reasons for using Islamic banking services. This finding is in line with the
finding of Haron et al. (1994).
Table 13
Reasons for Using Islamic Banking Services
Philosophy
better service
Cheaper cost
More branches
Total

Frequency
12
39
49
3
103

Percentage
11.7
37.9
47.6
2.9
100.0

The respondents were asked to rate the quality of Islamic banking services offered to them at the Islamic
bank branches in the Kingdom. The objective was to identify the non-Muslim customers perceptions about the
quality of banking services offered by Islamic banks in Saudi Arabia.
Nearly 63% of the respondents rated the overall quality of services delivered at the Islamic banks as good.
About 37% of the respondents rated the overall quality of services delivered at Islamic banks as very good.
There is no respondent who is not satisfied with the quality of services of Islamic banks in the Kingdom. Table

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

14 describes quality rating of Islamic banking services.

Table 14
Quality Rating of Islamic Banking Services
Very poor
Poor
Cannot decide
Good
Very good
Total

Frequency
0
0
0
65
38
103

Percentage
0
0
0
63.1
36.9
100.0

The respondents were asked to rate their satisfaction with regard to the perceived benefits they avail from
Islamic banking services. The objective was to identify the satisfaction levels of non-Muslim customers with
the Islamic banking services. And 65% of the respondents rated the benefits of Islamic banking services as
good, 33% rated the benefits accrued from Islamic banking as very good and about 2% rated it as poor.
The finding indicates that a majority of the customers perceive the Islamic banking services as being
beneficial. This indicates a higher level of customer satisfaction and a positive image of Islamic banking services
among non-Muslim customers in Saudi Arabia. Table 15 describes perceived benefits of Islamic banking services.
Table 15
Perceived Benefits of Islamic Banking Services
Very poor
Poor
Cannot decide
Good
Very good
Total

Frequency
0
2
0
67
34
103

Percentage
0
1.9
0
65.0
33.0
100.0

The respondents were asked to identify if the Islamic banking services offered by the banks in Saudi
Arabia were applicable to all forms of banking needs of individual customers and corporate customers. The
objective was to identify the non-Muslim consumers perceptions about the range of Islamic banking services
in catering to their banking needs. The finding indicates that about 39% of the respondents feel moderately that
the range of available Islamic banking services satisfy their banking needs. About 33% of the respondents feel
very satisfied with the range of available Islamic banking services. In contrast, about 22% of the respondents
perceive that the range of Islamic banking services is poor while 6% felt very poor and deficient in meeting
their banking needs.
The finding indicates that a majority of non-Muslim customers in Saudi Arabia perceive current available
Islamic banking services as diverse and suitable in satisfying their banking needs. Table 16 describes perceived
applicability of Islamic banking services according to respondents responses.
Correlation Analysis
In order to strengthen the inferences from this study, correlation analysis is conducted to statistically prove
the relationship between the variables used in the perception analysis.

NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

667

Table 16
Perceived Applicability of Islamic Banking Services
Frequency
6
23
0
40
34
103

Very poorly
Poorly
Cannot decide
Moderately
Highly
Total

Percentage
5.8
22.3
0
38.8
33.0
100.0

Correlation between prohibition of Riba and reason for opting Islamic banking. The finding indicates
that there is a negative correlation between the two variables, which indicates that the prohibition of Riba does
not positively influence the non-Muslim customers to use the Islamic banking services (see Table 17).
Table 17
Correlation: Prohibition of Riba and the Reason for Opting Islamic Banking
Prohibition of Riba
Pearson correlation
Prohibition of Riba

N
Reason for opting Islamic banking

Sig. (2-tailed)

Reason for opting Islamic

banking
-0.228*
0.021

103

103
*

Pearson correlation

-0.228

Sig. (2-tailed)

0.021

103

1
103

Note. A correlation is significant at the 0.05 level (2-tailed).

Correlation between perceived quality and benefits of Islamic banking services. The result shows that
there is a strong positive correlation between these two factors (see Table 18). The finding indicates that better
quality of Islamic banking services results in more satisfactions of non-Muslim customers toward Islamic
banking services.
Table 18
Correlation Between Perceived Quality and Benefits

Quality of Islamic banking

Benefits of Islamic banking

Note.

**

Pearson correlation
Sig. (2-tailed)
N
Pearson correlation
Sig. (2-tailed)
N

Quality of Islamic banking

1
103
0.624**
0.000
103

Benefits of Islamic banking

0.624**
0.000
103
1
103

A correlation is significant at the 0.01 level (2-tailed).

Correlation between prohibition of Riba and applicability to diverse forms of Banking needs. The
result shows a very strong positive correlation between the two factors (see Table 19). There is a significant
relationship between the prohibition of Riba and the applicability of the range of Islamic banking services.

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NON-MUSLIMS PERCEPTIONS TOWARD ISLAMIC BANKING SERVICES

Table 19
Correlation Between Prohibition of Riba and Applicability

Prohibition of Riba

Applicability of Islamic banking

Prohibition of Riba
1

Pearson correlation
Sig. (2-tailed)
N
Pearson correlation
Sig. (2-tailed)
N

103
0.712**
0.000
103

Applicability of Islamic banking

0.712**
0.000
103
1
103

Note. ** A correlation is significant at the 0.01 level (2-tailed).

Conclusions and Recommendations

The study concludes that non-Muslim customers in Saudi Arabia use the Islamic banking services because
of cheaper costs, better quality and nature of services provided by the Islamic banks. The main Islamic banking
principle of avoidance of Riba or interest is not the major motivating factor for the non-Muslim customers to
use Islamic banking services. The study also concludes that a majority of the non-Muslim customers are first
exposed to Islamic banking at their places of work where corporate Islamic banking products/services are
utilized regularly by their employers. A majority of these non-Muslim customers perceive the benefits of
Islamic banking as good. Overall a majority of non-Muslim respondents perceive the Islamic banking services
as satisfactory. The respondents are of the opinion that Islamic banking services can cater to their banking
needs.
The study also comes out with following recommendations:
(1) Since a majority of the respondents express satisfaction at the quality and professional nature of
services offered by the Saudi Islamic banks, the banks have to seriously look at exploiting this segment of
customers. They should tailor their non-Muslim customer acquisition strategies accordingly and ensure that
more and more non-Muslim expatriate customers embrace and use Islamic banking services;
(2) Frequent workshops explaining the philosophy and functioning of Islamic banking products/services
should be conducted for the non-Muslim customers in order to increase their awareness and attract them toward
Islamic banking;
(3) Incentives in the form of free registration and discount on Islamic banking transactions should be
offered to the non-Muslim customers. Higher rewards for frequent usage of Islamic banking services should
also be offered to encourage and attract more number of non-Muslim customers;
(4) Incentives should be offered for positive referrals by existing non-Muslim customers to their friends
and relatives. These incentives can be in the form of lower banking transaction cost or free gifts and vouchers.

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