JIBF Cluster Analysis

JOURNAL OF ISLAMIC BANKING AND FINANCE
VOL 28 NO 3, JULY-SEPT 2011, PP/ 58-74
A CLUSTER ANALYSIS AMONG MALAYSIANS FOR ISLAMIC DEPOSIT

PRODUCTS
Hanudin Amin, Mohd Zulkifli Muhammad
Labuan School of International Business and Finance

Universiti Malaysia Sabah
Abstract
The aim of this study is to obtain a better understanding of students selection criteria with
respect to Islamic deposit products. The study presents primary data collected by self-
administered questionnaires involving a sample of 154 undergraduate students in Labuan,
Malaysia. Findings of the study are classified into six clusters. For cluster 1, members of this
cluster were likely choose Islamic deposit products on the basis of friendliness of banks staff
but not to availability of ATM in several locations. For cluster 2, members of this cluster
expressed the greatest tendency on availability of ATM in several locations when selecting
Islamic deposit products. For cluster 3, members of this cluster seem to have lower preference
with respect to selection criteria for Islamic deposit products. For cluster 4, members of this
cluster expressed a tendency to choose Islamic deposit products on the basis of gift reward and
family influences. Further, members of cluster 5 were likely choose Islamic deposit products
on the basis of availability of ATM in several locations but not to family influences. Finally,
for cluster 6, members of this cluster preferred to choose Islamic deposit products when the rate
of return offered for the products is higher. The results are primarily of its potential to bank
managers who might want to bring forward specific Islamic deposit products policies for
different target groups. The managers could use the outcomes of the current study for better
planning of Islamic deposit products.
Keywords Deposit products, Islamic bank, Choice Criteria, Frequency analysis, Cluster
analysis, Malaysia.
1. INTRODUCTION
Prior studies have overlooked the issue of selection criteria for Islamic deposit products
(Haron et al., 1994; Dusuki & Abdullah, 2007). Islamic deposits are defined as funds placed in a
financial institution by economic surplus units such as households, corporations, investors and
governments. According to Islamic Banking Act 1983 [Act 276], Islamic deposit means a sum of
Hanudin Amin is a lecturer at the Labuan School of International Business and Finance. E-mail:
hanudin_zu@yahoo.com
Mohd Zulkifli Muhammad is a lecturer at the Labuan School of International Business and Finance. E-
mail:zulrider@yahoo.com
58
money or monies worth received by or paid to any person, under which the receipt and
repayment shall be in accordance with the terms of an agreement made under any Shariah
principle on any basis including custody or profit sharing. In a similar vein, Islamic deposit
products refer deposit products that comply with Shariah Islamiyyah. Indeed, impermissible
elements such as interest rates and uncertainties are not allowed in the Islamic framework. In
fact, Islam teaches its follower to love business and to condemn interest-bearing activities. Many
debates have risen with regard to the rewards that should be rewarded by Islamic banks to bank
customers deposit products in Islamic banking management (Khir et al, 2008).
These funds can either be from cash, claims to money like cheques placed in depositors'
accounts, bank loans or money from investments (Van Dahm, 1975). Deposits are of chief
importance to an economic system. To individuals such as households and the general public,
deposits represent customers' savings or their financial assets. By depositing money in a bank,
customers expect the bank to safeguards their savings, utilize them for productive investments at
a satisfactory rate of return or enable savings to facilitate their payment transactions.
On the banking side, deposits are the main source of funding which it uses to produce income.
Studies indicate that deposits contribute 75 percent of a bank's total funds (Rose, 1997). Banks
use customers' deposits mainly to give out loans to deficit economic units or borrowers. Besides
loans, banks also mobilize deposits to purchase trading securities, make investments and
maintain some as cash in hand to meet withdrawals on demand. To the economy, bank deposits
are the main source of money supply that can be mobilised to generate economic growth and
wealth creation. By giving out loans to borrowers and investors, banks create credit (Abdul
Gafoor, 1996). The ability of banks to create credit enables them to supply money to borrowers,
suppliers and investors to conduct economic activities such as opening up plants, funding their
working capital requirements, financing their business expansion or increasing their investments
(Haron & Shanmugam, 2001).
In the philosophy of Islamic finance, money is required to be mobilised in productive

investments. There should not be idle money. Whoever holds idle cash or demand deposits
exceeding the nisab over a year must pay zakat. Deposits are equally important to Islamic banks
as a source of funds as in conventional banks. However, unlike their counterparts, Islamic banks
need to comply with Shariah principles, which prohibit any payment of interest or a fixed return
on deposits. To attract idle cash or deposits from the public for sustaining their financing
activities and wealth creation, Islamic banks offer deposits whose returns are based on wadiah,
mudaraba or qard hassan (INCEIF, 2006).
There exists a scarce study relevant or pertaining to the current research. It is due to the limited
evidence from the previous studies (Haron et al., 1994; Dusuki & Abdullah, 2007; Amin, 2008).
As such, this study is conducted in order to overcome this possibility. For this purpose, the main
objective of this study is to investigate the selection criteria that affect undergraduate students
decision to select Islamic deposit products. To our best knowledge, prior studies have also noted
selection criteria for specific products such as a mode of bill payment and home financing.
Explained in more detail, the study by Karjaluoto (2002) in Finland investigated selection criteria
for a mode of bill payment. While Devlin (2002) in UK investigated selection criteria for home
loans market. Unfortunately, none of these studies is interested to draw a more intention to
59
investigate selection criteria for Islamic deposit products from the undergraduate students point
of view. On the basis of this perception, the current study is projected to provide an insight into
what makes undergraduate students select Islamic deposit products. This has motivated the
researchers to undertake this work.
2. A BRIEF INFORMATION WITH RESPECT TO ISLAMIC DEPOSITS PRODUCTS
Like conventional banks, Islamic banks rely on depositors' funds as well as their own
capital as major sources of funds. Deposits are mainly in the form of demand deposits, savings
and time deposits. The demand deposit facility is a deposit facility in which the owner is entitled
to receive his or her funds on demand and to write cheques on the account, which transfers legal
ownership of funds to others. This facility is widely known as current account and is designed
for those who need money fro transaction purposes. The purpose of using this facility is for
convenience or to make payments for daily commitments (Lee & Detta, 2007). Generally, there
are two (2) Shariah principles, that is, qard hassan and wadiah which are used by Islamic banks
in providing this facility. Islamic banks in some countries like Iran, UAE and Kuwait clearly
indicate that they accept demand deposits which are based on the principle of qard hassan.
Among Islamic banks which apply the principle of wadiah are banks in Bangladesh, Jordan and
Malaysia.
The second category of deposits is the savings account. To Islamic banks, this account is to
facilitate those who wish to save money and at the same time earn an income. The depositors in
this category are those who hold money primarily because of precautionary motive, while
simultaneously induced by an investment motive. The three Shariah principles used by Islamic
banks for savings account are qard hassan, wadiah and mudaraba (Iqbal & Mirakhor, 2007).
Like current accounts, savings account facilities in Iran are governed by the principle of qard
hassan. In the case of Bahrain, the principle of wadiah is applied and the principle of al-wadiah
yad dhamanah is used by banks in Malaysia. However, the majority of Islamic banks in Kuwait,
UAE and Bangladesh prefer to use the principle of mudaraba.
The third category of deposit facility is for those who keep money for investment motives.
Customers who have idle funds usually want better returns. These customers normally prefer to
place their money in the time (fixed) deposit facilities. In the Islamic banks system, this facility
is called 'investment deposit'. All investment deposits available at Islamic banks are governed by
the principle of mudaraba (Lewis & Algaoud, 2001). Within this context, Islamic banks act as
entrepreneurs or managers and depositors become investors. The bank would provide no
guarantee or no fixed return on the amount deposited and under the principle of mudaraba, the
customer will share the profits or losses made by the bank. The agreement on how the profit or
loss made by the bank (Lee & Detta, 2007).
In practice, like conventional banks, Islamic banks are also generated funds through the process
of intermediation (Mishkin & Eatkins, 2008). In this process, Islamic banks are accepting funds
from public at large by selling their liability to customers. In this case, it is assumed that bank
customers will purchase Islamic deposit products by opening their accounts at the banks, and
need to disburse of RM 10 amount for the al-wadiah account and RM 500 amount for an
60
investment account. Nevertheless, Islamic banks that offer the products reward customers
through of two ways used in the Islamic banking operation namely hibah (e.g. based on a banks
discretion) or rate of return for al-wadiah both saving and current accounts and a dividend rate
policy for investment accounts.
3. REVIEW OF LITERATURE
Previous studies have documented selection criteria for bank without specifying their
study in selection criteria for Islamic deposit products. Nevertheless, these studies provide a
workable direction in supporting the present studys research of focus. It is expected the
generalization of these studies can be extended into the current study results via comparison of
findings explained. The following provide a discussion on selection criteria for banks in general:
In Malaysia, Malaysia Truly Asia the very popular research that seemed to be cited by many
researchers is the study by Haron et al. (1994) in the Western Malaysia. He was the father of
Islamic banking researcher in a Malaysia context. Further, results of this study showed that
Muslims and non-Muslims valued almost the same factors when selecting their banks. The more
highly scored factors were fast and efficient services, speed of transactions, friendliness of bank
personnel, and confidentiality of bank. Conversely, size of bank, external appearance of bank
and recommendations had a relatively low impact on selection of banking selection.
Dusuki and Abdullah (2007) examined bank customers on banking selection by dividing
respondents into four regions in a West-Malaysia context. They reported that bank customers
choose Islamic banks on the basis of a combination of Islamic and financial reputation and
quality service offered by the bank. Bank customers also had a tendency to choose Islamic banks
that had a good social responsibility practices, convenience, and product price. In addition,
Dusuki and Abdullah (2007) and Haron et al. (1994) considered product pricing had an
important impact in affecting bank customers decision process to choose bank. Several studies
in other countries were also selected with regard to selection criteria for bank. In Poland,
Kennington et al. (1996) found that reputation, price, and service, were the key variables that
consumers look for, when choosing a bank. Moreover Kennington et al. (1996) found that the
banks image, stability and continuity, the service-charge policy and the competitiveness of rates,
the quick, polite and friendly service were the most important factors in explaining how
customers choose banks. In addition, Kennington et al. (1996) showed that the area of service
with respect to time, efficiency, and pleasant treatment, was critical for Poles and this was where
the banks focusing their strategies.
With respect to the work of Boyd et al. (1994) in the U.S., bank reputation, interest on savings
accounts, interest charged on loans, quick service and location in the city were five most
important factors affecting bank customers selection for bank. In line with Kennington et al.
(1996), the work of Boyd et al. (1994) argued that reputation was the chief choice criterion in
explaining a selection for a mortgage provider. Still in the U.S., Elliot et al. (1996) found that
price, speed, and access were particularly important. According to their research findings, most
customers place a higher value on lower prices and higher transaction speeds than they do on
personalised service, and they were willing to accept lower service levels in exchange for price
61
breaks (Elliot et al. 1996). On the other hand, Reeves and Bednar (1996) suggested that customer
service may be more important than price and that customers may use additional criteria beyond
price, speed and access to choose between banks, according to where they live (e.g. large cities
or countryside) and other market conditions.
In other work on banking selection in Bahrain, Almossawi (2001) found other choice criteria
beyond reputation, which affected bank selection were parking space near the bank, friendliness
of bank personnel and the availability of ATM machines.
Many believed that influence of family and friend had increased in importance in explaining
ones banking selection. One of the earliest studies by Tan and Chua (1986) had proven the
important attribute. On the contrary, the work of Gerrard and Cunningham (2001) found that
influence of friends, family and teachers were no longer important. This is perhaps true as now
many of us are living independently, where the family and friends influence are no longer the
reason of our action. As such, Gerrard and Cunningham (2001) further found that security and
confidentiality as the keys for banking selection. In a different setting, the work of Kaynak et al.
(1991) in Turkey, found that friendly employees, close branch locations to their homes, fast and
efficient service, availability of credit and financial services counseling were particularly
important in banking selection. Due to these differences, research on banking selection remains
inconclusive and needs further investigation.
Furthermore, Devlin and Gerrard (2004) presented an analysis of trends in the relative
importance of bank choice criteria. In particular, the researchers provided findings from 7,033
consumers and showed that the influence of recommendations was the most important choice
criterion. Other factors, which also had increased in importance, were the offering of incentives,
the wide product range, the interest rate paid and the relevant fees and charges. Locational
factors had decreased in importance, while certain criteria such as the bank's image and
reputation and expectations about level of service had retained their degree of importance in
consumers minds.
Gerrard and Cunningham (1997) replicated Haron et al.s (1994) study in Singapore and found
that Muslims, in contrast to non-Muslims, had a different attitude towards Islamic banking.
Similar to Malaysians the Singaporeans, both Muslims and non-Muslims, did not differ in their
bank selection criteria. However, some statistically significant differences were noted. For
example Muslims placed relatively lower importance on the need to be paid a high rate of
interest on their savings. Also Muslims were influenced by third parties in a greater way than
non-Muslims, such third parties being relatives, friends and the media.
Nevertheless, to our knowledge, there existed specific study conducted in banking product
mainly in a mode of bill payment. Karjaluoto (2002) investigated Finnish bank customers on a
mode of bill payment. The results of the study suggested that primary factors affecting the choice
of a mode of bill payment were speed, security, and trustworthiness, easy-to-use, and price of the
payment. Some consumers appreciated short distance to a branch. Conversely, examples from
friends and relatives, social contacts with the banking personnel, and banks name had a
relatively low impact on selection of bill payment mode.
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4. RESEARCH METHODOLOGY
4.1 Sampling
The present study samples were based on 154 students, targeted at the Islamic deposit
facilities segment. The respondents of this study were undergraduate students at the Universiti
Malaysia Sabah, Labuan branch, Malaysia. With the sample of 154 this study is still able to
contribute significantly to the existing body of knowledge, at least at an exploratory level.
The population of the study was those of students who were the university students. The
population for the program was estimated at 1911 students. The study was using random
sampling in order to distribute 200 prepared questionnaires. The actual survey for data collection
in October 2007 provided about 200 questionnaires provided, where all of them were distributed.
Out of these, about 154 questionnaires were filled completely without errors with a response rate
equivalent to 77%. This is indicating a good participation and responses among the respondents
with regard to their feeling and intuition toward the topic of research. Based on these
questionnaire amounts, the researchers analysed the data. The first analysis was made on the
demographic profile of the respondents in which it is outlined in Table I.
Table I. Profile of Respondents

Demographic items Components Frequency Percent
Gender Male 70 45.5
Female 84 54.5
Age <20 23 14.9
20-29 130 84.4
30-39 1 .6
School LSIBF 109 70.8
LSIS 45 29.2
Religion Muslim 107 69.5
Buddhist 11 7.1
Hindhu 7 4.5
Christian 27 17.5
Others 2 1.3
Ethnicity Kadazan-Dusun 18 11.7
Bajau 6 3.9
Murut 1 .6
Chinese 18 11.7
Malay 89 57.8
Indian 9 5.8
Others 13 8.4
Marital status Single 150 97.4
Married 4 2.6
Pertaining to gender, female respondents contributed largely to the sample (54.5%) with the
remainder being male respondents (45.5%). In terms of the age range a large portion of the
sample was aged between 20-29 years (84.4%), being the active individuals participated in the
education. The sample was not well distributed since majority of the respondents were LSIBF
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students with 70.8%, while the remainder being LSIS students with 29.2%. Nevertheless, this
study is of its importance to the body of knowledge at least at exploratory level. Concerning
religion, Muslim respondents contributed largely to the sample (69.5%), followed by Christian
with 17.5%, Buddha with 7.1%, Hindu with 4.5% and others with 1.3%. Relating to ethnicity,
Malay respondents contributed largely to the sample (57.8%) while Murut respondents
contributed a small percentile to the sample (.6%). Finally, about 2.6% of respondents were
married and about 97.4% respondents were unmarried.
4.2 Measurement
The questionnaire for this study was constructed into two sections. The first section consisted
of demographic elements namely gender, age, school, religion, race and marital status. The
second section consisted of the selection criteria for Islamic deposit products. The measures
employed in this study were extracted from the previous studies. However, one selection criteria
also was added to better reflect Islamic deposit products. The following are the selection criteria
employed:
1. I tend to select Islamic deposit products if banks offer high return (Haron et al., 1994;
Gerrard and Cunningham, 1997), higher return;
2. I tend to select Islamic deposit products if banks offer ATM in several locations
(Almossawi, 2001), availability of ATM in several locations;
3. I tend to select Islamic deposit products if banks if the banks provide a wide range of
product line (Devlin & Gerrard, 2004; Lee and Marlowe, 2003; and Devlin, 2002),
product line;
4. I tend to select Islamic deposit products if banks ensure the confidentiality of my banking
account (Gerrard and Cunningham, 2001), confidentiality;
5. I tend to select Islamic deposit products if banks have friendliness of banks staff (Devlin
and Ennew, 2005; and Devlin, 2002), friendliness of banks staff;
6. I tend to select Islamic deposit products if banks offer free gift when opening a new
account (Gerrard and Cunningham, 2001), free gift;
7. I tend to select Islamic deposit products if my family encourages me to do so
(Almossawi, 2001; and Ford and Jones, 2001), family influences; and
8. I tend to select Islamic deposit products if banks invest my savings in halal investment
(added), halal investment.
Added the criteria of .invest my savings in halal investment is due to the at least two
reasons. First, there is a tendency for respondents (if they are Muslim) to park their money in
Islamic banks, if the banks manage properly the savings and invest them in the halal outlet of
investment. Secondly, Islamic economic philosophy did not allow any Islamic business to deal
with interest taking activities or interest bearing securities of investment. These elucidations are
parallel to what stressed by previous scholars (Dusuki, 2008; Haron and Hisham, 2003; Naqvi,
2003) in which they claimed that the ribawi activities and other some sort of activities that are
prohibited by Islam should not be within in Islamic banking businesses. In fact, Islamic Banking
Act 1983 also would fine Islamic banks if they were involved in such activities, by suspending
their licenses or by ceasing their banking businesses (International Law Book Services, 2002).
64
In order to evaluate the respondents agreement or disagreement, a five-point Likert-type scale
ranking from 1 to 5 was employed. Further, this is coded as 1=strongly disagree, 2=disagree,
3=neutral, 4=agree, 5=strongly agree. It is thus a higher attribute value indicating a higher level
of agreement and vice versa. This approach is similar to what employed by Gough and Sozou
(2005), Devlin (2002) and Haron et al. (1994). The questionnaire was written in English and
Malay. Back translation was used for the translation of the language in the questionnaire (Dusuki
and Abdullah, 2007; de Run and Ting, 2006). Prior to the actual survey five questionnaires were
provided in order to facilitate a pilot study to be conducted among bank customers of Islamic
banks. The reason for this test was to identify any problems associated with the study instrument
as well as other issues. All respondents to the test commented that the questions were easily
understood with an average completion time of five minutes, being similar to what practiced by
de Run and Ting (2006).
4.3 Data analysis

The data were analysed using four statistical tools namely frequency and cluster analyses.
Explained in more detail, frequency analysis was employed in order to observe the number of
respond that we can obtain from the respondents (Sekaran, 2008; Zikmund, 2000). Cluster
analysis was used to classify objects or individuals into mutually exclusive and collectively
exhaustive groups with high homogeneity within clusters and low homogeneity between clusters.
In other words, cluster analysis helps to identify objects that are similar to one another (Sekaran,
2008; Zikmund, 2000). In this case, the respondents demographic items along with choice
criteria were analysed using cluster analysis.
The aim of cluster analysis is to divide the data into groups, or clusters, in such a way that the
data are reasonably homogeneous within each cluster. An important question is how many
clusters are to be utilised. Increasing the number of clusters will reduce the dissimilarity within
each cluster, but at the expense of a description of the data, which has more degrees of freedom
and is therefore less parsimonious (Gough and Sozou, 2005). The question of the correct
number of clusters to use remains an active research topic (Gough and Sozou, 2005; Sugar and
James, 2003).
5. RESULTS
The statistical characteristics of the six clusters with respect to the 8 selection criteria
under consideration are outlined in Table III. The following Table II indicates the distribution of
sample number in line with the six clusters. Evidently, there existed significant results for age,
school and race. The remainders were insignificant. The details are presented below:
Table II. Cluster analysis

Demographic Cluster 1 Cluster 2 Cluster 3 Cluster 4 Cluster 5 Cluster 6
items (n=30) (n=43) (n=13) (n=24) (n=24) (n=20)
Gender Male Male Male Male Male Male (50.0%)
(=3.859, p- (33.3%) (48.8%) (53.8%) (37.5%) (54.2%)
value=.570)
Female Female Female Female Female Female
(66.7%) (51.2%) (46.2%) (62.5%) (45.8%) (50.0%)
65
Age <20 (6.7%) <20 (14%) <20 (7.7%) <20 (8.3%) <20 (37.5%) <20 (15.0%)
(=17.998,
p-
value=.0457)
20-29 20-29 20-29 20-29 20-29 20-29
(93.3%) (86.0%) (92.3%) (87.5%) (62.5%) (85.0%)
30-39 (.0%) 30-39(.0%) 30-39(.0%) 30-39(4.2%) 30-39(.0%) 30-39(.0%)
School LSIBF LSIBF LSIBF LSIBF LSIBF LSIBF
(=11.187, (63.3%) (67.4%) (61.5%) (87.5%) (58.3%) (90.0%)
p-
value=.007)
LSIS LSIS LSIS LSIS LSIS LSIS (10.0%)
(36.7%) (32.6%) (38.5%) (12.5%) (41.7%)
Religion Muslim Muslim Muslim Muslim Muslim Muslim
(=25.471, (86.7%) (72.1%) (69.2%) (70.8%) (62.5%) (45.0%))
p-
value=.184)
Buddhist Buddhist Buddhist Buddhist Buddhist Buddhist
(3.3%) (9.3%) (0.0%)) (12.5%) (4.2%) (10.0%)
Hindhu Hindhu Hindhu Hindhu Hindhu Hindhu
(6.7%) (0.0%) (0.0%) (0.0%) (12.5%) (10.0%)
Christian Christian Christian Christian Christian Christian
(3.3%) (16.3%) (30.8%) (16.7%) (20.8%) (30.0%)
Others Others Others Others Others Others
(0.0%) (2.3%) (0.0%) (0.0%) (0.0%) (5.0%)
Race Kadazan- Kadazan- Kadazan- Kadazan- Kadazan- Kadazan-
(=57.770, Dusun Dusun Dusun Dusun Dusun Dusun (15%)
p- (3.3%) (14.0%) (15.4%) (4.2%) (20.8%)
value=.002)
Bajau Bajau Bajau Bajau Bajau Bajau (0.0%)
(0.0%) (7.0%) (0.0%) (12.5%) (0.0%)
Murut(0.0%) Murut(0.0%) Murut(0.0%) Murut(0.0%) Murut(0.0%) Murut(0.0%)5
Chinese Chinese Chinese Chinese Chinese Chinese
(3.3%) (9.3%) (23.1%) (12.5%) (4.2%) (30.0%)
Malay Malay Malay Malay Malay Malay
(86.7%) (62.8%) (53.8%) (50%) (37.5%) (40.0%)
Indian (6- Indian Indian Indian Indian Indian
7%) (2.3%) (0.0%) (4.2%) (12.5%) (10.0%)
Others Others Others Others Others Others (0.0%)
(0.0%) (4.7%) (7.7%) (16.7%) (25.0%)
Marital Single Single Single Single Single Single
(=2.818, p- (96.7%) (97.7%) (92.3%) (95.8%) (100%) (100%)
value=.728)
Married Married Married Married Married Married
(3.3%) (2.3%) (7.7%) (4.2%) (0.0%) (0.0%)
66
As outlined in the earlier part of this paper, the method used to analyze the data was cluster
analysis. The researchers carried out K-means clustering, with different numbers of cluster. With
respect to cluster number, Gough and Sozou (2005) recommended a mean distance should be at
least 10 percent less in selection of number of cluster. On the basis of this recommendation,
possible choices for the number of clusters within the range shown are 2, 3, 4, 5, 6, 7, 8, 9 and
10. Nevertheless, the maximum number of clusters is five (5) or six (6) that should be applied in
a current research context, where the mean distance is of 9.8 percent or 8 percent respectively,
almost near to 10%. For this analysis, we had chosen to use 6 clusters as this gave a sufficient
level of detail for our purposes. This 6 clusters approach was the same as Gough and Sozou
(2005) employed. Figure I and Table IV present the detail.
Cluster 6
Cluster 1
Cluster 5
Cluster 2
Cluster 4
Cluster 3
Figure I. Pie chart representing distribution of respondents for 6 clusters
Table III. Cluster analysis, 6 clusters

Clusters
1 (n=30) 2 (n=43) 3 (n=13) 4 (n=24) 5 (n=24) 6 (n=20)
M SD M SD M SD M SD M SD M SD
Item1 4.27 .583 4.79 .466 1.69 .855 2.79 1.021 2.96 .908 4.25 .851
Item2 3.30 .794 4.84 .373 1.77 .725 3.92 .776 4.54 .588 3.35 1.04
Item3 3.93 .740 4.33 .747 2.08 .641 3.42 .654 3.67 .817 2.75 .639
Item4 4.40 .675 4.56 .590 2.00 .817 3.38 .495 4.46 .658 3.30 .657
Item5 4.67 .479 4.51 .736 2.15 .899 3.42 .776 4.08 1.06 3.10 .968
Item6 4.20 .887 4.79 .466 1.77 .832 4.04 .908 2.96 .624 3.00 .725
Item7 3.87 .730 3.28 1.28 2.85 1.28 4.04 .690 2.67 1.01 2.85 1.23
Item8 4.60 .675 4.65 .752 2.08 .954 3.58 .929 4.38 .924 2.95 .999
Notes:
Item1=I tend to select Islamic deposit products if banks offer high return; Item2=I tend to select
Islamic deposit products if banks offer ATM in several locations; Item3=I tend to select Islamic
deposit products if banks if the banks provide a wide range of product line; Item4=I tend to
select Islamic deposit products if banks ensure the confidentiality of my banking account;
Item5=I tend to select Islamic deposit products if banks have friendliness of banks staff;
Item6=I tend to select Islamic deposit products if banks offer free gift when opening a new
account; Item7=I tend to select Islamic deposit products if my family encourages me to do so;
and Item8= I tend to select Islamic deposit products if banks invest my savings in halal
investment (added).
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Table IV. The number of clusters and mean distance
Number of Mean distance to centre
clusters N of cluster Std. Deviation
2 154 2.5191970 .81048538
3 154 2.3235386 .78273767
4 154 2.2515711 .70700115
5 154 2.1209949 .72043963
6*** 154 2.0901083 .68201174
7 154 2.0130881 .68398305
8 154 1.9769531 .64693177
9 154 1.8861372 .62943471
10 154 1.9319093 .53554511
Notes: ***Preferred number of cluster
5.1 Cluster #1
This cluster was predominantly by female students. Majority of them were Muslim, aged
around 20-29, LSIBF students, Malay students and also unmarried. Members of this cluster were
likely choose Islamic deposit products on the basis of friendliness of banks staff but not to
availability of ATM in several locations. Regarding the former criteria, this result seems to be
in line with the study findings of Kaynak et al. (1991), who found that friendly employees, was
particularly important in banking selection. Other features of this cluster were giving emphasis
on halal investment, confidentiality, and higher return when selecting Islamic deposit
products. This seems that halal investment has increased in importance for Islamic deposit
products choice. Thus, it supports the assertion made by Naqvi (2003) who justified the
importance of permissible elements in Islamic businesses. Whilst at the same time members of
this cluster also looked at free gift when opening account for Islamic deposit products. This
free gift seems to uphold the finding of Gerrard and Cunningham (2001), who asserted that
free gift to be rewarding in attracting bank customers to open a new bank account. Figure II
presents the level of importance of the eight criteria, as follows:
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 1 2 3 4 5
Figure II. Bar chart representing mean values for cluster 1
5.2 Cluster #2
Similar to cluster 1, this cluster was also large contributed by female students. Majority
of them were Muslim, aged around 20-29, LSIBF students, Malay students and also unmarried
Members of this cluster express the greatest tendency on availability of ATM in several
locations when selecting Islamic deposit products. This result is consistent to the finding of
68
Almossawi (2001) who claimed availability of ATM in several locations had increased in
importance for banking selection, although it is third ranked. At the same time they also argued
higher return and free gift as important when deciding of opening Islamic deposit products.
These results uphold the findings of Boyd et al. (1994) and Gerrad and Cunningham (2001)
respectively. Family influences would not affect their decision to select Islamic deposit products,
not uphold to what found by Devlin and Gerrard (2004), who asserted the influence of
recommendations in affecting the patronage (Figure III).
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 1 2 3 4 5
Figure III. Bar chart representing mean values for cluster 2
5.3 Cluster #3
This cluster exhibits female as slightly higher than male respondents do. Similar to other
clusters of 1 and 2, the items of age, school were the same. Nevertheless, in terms of religion, the
cluster 3 was largely contributed by Muslim and Christian was the second. Members of this
cluster seem to have lower preference with respect to selection criteria for Islamic deposit
products. In short, they did not overall care very much about higher return, availability of
ATM in several locations, product line, confidentiality, friendliness of banks staff, free
gift and halal investment. Nevertheless, members of this cluster were moderately likely to
choose Islamic deposit products because of family influences (Figure IV).
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 0.5 1 1.5 2 2.5 3
Figure IV. Bar chart representing mean values for cluster 3
69
5.4 Cluster #4
This cluster exhibits female as slightly higher than male respondents do. Similar to other
clusters of 1, 2 and 3, the items of age, school were the same. Similar to cluster 3, in terms of
religion, the cluster 4 was largely contributed by Muslim and Christian was the second. Members
of this cluster expressed a tendency to choose Islamic deposit products on the basis of free gift
and family influences. It seems free gift is growing in importance in this case, as also the
same as what found by Gerrard and Cunningham (2001). Nevertheless, Gerrard and Cunningham
(2001) claimed, family influences was not important criteria, as the respondents of their study
preferred to demand beyond that criteria in selecting banks to patronage. However, availability
of ATM in several locations found to be of its importance in determining the decision, in which
it is consistent to Almossawis (2001) finding. Further, members of this cluster were moderately
likely to choose Islamic deposit products on the basis of product line, confidentiality and
friendliness of banks staff. Other feature of this cluster was the lower tendency for higher
return (Figure V).
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 1 2 3 4 5
Figure V. Bar chart representing mean values for cluster 4
5.5. Cluster #5
Members of this cluster exhibit are slightly younger, more LSIBF students, more Muslim
as similar to the previous clusters, and more likely to be male than the sample as a whole.
Members of this cluster were likely chosen Islamic deposit products on the basis of availability
of ATM in several locations, parallel to the finding of Almossawi (2001). This indicates that,
the higher the ability of a bank provides ATM in many locations, the more attractive the bank is,
from customers point of view. Contrary to this, family influences was reduced in importance
of affecting the students selection, in which to be consistent to the finding of Gerrard and
Cunningham (2001). This means that people are more independent and self-reliant in deciding of
which bank to patronize. Other features of this cluster were giving emphasis on confidentiality,
halal investment, and friendliness of banks staff when selecting Islamic deposit products
(Figure VI).
70
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 1 2 3 4 5
Figure VI. Bar chart representing mean values for cluster 5
5.6 Cluster #6
Members of this cluster exhibit were balance distribution of male and female
respondents. In terms of religion, Muslim comes first while Christian comes second. With regard
to ethnicity, most of the members in this cluster were Malays and followed by Chinese. Members
of this cluster preferred to choose Islamic deposit products when the rate of return offered for the
products is higher. It seems that the higher the rate of return, the possibility of the student
choosing the deposit products would be higher. Consistent to the finding of Boyd et al. (1994),
members of this cluster were easily attracted to choose Islamic deposit products if the return
offered is attractive. On the other hand, members of this cluster expressed the lowest likelihood
on product line as compared to the other features in this cluster (Figure VII).
Item8
Item7
Item6
Item5
Item4
Item3
Item2
Item1
0 1 2 3 4 5
Figure VII. Bar chart representing mean values for cluster 6
6. CONCLUSION AND RESEARCH IMPLICATION

This paper had succeeded in classifying undergraduate students according to their
similarities with respect to selection criteria for Islamic deposit products. The researchers
identified groups of respondents who were normally affected by higher return while others are
not. The different patterns of findings were found in the other attributes explained.
Explained in more detail, the paper highlights on how to make Islamic deposit products policies
for different groups of respondents. The researchers consider the findings of this study to be a
valuable tool for practitioners who might want to bring forward specific Islamic deposit products
71
policies for different target groups. For instance, Islamic banks should try to adjust their return
policy for Islamic deposit products in order to be better targeting members of cluster 6. Further,
Islamic banks should also train and hire those who are willing to work on a caring basis in order
to entertain bank customers and willing to advise the customers more positively. These policies
could be the best match of members in the cluster 1. Furthermore, other positive policies could
be suggested on an adjustment basis for different groups of respondents. This study results,
therefore, are of their importance in generating a good guideline for practitioners to be better
tailored the policies and Islamic deposit products according to the needs of specific groups.
The researchers believed that this study suffers from two limitations. Mentioning these
limitations are due to their potential supports for the future research. First, this study has a
limited number of samples, which confined to 154 only. The results, on the other hand, may
characterize the population in the university. In order to tackle this limitation, there is a need to
undertake further studies by incorporating a larger sample in order to provide a more robust
finding in this area of study. Alternatively, a comparative study of students Islamic deposit
products selection criteria between universities in different settings could enrich the utility of the
findings. Secondly, the study has employed limited relevant criteria in order to measure the
undergraduate students selection criteria. To counter this, future research should consider
additional criteria in order to produce more interesting findings that are relevant in the area of
Islamic deposit products. Criteria such as lower service charges, service provisions and
formal education influences could be added for the future research in this discipline of Islamic
deposit products selection criteria research. In fact, allowing more criteria would be of their
advantages to enable the future research to perform factor analysis in order to identify the
greatest factors influence the selection by those of undergraduate students, and thus performing a
cluster analysis.
In spite of the above limitations, this study contributes towards a better understanding of the
undergraduate students selection criteria using cluster analysis approach with respect to Islamic
deposit products. Further, this research finding will add to the limited knowledge available in the
field of Islamic deposit products selection criteria.
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74

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JOURNAL OF ISLAMIC BANKING AND FINANCE

VOL 28 NO 3, JULY-SEPT 2011, PP/ 58-74

A CLUSTER ANALYSIS AMONG MALAYSIANS FOR ISLAMIC DEPOSIT

Hanudin Amin, Mohd Zulkifli Muhammad

Labuan School of International Business and Finance

In the philosophy of Islamic finance, money is required to be mobilised in productive

2. A BRIEF INFORMATION WITH RESPECT TO ISLAMIC DEPOSITS PRODUCTS

Table I. Profile of Respondents

4.3 Data analysis

Table II. Cluster analysis

Figure I. Pie chart representing distribution of respondents for 6 clusters

Table III. Cluster analysis, 6 clusters

Figure II. Bar chart representing mean values for cluster 1

Figure III. Bar chart representing mean values for cluster 2

0 0.5 1 1.5 2 2.5 3

Figure IV. Bar chart representing mean values for cluster 3

Figure V. Bar chart representing mean values for cluster 4

Figure VI. Bar chart representing mean values for cluster 5

Figure VII. Bar chart representing mean values for cluster 6

6. CONCLUSION AND RESEARCH IMPLICATION

Almossawi, M. (2001), Bank selection criteria employed by college students in Bahrain:

Dusuki, A.W. (2008), Understanding the objectives of Islamic banking: a survey of

International Centre for Education in Islamic Finance (INCEIF) (2006), Deposits

Iqbal, Z. & Mirakhor, A. (2007), An Introduction to Islamic Finance: Theory and

Karjaluoto, H. (2002), Selection criteria for a mode of bill payment: empirical

Lewis, M. K. & Algaoud, L. M. (2001), Islamic Banking, Edward Elgar, UK.

Naqvi, S.N.H. (2003), Perspective on Morality and Human Well-Being: A Contribution

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