Ali Zaigham Agha

Objective
The Factors influencing the choice of a financial

institution Islamic Banking or Conventional Banking The most important Motivation behind the choice of Islamic Banking?

Hypothesis
Religion is the most important factor influencing

the decision to choose Islamic banking

Five factors identified for selection of a financial institution Convenience , Price, Product selection, Service & Ambience (Driscoll, J 1999) Religion was the main motivating factor for patronizing Islamic Banks ( Wan Ahmed et el 2008) Customer service most important factor (Reeves, C.A. et el 1996)

Basic Information Factor Analysis t-test Cross Tabs Cluster Analysis Irregularities Main Findings Way Forward

Sample Size N = 77
Islamic Bank Users = 42 Conventional Bank Users = 35

Gender Male = 68 (88%) Female = 9 (12%) Age Group (in years) 18-25 = 25 (32%) 26-40 = 34 (44%) Education Bachelors = 49 (64%) Post Grad = 27 (35%)

80 70 60 50 40 30 20 10 0

Male

Female

40

30 20 10 0 18-25 26-40 41-50 51-60 More than 60

60 50 40 30 20 10 0

Matric/A-Level

Bachelors

Postgraduate

Income (PKR/Month)
Less than Rs. 50,000 = 36 (47%) Rs. 50,001-100,000 = 13 (17%) Undisclosed = 19 (25%)

40 35 30 25 20 15 10 5 0

Type of banking used

Conventional = 35 (45%) Islamic = 31 (40%)

40 35 30 25 20 15 10 5 0
Conventional banking only Islamic banking Both conventional only and Islamic banking

Both Conventional and Islamic = 11 (15%)

RELIGION
IB operate in accordance with Shariah principle IB is truly Islamic in substance

IB at least try to follow Shariah principles if not completely

Endorsement by Religious scholars Burden of sin will lie on scholar IB users want to avoid Riba

Cronbach Alpha = 0.775

PRODUCTS
IB offer flexible house and auto financing products IB offer higher rates on savings IB charge lower rates on consumer financing products

Cronbach Alpha = 0.812

SERVICE QUALITY
IB users dissatisfied with service of conventional banks IB take lesser time to complete users transactions IB staff is friendly and helpful IB staff quickly able to gain users trust and confidence

Cronbach Alpha = 0.705

CONVENIENCE
IB have ample parking space IB located near to users home

Cronbach Alpha = 0.692

TRUST*
IB ensure confidentiality of users personal and business details IB perceived to be less likely to collapse

Cronbach Alpha = 0.713

PRESSURE FROM SOCIETY

Hypothesis to test : H0: Mu1 = Mu2 H1: Mu1 = Mu2 Mu1: Mean of users of Islamic Bank Mu2: Mean of users of Conventional Bank Significance Level: 5% Two-Tailed Test Assumption: Equal variances assumed

Religion
P-value = 0.03 Conclusion: Factor is statistically significant

Products
P-value = 0.07 Conclusion: Factor is not statistically significant

Service Quality
P-Value = 0.14 Conclusion: Factor is not statistically significant

Convenience
P-Value = 0.46 Conclusion: Factor is not statistically significant

Trust
P-Value = 0.06 Conclusion Factor is not statistically significant

Pressure from society

P-Value = 0.54 Conclusion: Factor is not statistically significant

Islamic
Important to Very Important Rest
14%

Conventional
Important to Very Important Rest

26%

86%

74%

Islamic
Important to Very Important Rest Rest

Conventional
Important to Very Important

31% 69%

49% 51%

Greater proportion in case of conventional bank users IB products better able to meet needs (Ijarah, Murabaha)

Islamic
Very Important to Important Rest Rest

Conventional
Very Important to Important

36% 64%

23%

77%

Less importance given by both types of users Service no longer a competitive advantage

Islamic
Very Important to Important Rest Rest

Conventional
Very Important to Important

43% 57% 66%

34%

Dissatisfaction with hidden charges in conventional banks The name Islamic adds a psychological effect

Users want to avoid Riba <Strongly Agree to Agree> Truly Islamic in substance <Strongly Agree to Agree> Truly Islamic in substance <Strongly Disagree to Disagree> 88% 83%

Perception people use Islamic banks to avoid Riba

Religion 1 (Percentage)
40 35 30 25 20 15 10 5 80 70 60 50 40 30 20 10

User Type

3.2

3.6

3.8

4.4

Conventional banking only

Islamic banking only

Religion 1 (Percentage)

User Type

Religion 2 (Percentage)
30 53 52 25 51 20 50 15 49 48 10 47 5 46

Users type (Percentage)

45

2.2

2.4

2.6

2.8

Conventional banking only

Islamic banking only

Religion 2 (Percentage)

Users type (Percentage)

Religion (3) Percentage

40 35 30 25 40 20 30 15 10 5 20 70

Users Type (Percentage)

60

50

10

1.2

1.4

1.6

1.8

Conventional banking only

Islamic banking only

Religion (3) Percentage

Users Type (Percentage)

Trust (1) Percentage

60 53

User Type

50

52

51 40 50 30 49 20 48 10

47

46

2.5 Trust (1) Percentage

Conventional banking only

Islamic banking only

User Type

Trust 2 (Percentage)
45 40 35 30 50 25 40 20 30 15 10 5 20 10 80 70 60

User Type

1.5 Trust 2 (Percentage)

Conventional banking only

Islamic banking only

User Type

Trust (3) Percentage

60 70

User type

50

60

50 40 40 30 30 20 20 10

10

3.5

4 Trust (3) Percentage

4.5

Conventional banking only

Islamic banking only

User type

Products 1 (Percentage)
50 45 40 35 30 25 20 15 10 5 0 3.67 4 4.33 4.67 5
60 50

User Type

40

30

20

10

Conventional banking only

Islamic banking only

Products 1 (Percentage)

User Type

Products 2 (Percentage)
35
70

User Type

30
25 20 15 10 5

60

50

40

30

20

10

0 2.33 2.67 3 3.33

0

Conventional banking only

Islamic banking only

Products 2 (Percentage)

User Type

Produts 3 (Percentage)
30 25 20 15 10 5 0 1 1.33 1.67 2
90 80 70 60 50 40 30 20 10

User Type

Conventional banking only

Islamic banking only

Produts 3 (Percentage)

User Type

Please rank the following six factors in order of their importance in a customers decision to go for Islamic Banking?
Service Quality of Islamic banks Religious Reasons Financial strength & soundness of Islamic banks Transparent practices of Islamic banks Products offered by Islamic banks Convenience

Service Quality Of Islamic Banks

25 20 15 10 5 0 Frequency

1 11

2 19

3 7

4 22

5 10

6 8

Religious Reasons
60 50

40
30 20 10 0 Frequency

1 55

2 4

3 7

4 6

5 1

6 4

Financial Strength and Soundness of Islamic Banks

20 18 16 14 12 10 8 6 4 2 0 Frequency 1 3 2 14 3 18 4 12 5 17 6 13

Transparent Practices of Islamic Banks

20 18 16 14 12 10 8 6 4 2 0 1 1 2 17 3 19 4 16 5 17 6 7

Frequency

Products offered by Islamic Banks

18 16 14 12 10

8
6 4 2 0 1 3 2 13 3 16 4 14 5 17 6 14

Frequency

Convenience
35

30
25

20
15 10 5 0 Frequency 1 4 2 10 3 10 4 7 5 15 6 31

60 50 40 30 20 10 0 Religious Reasons Service Financial Transparent Products Convenience Quality of strength & practices of offered by (nearness to Islamic soundness of Islamic Islamic home, banks Islamic banks banks availability of banks parking space)

The rating in the questions show religion as the most important factor The question at the end which asks the respondents to rank the factors also shows that religion is the most important factor This proves our hypothesis that religion is the most important factor in choosing Islamic Banks

Unexpected
Trust: Not a major factor in qual but a main factor

in quan as expressed by respondents

 Sample Size Small Conventional Banks users not aware of Islamic

Banking Products and Practices Avoidance of commenting on issues pertaining to religion One city study limited in scope