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Islamic Banking

Islamic Banking

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Published by Muhammad Khurram
Islamic Banking and conventional banking
Islamic Banking and conventional banking

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Published by: Muhammad Khurram on Jan 31, 2013
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Sections

  • Role of Financial Intermediaries (Banks)
  • Difference between Islamic Bank and Conventional Bank
  • 2.1 History of Banking Developments in Pakistan
  • 2.2 Prohibition of Interest in Islamic Banking
  • 2.3 Functions of Islamic Bank
  • 2.4 Operations and Products of Islamic Bank
  • Financing Products offered by Islamic Banks (in %)
  • Contributors towards Deposits of Islamic Bank
  • 2.5 Service Quality of Pakistan Banking Sector
  • 2.6 Customer Satisfaction in Pakistani Banking Sector
  • 2.7 Performance of Pakistani Banking Sector
  • Literature Review and Theoretical Framework
  • 3.1 Services
  • 3.1.1 Definition of Service and Service Quality
  • 3.1.2 Dimensions of Service Quality
  • Dimensions of Service Quality used in Banking Sector
  • 3.2 Customer Satisfaction
  • 3.2.1 Definition of Satisfaction
  • 3.2.2 Customer Satisfaction in Banking
  • 3.2.3 Determinants of Customer Satisfaction
  • 3.3 Bank Performance
  • 3.3.1 Performance Evaluation of Islamic Banks
  • 3.3.2 Performance of Pakistani Banking Sector
  • 3.4 Service Quality and Customer Satisfaction in Banking
  • 3.5 Service Quality, Customer Satisfaction and Bank Performance
  • 3.6 Hypotheses, Conceptual Model and Theoretical Framework
  • 4.0 Research Method
  • 4.1 Pilot Test
  • 4.2 Main Study
  • Details regarding Branches and Respondents (City wise)
  • 4.3 Measures and Instruments
  • 4.4 Reliability and Internal Consistency of the Variables
  • 5.0 Results
  • 5.1 Demographics of the Respondents
  • Summary of Demographics of the Respondents
  • 5.2 Descriptive Statistics of the Variables
  • 5.3 Hypothesis Testing
  • Summary of Correlation between Selected Variables
  • 6.1 Conclusion
  • 6.2 Suggestions
  • 6.3 Limitations and Future Research
  • 6.4 Contribution of the Study

A Comparative Study of Islamic Banking in Pakistan: Proposing and Testing a Model

BY Ashfaq Ahmad PhD Scholar 117/FUIMCS/Ph.D(MS)-2006 FACULTY OF MANAGEMENT SCIENCES 2009

A Comparative Study of Islamic Banking in Pakistan: Proposing and Testing a Model

A thesis submitted to the

FUIEMS Foundation University, Islamabad
In partial fulfillment of the requirements for the degree of

DOCTOR OF PHILOSOPHY In MANAGEMENT SCIENCES

BY

Ashfaq Ahmad PhD Scholar FACULTY OF MANAGEMENT SCIENCES 2009

APPROVAL SHEET Approved by

External Examiner (Prof. Dr. M. Hayat Awan)

External Examiner (Dr. Mahmood A. Bodla)

Internal Examiner (Dr. Hamuyoun Naeem)

Head of the Department (Prof. Dr. M. Iqbal Saif)

Director/Dean Faculty of Management Sciences (Prof. Dr. Aftab Ahmad)

CERTIFICATE

I have supervised Mr. Ashfaq Ahmad, PhD Scholar at Foundation University Institute of Engineering and Management Sciences, Islamabad. The candidate has completed his PhD thesis successfully. The dissertation titled “A Comparative Study of Islamic Banking in Pakistan: Proposing and Testing a Model” is worth submission for the award of the degree.

Dr. Kashif-ur-Rehman Associate Professor Department of Management Sciences Iqra University, Islamabad

(Ashfaq Ahmad) PhD Scholar .DECLARATION I. published and/or submitted as research work. Ph. dissertation or publication in any form by anyone in Pakistan or abroad. hereby declare that the materials included in this dissertation are my own work and have not printed. Ashfaq Ahmad.D scholar in the subject of Management Sciences.

. brothers and sisters who encouraged me to face any challenge.DEDICATION This work is dedicated to my parents.

1.1.8 Organization of the Dissertation .1 Pakistani Banking Sector 1.6 Significance of the Study 1.5 Objectives of the Study 1.2 Broad Problem Area 1.2 Islamic Banking Islamic and Conventional Banking 1 2 4 5 8 9 10 13 14 15 16 18 1.1 1.2.4 Statement of the Problem 1.VII Table of Contents Description Page No.7 Definition of the Variables of the Study 1.3 Identification of Knowledge Gap 1. List of Abbreviations List of Tables List of Figures List of Appendices Acknowledgement Abstract XI XIII XV XVI XVII XIX Chapter 1 Introduction 1.1 Background History of the Study 1.

1.5 Service Quality.3.1 3.6 Customer Satisfaction of Pakistani Banking Sector 2. Customer Satisfaction and Bank Performance 3.1 Services 3.3.2 Customer Satisfaction 3.2 Performance Evaluation of Islamic Banks Performance of Pakistani Banking Sector 3.2 Prohibition of Interest in Islamic Banking 2.2. Conceptual Model and Theoretical Framework .2.VIII Chapter 2 History and Development of Conventional and Islamic Banking in Pakistan 2.2 3.4 Service Quality and Customer Satisfaction in Banking 3.2.4 Operations and Products of Islamic Bank 2.5 Service Quality of Pakistani Banking Sector 2.1 Definition of Service and Service Quality 19 20 26 32 36 41 41 42 45 46 47 50 61 61 62 65 70 72 73 77 81 85 3.6 Hypotheses.3 Bank Performance 3.1 History of Banking Development in Pakistan 2.3 Functions of Islamic Bank 2.1 3.2 Dimensions of Service Quality 3.7 Performance of Pakistani Banking Sector Chapter 3 Literature Review and Theoretical Framework 3.3 Defination of Satisfaction Customer Satisfaction in Banking Determinants of Customer Satisfaction 3.1.

1 Pilot Test 4.1 5.1 Relationship among Service Quality.0 Research Method 4.3 5.2 5. Customer Satisfaction and Performance of conventional Banks in Pakistan 5.3 Limitations and Future Research 6.3 Measures and Instruments 4.6 Discussion 137 143 150 151 153 155 156 136 94 95 97 100 103 108 113 114 115 119 121 124 135 Chapter 6 Conclusion 6.5.2 Main Study 4.4 Contribution of the Study .4 5.IX Chapter 4 Methodology 4.1 Conclusion 6.0 5. Customer Satisfaction and Performance of Islamic Banks in Pakistan 5.4 Reliability and Internal Consistency of the Variables Chapter 5 Interpretation of Results 5.5.5 Results Demographics of the Respondents Descriptive Statistics of the Variables Hypotheses Testing Regression Model Result Testing the Model 5.2 Suggestions 6.2 Relationship among Service Quality.

6 Unique Status of the Study References Appendices 157 158 159 179 .X 6.5 Practical Implications 6.

XI List of Abbreviations CB IB SBP Prf DSQL CS ANOVA SEM SE df SQL Tgty Rlty Rspv Asnc Epty Csrv Helmt Smdlv TgSv Slrby Conventional Bank Islamic Bank State Bank of Pakistan Bank Performance Dimensions of Service Quality Customer Satisfaction Analysis of Variance Structural Equation Modeling Standard Error Degree of Freedom Service Quality Tangibility Reliability Responsiveness Assurance Empathy Core Service Human Element Systemization of Service Deliver Tangibles of Services Social Responsibility .

XII Cprf Iprf IBSQL CBSQL IBCS CBCS Slty Srsn PLS GDP ROI ROE UAE SOPs Conventional Bank Performance Islamic Bank Performance Islamic Bank Service Quality Conventional Bank Service Quality Islamic Bank Customer Satisfaction Conventional Bank Customer Satisfaction Service Quality Customer Satisfaction Partial Least Square Gross Domestic Product Return on Investment Return on Equity Unite Arab Emirates Standard Operating Procedures .

1 Table 2.1 Table 3.2 Table 2.1 Table 5.4 Table 3.XIII List of Tables Table Table 1.2 Table 4.2 Table 4. 7 35 36 43 44 53 75 97 99 101 102 105 109 111 115 119 120 Difference between Islamic bank and Conventional Bank Financial performance of Islamic banks Financing Products offered by Islamic Banks (in %) Performance of Pakistani Banking Sector Performance of Islamic banks in Pakistan Dimensions of Service Quality used in Banking sector Sources and Uses of Funds by Islamic banks in Pakistan Reliability Statistics of the Pilot-Test Descriptive statistics of the Pilot-Test Selected Banks included in the Study Details regarding Branches and Respondents (City Wise) A Summary of All Variables Operational for the Study Reliability Statistics of the Scales for IB Reliability Statistics of the Scales for CB Summary of Demographics of Respondents Skewness and Kurtosis of the Constructs and Variables Descriptive Statistics of the Variables Independent Samples T-Test for difference in perception Of Service Quality between Male & Female customers of IB 121 Table 5.3 Table 5.4 Table 4.7 Table 5.3 Table 4.3 Table 2.5 Table 4.2 Table 5.6 Table 4.5 Independent Samples T-Test for difference in perception Of Service Quality between Male & Female Customers of CB 122 .1 Table 2.4 Description Page No.1 Table 4.

XIV Table 5.17 Table 5.13 Table 5.16 Table 5.14 Table 5.20 Table 5.8 Table 5.19 Table 5. SrSn and Prf Structural Model-Bootstrap for IB Structural Model-Bootstrap for CB Summary of Hypotheses 125 126 127 128 129 130 131 132 133 134 138 141 142 148 .7 Table 5.10 Table 5.18 Table 5.9 Table 5.11 Table 5.6 Table 5.12 Table 5.15 Table 5.21 Summary of Correlation between Selected Variables 123 Summary of Pair wise Correlation between Selected Variables124 Summary of IBDSQL-IBCS Linear Regression model Summary of Multincollinearity coefficients Summary of CBDSQL-CBCS Linear Regression model Summary of Multincollinearity coefficients Summary of IBSQL-IBCS Linear Regression model Summary of CBSQL-CBCS Linear Regression model Summary of IBSQL-IBPrf Linear Regression model Summary of CBSQL-CBPrf Linear Regression model Summary of IBCS-IBPrf Linear Regression model Summary of CBCS-CBPrf Linear Regression model Relationship among Slty.

XV List of Figures Figure Figure 1. 3 33 37 38 Contribution of Islamic banks towards financing products 40 Expectation-Outcome experience of bank customers Customer Satisfaction for better Performance Total Assets of the banking system Graphical display of the hypothesized relationship between Service quality and customer satisfaction 88 63 64 74 Figure 3.8 Conceptual model: Service quality.1 Figure 2.1 Figure 5.6 Graphical display of the hypothesized relationship between Customer satisfaction and bank performance 90 Figure 3.4 Figure 3.3 Figure 3.1 Figure 2.4 Description Role of Financial Intermediaries (Banks) Functions of Islamic bank Operations of Islamic bank Contributors towards deposits of Islamic bank Page No.3 Figure 2.2 Figure 2.7 Mediating role of customer satisfaction between services Quality and bank performance 91 Figure 3.5 Graphical display of the hypothesized relationship between Service quality and bank performance 89 Figure 3.2 Relationship among Slty. Crsn and Iprf Relationship among Slty. Crsn and CPrf .1 Figure 3. Customer Satisfaction and Bank Performance in Pakistan 92 136 137 Figure 5.2 Figure 3.

XVI List of Appendices Appendix Description Page No. Appendix I Appendix II Appendix III Appendix IV Questionnaire List of banks operating in Pakistan Definition of Terms Results of VPLS 185 197 200 201 .

brothers and sisters who encouraged me and supported me to face any challenge in life. I am very thankful to my parents. Iqbal Saif to complete this journey on time. Human beings are blessed by the set of instructions through revelation as given by the Creator of this universe. I salute and pay my heartiest tribute to the Holy Prophet Muhammad (peace be upon him) being an ideal personality to follow his practices. I am also indebted to everyone who helped me during this period of study. The Holy prophet Muhammad (Peace be upon him) preached Islam as the religion of peace. guidance and supervision. brotherhood and welfare oriented for success in this life and in the life hereafter. . Kashif-ur-rehman for the kindness.XVII ACKNOWLEDGEMENT With the name of Allah Almighty the most merciful. I am really grateful to my supervisor Dr. I always remember the motivation and encouragements of respected Dr. the most beneficent. Allah Almighty equipped human beings with the light of knowledge in the era of darkness of illiteracy and lack of direction. I am very thankful to Him for His blessings and pray for complete success in this life and life hereafter.

Malik Muhammad Hayat. Mr. Mr. Asad Afzal Humayun. I really appreciate the efforts of HEC to provide an opportunity for accomplishment of my PhD. Dr. Salman. Aslam Dar. May Allah Almighty give us courage and taufeeq to follow the instructions of the Holy Quran and the practices of the Holy prophet Muhammad (Peace be upon him). (Ashfaq Ahmad) . I am also grateful to my Ex-Vice Chancellor Dr. Ahmad Jamal. Dr. Hafeez Ullah. I give special thanks to my university. Riaz-ul-Haq Tariq for his great initiative to promote research and development ventures. the university of Sargodha. Finally. Mehmood-ul-Hassan.XVIII I really appreciate the efforts and support provided by my friends and colleagues especially Mr. I am also impressed by the Vice Chancellor. Humyoun Naeem. Muhammad Akram Chaudhry for his productive and long lasting decisions. Ms Firdous Faqeer Hussain. Dr. Dr. Muhmmad Siddique and Mr. Mr. Sargodha for financial support and study leave to successfully complete my PhD. Mr. Mr. Muahmmad Nadeem Safwan.

A structured questionnaire has been developed for the study in the light of the existing literature. On the basis of theoretical background. a model is proposed and tested in Pakistani environment. policy makers and academicians. Inception of Islamic banking in Pakistan has created multiple challenges for banking industry. Correlation and Structural Equation Modeling are applied by the researcher to test the hypotheses of the study. Findings shows that service quality and customer satisfaction have weak influence on performance of banks. are used for data analysis. Data were collected from 1440 respondents by self-administrated questionnaire by using stratified sampling. Pakistan.g. Bank Performance. Service Quality.g.XIX Abstract This study examines the relationship between service quality. The results indicate a strong positive relationship between service quality and customer satisfaction in the banking sector of Pakistan. Conventional Bank. Key Words: Islamic Bank. Pakistani banking industry consists upon Islamic and conventional banks that are competing for more and more customers by delivery of quality services to have satisfied customers for better performance. The study has a number of implications for bankers. Customer Satisfaction. SPSS and VPLS etc. . Riba. customer satisfaction and bank performance by conducting a comparative analysis of Islamic banks and conventional banks in Pakistan. A number of tools e. A set of statistical techniques e. T-test. Regression analysis. Banking Sector.

Comparative Study of Islamic Banking 1

CHAPTER 1

Introduction

 Background  Broad Problem Area  Identification of Knowledge Gap  Problem Statement  Objectives of the Study  Significance of the Study  Definition of Variables  Organization of the Dissertation

Comparative Study of Islamic Banking 2 1. INTRODUCTION

1.1

Background of the Study

Banking industry is playing an essential role towards economic development and well being of any society. Banking activities are crucial for healthy economy, which leads towards the list of developed nations of the world. Industrial revolution during 18th century has expanded the trade and business activities by the inception of large-scale production. Banking gained importance as an essential facility to promote business operations. In today's global and borderless market, product/service quality and customer satisfaction may increase the performance of banks for the successful survival.

Greece experienced very sophisticated practices that were undertaken by temples, public bodies and private entrepreneurs to accept deposits, make loans and engaged in book transactions. Rome adopted and regularized the practices of Greece. Banking activities were considered essential in Babylonia in the second millennium B.C. Bankers from North Italy, collectively known as Lombards, set up Medici bank in 1397 and introduced double-entry system. The Rothschilds introduced commercial banking as services for customers by the early 17th century. Banking in undivided India was originated in 18th century by the inception of The General Bank of India in 1786. In Pakistan, banking activities are initiated after its independence on August 14, 1947. Pakistani banking sector witnessed a major change due to key role of private sector having about 80% of banking assets (Economic Survey of Pakistan, 2007-08).

Comparative Study of Islamic Banking 3 Banks play a vital role in mobilizing funds and stimulating investment for productive ventures. They accept deposits from the general public and advance loans to the entrepreneurs to enhance investment activities that are inevitable for a healthy economy. Banks develop a link between surplus and deficit units to promote the trade and business activities. The role of bank is shown in the following manner. Figure-1.1 Role of Financial Intermediaries (Banks) Savers (Surplus Units)  Small households or institutions with smaller amounts  Risk averse Financial Intermediation (Banks)  Financial Markets especially banks  Reduce Risks  Pooling small funds to remove mismatch and exploit opportunities
(Size, Maturity, and Liquidity Preference)

Entrepreneurs (Deficient Units)  Organized firms with professional skills requiring larger funds

Source: Generated Financial intermediaries facilitate the investors to provide finance according to their requirements by considering the risks and returns attached to different projects. Banks pool the funds by accepting deposits from the savers and provide these funds to entrepreneurs for productive ventures to generate profits. An efficient inter-mediation increases the productivity and return of investment for long term benefits.

Comparative Study of Islamic Banking 4 There are two banking systems that exist in Pakistan namely Islamic banking and conventional banking. The Islamic bank (IB) and conventional bank (CB) is differentiated on the basis of objectives, Riba and risk sharing practices. IB follows principles of Sharia’h given by Allah Almighty while CB follows manmade SOPs; IB generates income as profits that is variable while CB earns from the interest that is fixed; risk is shared among lender, borrower and bank in IB while CB transfers the whole risk to others; IB is trade oriented unit while CB works as a pure financial intermediary to deal on the basis of interest.

1.1.1

Islamic Banking

State Bank of Pakistan (SBP) defined Islamic banking as “banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Sharia'h”. Islam is defined as total submission to Allah Almighty without any condition. It is a complete code of life that consists upon the instructions of Allah Almighty and the practices of the Holy Prophet Muhammad (Peace be upon him). Everyone in this world performs religious, social and economic activities in one's life. But most of the times social and economic activities are originated and linked with the religious activities. Islam provides a comprehensive set of instructions to face any challenge. Economic activities reflect the earning and spending pattern of people, which is closely associated with religion in the form of being permissible (Halaal) or forbidden (Haraam). The Holy Quran has clear instructions regarding business and trading activities as earnings from

Comparative Study of Islamic Banking 5 trade (Bai) is halal but interest (Riba) based activities are haraam. The Organization of Islamic Conference (OIC) also supported the Islamic financial system in 1973 at Jeddah. During the decade of 1990s. 1. the Bahrain Islamic Bank in 1979. and Meezan Islamic bank of Pakistan in 2002. Saudi Arabia. Islamic Banking Act was passed in 1983 to transform the interest-based conventional banks into Islamic banks. In Malaysia. the Faisal Islamic Bank of Sudan in 1977. It is suggested that riba-free and equity based economy is necessary to realize the benefits of Islamic financial system and to ensure the well being of mankind (Chapra.2 Islamic and Conventional Banking The basic aim of the Islamic banking is to perform interest-free activities based on principles of Sharia’h and carry out only Halaal (permissible) transactions. Similarly a number of Islamic banks were established as Philippine Amanah Bank in 1973. the Faisal Islamic Bank of Egypt in 1977. 1985). Dubai Islamic Bank in 1975. Banking activities are the part of economic activities and Islam allows riba-free banking only. the bank . Islamic banking practices were initiated all over the world especially in the Muslim dominated parts of the globe. Further. In Egypt the first modern Islamic bank was established in 1963 according to the principles of Islamic finance. the beginning of 21st century proved a success for Islamic banking as a large number of banks started to deal in products/services according to principles of Sharia'h.1. The most important feature of Islamic banking is the sharing of risk among the investors.

Islamic banking focuses on fairness and freedom as a centrally controlled and individually managed system according to the instructions of Allah Almighty. . conventional banks and Islamic banks requires a study to analyze service quality. 1985). While in conventional banking investors are guaranteed a predetermined rate of interest and it aims to maximize the return even at the cost of society or other stakeholder. It can also perform the function of investment manager (Wakalah) and generate revenue as service charges. specific investment fund or accept demand deposits on interest free basis. Al-Jarhi and Iqbal (2001) defined Islamic bank as a banking institution conducting all known banking activities including borrowing and lending without interest.e. which is fatal for society.Comparative Study of Islamic Banking 6 and the borrowers. Islamic bank works as Mudarib to invest savers’ funds in general investment fund. It mobilizes funds on the basis of Mudarbah or Wakalah and may accept demand deposits as interest free loan. It deploys funds on profit and loss basis or may advances on debt creating basis according to the principles of Sharia’h being an investment manager. customers' satisfaction and bank performance in Pakistan. The existence of two bank streams i. It is evident that Islamic banks are more focused towards just and equitable distribution of resources as compared to conventional banks (Siddique. Islam has provisions for innovative products and practices by using the Ijtihad according to the holy Quran and Sunnah as the origin for all deeds. In conventional banking excessive use of credit and debt financing can lead to financial problems and promote materialistic attitude that leads to exploitation.

Profit. Islamic bank works as a trading It generates income as financial concern (Mudarib or Wakalah) intermediary.1 Difference between Islamic Bank and Conventional Bank Main Difference Principles Islamic Bank Conventional Bank Islamic banks follow the Conventional banks follow Principles of Sharia’h given by manmade principles to perform Allah Almighty to perform operations and activities operations and activities.1. Profit is variable which may be negative in case of loss. Risk is fully transferred to lender and bank. Source of Earnings Risk Sharing Risk is shared among borrower. others. Income of Islamic banks varies depending upon business environment. Income of conventional bank is constant even if business suffers from loss because it charges fixed rate of interest irrespective of profit volume. shareholders’ value at any cost.Comparative Study of Islamic Banking 7 The main difference between Islamic and conventional banks is summarized in table 1. It aims at maximizing the profit It aims at maximizing the profit but subject to principles of without any restriction even at the cost of other stakeholders. Its prime goal is the maximization of to generate its income. service charges and consultancy fee is the main source of earnings of Islamic banks. Interest is the main source of income for conventional banks that is charged on different types of loans/products. Sharia’h. (Difference between interests charged from borrowers and paid to depositors). It may be negative in case of loss. It assures a predetermined rate of interest. Profit Maximization Objectives Nature of Earnings Source: Generated . Table-1.

2 Broad Problem Area The basic aim of the Islamic banking is to perform interest-free activities. Islamic banks are equally beneficial for non-Muslim community by promoting brotherhood and cooperation in the society. In Pakistan. risk sharing. . facilitate production and business activities. Islamic banks help Muslim Ummah to invest their savings for halal returns according to principles of Sharia’h. Islamic bank plays a more active role for the economic development of any country by mobilizing the funds from savers (to provide these funds) to entrepreneurs. lesser financial crisis. Islamic banks ensure stable economy. It helps to eliminate undue exploitation of different stakeholders that is created by interest based banking system. reduce injustice.Comparative Study of Islamic Banking 8 1. While in conventional banking investors are guaranteed a predetermined rate of interest and it aims to maximize the return even at the cost of society or other stakeholder. fair distribution of income. there are a number of conventional banks that are providing a variety of products to their customers but most of the products are riba (interest) based which are contradictory to the principles of Sharia’h. It also encourages welfare oriented business projects with high profitability that leads to improved quality of life. Financial sector reflects the overall trend of the economy and banking institutions are the main component of it. Islamic banks play a vital role in the economy to promote productive activities that enhance economic growth and prosperity.

There are more than 50 banks actively working in Pakistan to provide quality service to meet customers' expectation. Similarly. Islamic banks deal in equity based (profit/loss) contracts that are more suitable for the economy as compared to interest-oriented conventional banks.1 Pakistani Banking Sector State Bank of Pakistan is the central bank of Pakistan that regulates the banking sector by devising monetary policy according to changing environment. 1979.Comparative Study of Islamic Banking 9 Friedman (1969) suggested that a nominal zero interest rate is necessary condition for optimal allocation of resource. both banking streams provide a set of products and services that requires a comparative study to assess their performance on the basis of service quality and customers’ satisfaction. Mirakhor. Cole and Kocherlakota. 1. It was found that zero interest rate is required and sufficient for allocative efficiency by investigation within general equilibrium models (Wilson and Charles. Literature also supported that interest-free (profit and loss sharing) system is viable and superior to an interest-based system (Chapra. 1997). 1998). Pakistan has also experienced an unprecedented growth in the services sector especially banking sector due to its increasing contribution towards GDP. Services sector is growing component of gross domestic product (GDP) all over the world as evident from last few decades. Pakistani banking sector has shown outstanding performance during last few years due to greater participation of private sector and foreign investors. 1985.2. .

The total number of branches has reached at 8233 by an increase of 343 branches within six months. Similarly totalbanking assets stood Rs. . The existence of Islamic and conventional banks created competition among banks to meet customers’ expectations for long term benefits. Pakistan. 2007). Currently. there are several banks that are providing services to customers according to the principles of Sharia’h. 2007-08). The 21st century came with blending of opportunities and threats for the banking sector due to inception of Islamic banking practices in different countries like Malaysia. Financial sector especially banking industry enjoyed numerous benefits from structural transformation of state owned banks to private banks. 5155 billion by an increase of 203.1 billion in the first six months of the financial year 2007-08 (Economic Survey of Pakistan.3 Identification of Knowledge Gap Services industry particularly banking sector is growing across the globe during the decade of 1990s. At the end of April 2007. Banking industry experienced an expansion in its branch network and volume of total banking assets. Commercial banks have shown an outstanding performance during last few years and attracted a considerable amount of foreign direct investment (FDI) in the industry. It is found that the profitability of state owned banks has reduced as compared to private banks with the passage of time.Comparative Study of Islamic Banking 10 Arby (2003) investigated the performance of commercial banks in Pakistan. 1. This competition leads to concentration on service quality issues according to bank customers’ requirements. Bangladesh. there were 6 full-fledged Islamic banks with 108 branches and 13 conventional banks having 58 branches offering interest free products in Pakistan (SBP. Bahrain and even in non-Muslim parts of the globe.

2006. However. Kayis et al. Lassar et al. 1991).. there is no research available that further found the impact of customer satisfaction on bank performance. 1996... Nelson. 1985. 2000.Comparative Study of Islamic Banking 11 Gronroos (1982) investigated the service quality in the banking sector and explored three dimensions of it. Mishkin. (Levesque and McDougall. there are also some studies that measured the relationship between service quality and bank performance. State Bank of Pakistan has initiated working . Similarly. Since its creation. Pakistani banking sector has experienced very turbulent environment due to unstable policies and uncertainty. Nationalized banks showed very poor performance due to inferior products/services that resulted into the privatization of banking sector in 1992. 2004. 2001. ten dimensions of service quality were found and finally summarized into five dimensions in term of SERVQUAL instrument (Parasuraman et al. Chong and Lin. 2003. The relationship between service quality and customer satisfaction is investigated due to increasing competition in the banking sector. Pakistani banking sector concentrated on quality oriented services after financial liberalization in 1992 due to an active participation of private sector banks. 1988. Jabnoun and Khalifa. 2002). Almost negligible contribution from the developing countries in the banking sector especially after inception of Islamic banking practices. 2005. Razak. Private sector banks dominated during 1950s and 1960s but they were nationalized in 1974. Yavas et al. Curry and Penman. Banks are performing multiple functions to provide a variety of products and service for different segments of the economy... Similarly. Then service quality was linked with satisfaction of bank customer to assess the magnitude of the relationship (Sureshchander et al. 1997. 2007).

Comparative Study of Islamic Banking 12 for the inception of Islamic banking practices in 2000 and Meezan Islamic bank was registered as first full-fledged Islamic bank in 2002. Islamic banking and conventional banking in Pakistan with reference to . The banking industry experienced an expansion due to diversification and innovation of products/services. Everyone tries to introduce innovative products and services by beautiful blending of traditional facilities and modern technology to cope with each other for greater number of customers that leads to more profitability. plenty of studies are available regarding different aspects of conventional system while rare for the other. The increasing number of conventional and Islamic banks created a healthy competition for the provision of quality service to retain satisfied customers for long-term benefits. The ups and downs in the growth of banking sector requires a study to analyze the performance by considering quality of services offered by banks in relation to customer satisfaction. Islamic banks have to face multiple challenges due to strong reaction from conventional banks because they were deep rooted and popular among the public to meet their requirements.e. There are studies about two banking systems (Islamic banking and conventional banking). Islamic banks have a number of opportunities in Pakistan with a population of more than 96% Muslims. Islamic banks are new entrants in the Pakistani banking industry and also require a comparative study to assess the performance of their operations and products/services. This study aims to examine the two banking streams i. The acute shortage of literature regarding Islamic banking system inspired the researcher to conduct a comparative study in Pakistan. This research is an effort to fill this gap in the literature.

Pakistani banking sector experienced drastic changes over its 61 years life. In Pakistan. However. Everyone is striving to realize greater profits by delivering quality services according to customers' expectations. no empirical research has ever addressed the issue of service quality. Banks develop a liaison between depositors and borrowers besides other services. 1.Comparative Study of Islamic Banking 13 service quality. The existence of Islamic and conventional banks in Pakistan created competition to attract a large number of customers.4 Problem Statement Banking industry stimulates the savings and investment ventures to promote business and trade activities in the economy. Similarly. The relationship between service quality and satisfaction of bank customers is investigate in the different parts of the world but there is severe shortage of studies regarding Pakistani banking sector. Islamic banking practices were newly introduced in Pakistan that requires a comparative study to contribute towards literature. customer satisfaction and bank performance to fill the knowledge gap in the existing literate. A comparative study is demanded/needed based on the exiting literature to analyze the relationship between service quality. CS and PRF to compare Islamic banking with conventional banking in Pakistan. there is abundance of literature regarding service quality and customer satisfaction in the banking sector but there is scarcity of studies to link these variables with bank performance. This study enhances the body of knowledge in the field of banking by developing a local model of SQL. Islamic banks have started their operations at the beginning of 21st century and are competing with conventional banks. customer . customer satisfaction and bank performance.

their feelings of satisfaction and performance of banks in Pakistan. Islamic banking system is growing rapidly during last few years and proved its potential to work as a compatible and parallel alternative system for providing financial services. The main objectives of the study are as under:  To find out the difference in the perception of service quality among bank customers on the basis of gender in Pakistan  To find out the relationship between service quality of products offered by banks and customers satisfaction in Pakistan.5 Objectives of the Study This study examines the relationship among customers' preference of service quality.  To know how customer satisfaction affects the performance of the banks in Pakistan. This study aims to propose and test a model of SQL. It requires a study to measure the impact of service quality on customer satisfaction towards bank performance. There is an increasing competition among Islamic banks and conventional banks to capture new customers as well as to retain existing customers.Comparative Study of Islamic Banking 14 satisfaction and bank performance in Pakistan. CS and PRF by comparing Islamic and conventional banks in Pakistan. This study examines how service quality affects the customers' judgments towards satisfaction and its impact on the performance of the Islamic banks as well as conventional banks in Pakistan. . This study analyzes the perception of services quality of products offered by Islamic and conventional banks with mediating effect of customer satisfaction on bank performance. 1.

2001). customer satisfaction and bank performance in Pakistan. Another study evaluated service quality and customer satisfaction in East . bank managers.6 Significance of the Study Banks make heavy investments to attract larger customers for better profitability but these efforts are useless until and unless proper customer management by provision of quality services. Similarly. This study is also important because Islamic banking is growing in terms of size and structure at a rate of 114 percent per annum (SBP. customer satisfaction and bank performance 1. it also investigates the relationship between customer satisfaction and bank performance. 1985). There is no research available in the literature that could show a relationship between service quality. academician and policy makers to find out the most important dimension of service quality that yields more satisfaction for customers in Pakistan. 2006). Sarker (1999) found that Islamic banks could survive in less dominated profit-loss environments to compete with the conventional banks. It is found that Hong Kong banks adopted quality initiative gradually and achieved significant success in quality improvement to meet service standards (Li et al.Comparative Study of Islamic Banking 15  To make a comparative analysis of responses of customers of Islamic banks and Conventional banks with reference to service quality. This study may help the practitioners. It is evident that Islamic banks ensure just and equitable distribution of resources as compared to conventional banks (Siddique. Liang and Wang (2006) empirically investigated the relationship between service quality and customer satisfaction in Taiwan banking sector and found a positive relationship.

7 Definition of the Variables of the Study This study examines how service quality of Islamic banks affects the customer's attitude towards satisfaction and its impact on bank performance. 1. Gritti and Foss (2007) studied the relationship between customer satisfaction and loyalty and its impact on profitability in Italian banking sector. it measures the magnitude of the effect of service quality on customer satisfaction. 2007). Secondly. However.Comparative Study of Islamic Banking 16 Africa. Firstly. customer satisfaction scores could increase the bank efficiency by reducing divergence in efficiency scores (Tripe. Islamic banks are striving to capture the maximum number of customers to compete with conventional banks by providing a large number of products as an alternative for interest . They reported that customer satisfaction has a direct influence on financial customer value. banks realized that service quality issues are more important as ever before. Findings showed five service components with statistically significant impact on customer satisfaction (Greenland et al. 2006). It is found that financial reforms and changes in governance have improved the performance of Pakistani banking sector over time (Burki and Ahmad. 2008). In Pakistan. Al-Hawari and Ward (2006) used structural equation modeling and found customer satisfaction works as mediator between service quality and financial performance of banks in Australia. this research helps to find out the influence of the customer satisfaction on bank performance.. Akroush (2008) investigated the impact of service quality on bank performance in Jordan and proved that dimensions of service quality have a strong positive impact on bank performance.

Customer satisfaction has become important due to increased competition and considered an essential factor in the determination of bank's competitiveness (Bartell. 2000). 1996. Islamic banks also require performance evaluation to compete with conventional banks in Pakistan. Customer satisfaction is getting concentration of top management as a corporate goal to improve the quality of their products and services (Bitner and Hubbert.. Romano and Sanfillipo. 1994). It is suggested that managers should consider important elements of service quality to develop strategies for quality improvement (Hung et al. 1993. It is reported that . Satisfaction means a feeling of pleasure because one has something or has achieved something. Service firms like banks are continuously evaluating their performance to cope with the challenge of recent age. Customer satisfaction is the feelings or outcome of a customer's experience towards product/service after it has been consumed (Solomon. 1996. consultancy and agency services that are diversified with the passage of time. 1994. Service is the combination of benefits delivered from a service provider to the service user. Banks provide financial inter-mediation. Service quality in the banking sector is gaining importance due to an increased competition for the provision of diversified financial services. Chakravarty et al. 1996).Comparative Study of Islamic Banking 17 based products. Service quality helps to gain competitive advantage for long-term customer relationship (Zeithmal et al. 2003). Chitwood. Wells and Prensky. 1996. 1996). Quality is an ability of any product to meet customers' expectations. Haron et al. Performance evaluation became crucial for the successful survival of the business organization especially in the banking sector due to competition and customers' awareness of service quality.

Service quality and customer satisfaction could be associated with better performance especially in the banking industry. customer satisfaction and bank performance. It also reveals the objectives of the study. It shows the broad problem area to identify the knowledge gap and specific problem area by expression of problem statement. Banks have realized the importance of service quality for successful survival in today's global and highly competitive environment (Wang et al. The literature provides a foundation to measure a link between service quality and customer satisfaction. But there is shortage of studies in the literature regarding service quality. its significance and rationale. It also explains variables and constructs i. Chapter two presents a snapshot of historical developments of conventional and Islamic banks in Pakistan. Chapter five reflects the interpretation of results.Comparative Study of Islamic Banking 18 banks could capture the added demand by quality investments when market size grows due to increased barriers to entry (Dick. Finally. Chapter four represents the methodology of the study. Chapter one gives an overview regarding the query by exploring background history and evolution of banking practices. suggestions and implications of the study.8 Organization of the Dissertation This dissertation consists of six chapters. . Chapter three consists upon a rigorous literature review to develop theoretical framework of the study.e. 2003). 2007). chapter six contains conclusion. This study intends to identify the essential factors that help bankers to understand customers’ perception of service quality to have satisfied customers for better performance. customer satisfaction and bank performance especially with reference to Pakistan. 1. service quality.

Comparative Study of Islamic Banking 19 CHAPTER 2 History and Development of Conventional and Islamic Banking in Pakistan  History of Banking Developments in Pakistan  Prohibition of Interest in Islamic Banking  Functions of Islamic Banking  Operations and Products of Islamic Bank  Service Quality of Pakistani Banking Sector  Customer Satisfaction of Pakistani Banking Sector  Performance of Pakistani Banking Sector .

In 1991. Islam is declared the official religion of Pakistan according to the first constitution of Pakistan in 1956 and all rules/ regulations should be according to the instructions of the Holy Quran and Sunnah. The government of Pakistan is bound to follow the instructions of Allah Almighty according to Objective Resolution. 1947. Initially it suffered from acute shortage of resources and uncertainty due to prevailing political and socioeconomic conditions.Comparative Study of Islamic Banking 20 Chapter 2 History and Development of Conventional and Islamic Banking in Pakistan 2. Full Bench of Supreme Court of Pakistan ordered the elimination of riba from the economy until June 30.1 History of Banking Developments in Pakistan Pakistan came into existence as the first Islamic republic created in the name of Islam on August 14. to eliminate the interest from the economy especially from banking sector. The Council of Islamic Ideology was established under the Constitution of 1962. The Constitution of Pakistan (1973) requires the elimination of interest (riba) from the economy as soon as possible. The council consulted a large number of bankers and economists to recommend some alternatives to replace interest-based financial structure in the economy during 1980s. Lack of trained human resource and professionals resulted into poor quality of products and services. Financial liberalization . 1992. Pakistani banking sector has witnessed drastic changes over a period of 61 years since its independence. passed in 1949.

healthy competition and risk taking to ensure a sustainable and aggressive income stream. It also discouraged the private investors . Pakistani banking sector is continuously improving with diversified pattern of ownership due to an active participation of foreign and local stakeholder. size and structure due to beautiful blending of commercial banks.Comparative Study of Islamic Banking 21 and deregulation stimulated the competition among banks due to an expansion of the banking industry. A large number of banks has initiated their operations in Pakistan and try to attract the maximum number of customers. safeguarding social obligations and consumer interests” (Economic Survey of Pakistan. opportunities for enhancing the franchise value of banks. It experienced an expansion in its network. micro finance institutions and Islamic banks in the country. State Bank of Pakistan has undertaken a number of initiatives to ensure stability. prudent behavior and effective risk management and loan provisioning requirement are stringent enough to discourage infection of the loan portfolio. It resulted into an increased competition among banks to attract a greater number of customers by the provision of quality services for long-term benefits. The regulatory framework encourages “financial sector growth. The inception of 21st century heightened the competition among banks regarding service quality to have satisfied customers for better profitability. transparency and flexible legislation. 2007-08). diversification and innovation. The performance of nationalized banks deteriorated due to government protection to employees that resulted into the provision of inferior products and poor services.

2002 (SBP. Now bank customers are much concerned regarding the quality of services due to increased awareness. There are drastic changes in Pakistani banking sector due to strong competition among public. ensuring Sharia'h Compliance and transparency”. private and foreign banks. Now there are 6 fullfledged Islamic banks and 13 Conventional banks offering products and services according to principles of Sharia’h in different parts of the country. SBP issued detailed criteria in December 2001 for the establishment of full-fledged Islamic bank in the private sector. . They continue to deal with their current bank only if they feel satisfied. Al Meezan Investment Bank received the license from SBP in January 2002 and started its operations with the name of Meezan Islamic bank as the first Islamic bank from March 20.Comparative Study of Islamic Banking 22 and foreign financial institutions. They are competing in a highly competitive environment for the provision of quality services according to customers' expectations. 2002). otherwise they feel no hesitation to switch to other banks. Islamic banks have started their operations in Pakistan and experienced stiff competition from its peers as well as from conventional banks. In 2002. SBP plays an active role to establish a sound Islamic banking system in Pakistan according to principles of Sharia’h as mentioned in its mission statement that read “To promote and develop Islamic Banking industry in line with best international practices. But liberalization of financial sector by privatization and deregulation during 1990s encouraged local investors and motivated foreign banks to start their operations in Pakistan.

Galbraith (1975) reported. Islam is a complete code of life that consists upon the instructions given by the Allah Almighty and practices of the holy prophet Muhammad (peace be upon him). transparency and accountability that ensure substantial economic growth.) according to their contribution (Siddiqui. religious. . It generate exploitative trend that is fatal for the economy and society. social and economic) that are performed for the success in this life and in the life hereafter.e. It means that an ideal economic system has the ability to meet expectations of people what they “want” in a transparent manner. The holy Quran is the written instructions of Allah Almighty for the human beings.Comparative Study of Islamic Banking 23 Islamic bank offers a wide range of products on the basis of profit and loss according to principles of Sharia’h. Islamic economic system is superior because it is based on the principles of justice. Islamic banks work within the limits prescribed by Sharia'h to stimulate business and trade activities. “The best economic system is one that supplies the most of what that most people want”. There are clear instructions about halal and haraam. It covers all aspects of human life and all types of activities (i. Islamic banks are primarily concerned to eliminate Riba from the economy by promotion of risk sharing practices for economic prosperity. It develops the sense of collective welfare by sharing the risk among different stakeholder. Islamic bank is beneficial due to its capability to spread risk in the economy among the concerned parities (depositor. 1973). While the interest is the central tenet of the conventional banking and it maximizes the return even at the cost of other stakeholders by transferring the burden of risk to other parties. banker. Islam is a universal faith that promotes brotherhood. borrower etc.

or usury is strictly prohibited in Islam as dealing with Riba-based transactions means declaring war with Allah Almighty and His Messenger (Muhammad. equity based banking contracts stimulate the investment in the economy (Haque and Mirakhor. Riba. Interest is an additional amount paid/received on the principal amount according to an agreement due to a time period attached thereof. Even a single additional penny on the principal amount or any other benefit attached with this transaction is considered as Riba (Rehman. Uzair (1976) has presented the working structure of Islamic bank and developed a mechanism to cope with the challenges of risk and interest. 1973). The study suggested that Islamic banks could help to reduce risk to enhance productive activities in the economy. Risk of loss is a potential threat that creates obstacles for productive activities in the economy. 1984. 1993). peace be upon him). interest. It is reported that different stakeholders dealing with Islamic bank are risk neutral and actively engaged in productive activities according to profit and loss based contracts (Siddiqui. The interest-based transactions of conventional banks promote materialistic and exploitative attitude that is fatal for society. Furthermore. 1985). 1986). 1985).Comparative Study of Islamic Banking 24 social equality and fairness in economic activities for the welfare of the mankind (Chapra. Equity contract is superior to debt contract due to a number of benefits. It improves the profitability of business units by eliminating the limitations as imposed by debt. It was proved that equity participation has a great potential for larger profits along with benefits of decentralized decision-making (Wieltzman. .

both for some evidence in favor to support and stabilize monetary system and somewhat against it (Yousefi. 2001). It was found that relationships with bank personnel are important criteria for selection of bank (Abratt and Russell. Profitability is more efficient measure for allocation of funds as compared to credit worthiness. It is also important to assess the effect of customer satisfaction on bank performance. The study showed mixed results. The existence of two bank streams i. conventional banks and Islamic banks poses some questions about service quality and customers' satisfaction in Pakistan. 1991).e. (Najajmabadi. 1997). In another study. interest based system focus on credit-worthiness. Islamic banks have opened new avenues for acceptance of deposits on interest free-basis and extend credit facilities excluding interest e. 1999). it was empirically verified that Islamic banking system showed excellent performance by supporting financial sector in Tunisia (Darrat. Qarz-e-Hasana etc. Similarly profit sharing system would be more stable as compared to interest-based system (Al-Jarhi and Iqbal. 1988). It is found that Islamic banking system is superior to conventional banking system as it ensures more stable financial sector (Khan. There is an empirical evidence to find out the influence of Islamic banking practices on monetary stability of Iran. On the other hand. 1986). . It is reported that profit and loss sharing system generates more profits.Comparative Study of Islamic Banking 25 Islamic banks affect monetary system by adjusting the demand and supply forces for money.g. Abizadeh and Mccormick. Wilson (1990) remarked the success of Islamic banking that compelled the many commercial banks to provide Islamic banking products to their clients.

Comparative Study of Islamic Banking 26 Al-Jarhi and Iqbal (2001) defined Riba with reference to Sharia'h scholars as “anything (big or small). social and economic activities have strong ties with each other. . 1998). religious. in excess of the principal on a loan that must be paid by the borrower to the lender along with the principal as a condition (stipulated or by the custom). Banking activities must be interest-free and purely according to principles of Sharia’h for the welfare of the all segments of the society. Banks are actively engaged in different economic activities by developing a liaison among various stakeholders for financial and productive ventures. of the loan or for an extension in its maturity.e. so economic activities (i. pecuniary or non-pecuniary. Similarly. 2. interest is prohibited on all type of activities i. earning and spending pattern of any individual) should be in line with the Islamic principles.e. In Islam. whether it is paid/received on consumption or production activities. Islam prohibits all types of Riba not only on loans but also on other transactions as Riba-al-fadl that is linked with an exchange of commodities.” It is referred as Riba-alqard or Riba-al-Quran that is known as interest on loans in recent age.2 Prohibition of Interest in Islamic Banking Interest based activities are strictly prohibited in Islam as it is ordered by the Allah Almighty in the Holy Quran. It is reported that that the performance of Islamic banks meets the international standards in terms of profitability (Iqbal et al.

they are used to practice riba-based .1 Prohibition of Interest in the Holy Quran Riba is prohibited step by step by Allah Almighty by conveying its pros and cons in the Sura-e-Rome (30:39) and finally declared haraam in the Sura-e-Al-Bakara (2:275). You must frequently distribute charity.2. There are always a segment of people even in the previous nations of the world.Comparative Study of Islamic Banking 27 2. Zakat and Sadaqaat among deserving people for sake of increase in your income and success in this life and in the life hereafter. to convey the pros and cons of riba. though they were forbidden. In this verse. seeking Allah's countenance. This is the first stage. “That they took riba. and that they devoured men's substance wrongfully. Following verses of the Holy Quran clearly reflects the instructions regarding riba. Allah Almighty disclosed the pros and cons of riba and ordered to spread charity. We have prepared for those among them who reject faith. a grievous punishment” (4:161) This holy Verse shows the historical perspectives of riba. hath increase manifold” (30:39). but that which ye give in charity. People only consider extrinsic characteristics of riba to increase their capital manifold and ignores the intrinsic fatal outcome of riba. “ That which ye given in riba in order that it may increase on (other) people's property hath no increase with Allah.

they will abide therein (forever)” (2:275). “O ye who believe! Devour not riba. Those who after receiving direction from their Lord.Comparative Study of Islamic Banking 28 activities and swallow the property of others by hook or crook. which is prepared for those who reject faith”. “Those who devour Riba will not stand except as stands one whom the evil one by his touch hath driven to madness. It also inspires the human being to be obedient to Allah Almighty for ultimate success. It rejects manifold increase in the Riba and warns the people. The persons who eat riba are like those that are touched by satan and became unsound of mind. They foolishly argue that trade is like riba. This holy Verse makes a strong foundation for the prohibition of Riba by declaring it as unwanted activity. And obey Allah and the Messenger. These verses show the final prohibition of riba by the Creator of this universe. But trade is declared halaal and riba is . that ye may obtain mercy” (3:130-2). that ye may (really) prosper”. doubled and multiplied. their case is for Allah (to judge). These people are warned for exemplary trial and bad consequences of their deeds. That is because they say: ‘Trade is like Riba'. But Allah hath permitted trade and forbidden Riba. desist. but fear Allah. But those who repeat (the offence) are companions of the fire. The People are ordered to stop eating the earnings from Riba and follow the instructions of Allah Almighty. “Fear the fire. shall be pardoned for the past.

“Allah will deprive riba of all blessing. Deal not unjustly. “And fear the Day when ye shall be brought back to Allah. grant him time till it is easy for him to repay. . Believers of Allah Almighty are required to waive of their interest from borrowers and recover only principal amount. But there are uncountable blessings attached with the deeds of charity and sadaqaat. “O ye who believe! Fear Allah and give up what remains of your demand for riba. But if ye remit it by way of charity. ye shall have your capital sums. if ye only knew” (2:280). that is best for you. and none shall be dealt with unjustly” (2:281). and ye shall not be dealt with unjustly” (2:279). But if ye turn back. if ye are indeed believers” (2:278). So you must follow the instructions otherwise horrible fire is waiting for you. but will give increase for deeds of charity. for He loved not creatures ungrateful and wicked” (2:276). Then shall every soul be paid what it earned. who can fight with Allah? “If the debtor is in a difficulty. And if you do not ready to accept then ready for war with Allah and His Messenger. take notice of war from Allah and His Messenger.Comparative Study of Islamic Banking 29 haram by Allah Almighty. as He dislikes the violent. Allah Almighty does not bestow blessings upon riba-based activities and orders to stop them. “If you do it not. These verses are related to desired post prohibition behavior of believers.

brotherhood and cooperation having prime concern of welfare being totally submissive to Allah. he has dealt in riba. This will be resulted into countless benefits for individual and for the society as a whole. these verses are the best examples to promote a sense of brotherhood and collective welfare by cooperation. Eventually. social. The holy Quran has clearly declared an interest as haraam and people are prohibited to practice it. Because Allah Almighty inspires the people to give relaxation to the borrower. Islam is the religion of peace. Similarly. 2.2 Prohibition of Interest in the Ahadith The Holy Prophet (Peace be upon him) gave us a complete code of life in the shape of Islam that covers all aspect of human life (i. Abu Saad al Khudri (R. If anyone gives more or asks for more.Comparative Study of Islamic Banking 30 Finally. and economic activities). silver for silver. barely for barely. even to write off the debt as charity if the lender has capacity. religious. wheat for wheat. . dates for dates and salt for salt. payment being made hand by hand.e. Islam ensures complete success in this life and the life hereafter by following the instructions of the Holy Quran and Sunnah (practices of the holy Prophet Muhammad-Peace be upon him). if he faces some problems to repay the loan.2. The receiver and giver are equally guilty” (Muslim).A) narrated that the Holy Prophet (Peace be upon him) said: “Gold for gold. Prohibition of riba is depicted from following Ahadith. like for like. people are responsible for their deeds before Allah Almighty at the Day of Judgment. the Holy Prophet Muhammad (Peace be upon him) discouraged interest based activities and strictly prohibited to practice it.

he who usurps an orphan's property without right. he who takes riba. Ans Ibn Malik (R. he should not accept it. Jabir (R.A) narrated that the Holy Prophet (Peace be upon him). said: “On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside.S. and he who is undutiful to his parents” (Kitab al Buyua). cursed the receiver and the payer of riba. he who drinks habitually. he should not ride. said: “There will certainly come a time for mankind when everyone will take riba and if he does not do so.A) narrated that the Holy Prophet (Peace be upon him).) narrated that the Holy Prophet (Peace be upon him).) who they were. unless the two of them have been previously accustomed to exchanging such favors mutually” (Kitab al Buyua). Abu Hurayrah (R. and if the borrower offers a ride on an animal. said: “Allah would be justified in not allowing four persons to enter paradise or to taste its blessings. I asked Gabriel (A. the one who records it and who witnesses to the transaction and said: “They are all alike (in guilt)” (Trimizi). its dust will reach him” (Abu Daud). He replied that they were people who had received riba” (Musnad Ahmed).A.A) narrated that the Holy Prophet (Peace be upon him). said: “When one of you grants a loan and the borrower offers him a dish. .A) narrated that the Holy Prophet (Peace be upon him). Abu Hurayrah (R.Comparative Study of Islamic Banking 31 Abu Hurayrah (R.

It was observed that the banking industry experienced stiff competition with banks and with other financial institutions to attract potential customers (Hull. 1993). It is found that Islamic bank performs activities in the right direction towards human development.1. It initiated a healthy competition for Islamic banks to compete with their peers and conventional banks for greater profits.Comparative Study of Islamic Banking 32 2.3 Functions of Islamic Bank Business organization is primarily originated for the sake of profit by performing lawful activities. It is a welfare organization that promotes business and trade activities by pooling the financial resources for the sake of profit and loss for mutual benefit. Islamic bank works as a trading concern and financial intermediary to perform interestfree activities purely according to principles of Sharia’h. Islamic banks perform a variety of fund-based and non-fund based functions to facilitate their customers. . 2002). It plays a positive role towards economic development having main focus on human development while performing its functions (Al-Harran. 1999). It is documented that banks have witnessed more profits on Murabaha facilities as compared to conventional loans due to profit and loss base of Islamic products (Ebraim. Banks are also one of the business organizations that provide a set of products and services to generate profits. Some important functions are displayed in figure 2. Inception of Islamic banking practices in Pakistan created multiple threats and opportunities to meet customers' expectations by the provision of quality services.

Utility Functions Primary Functions Islamic Bank Advance Loans (Financing Products) Long Term Musharika. Short Term Murabaha.Comparative Study of Islamic Banking 33 Figure-2. Istisna etc.1 Functions of Islamic Bank General Investment Fund Specific Investment Fund Accepts Deposits Non-Fund Based Services Agency & Gen. Source: Generated Medium Term Ijarah. Mudaribah and Diminishing Musharika etc. Muajjal. Salam. Ijarah-Wa-Iqtina etc. Fund Based Services .

The study recommended that all the transactions should be based on profit and loss contracts among the concerned parties and exclusively interest-free. the bank as an intermediary and partial user of funds. Uzair (1976) suggested the working structure of Islamic bank and explained its functions. It accepts deposits against investment/savings accounts to generate income under specific investment account or general investment account. . Islamic Bank invests this amount into different profitable ventures as an agent and shares the consequences. Islamic banks lend money to borrowers for shortterm. medium-term and long-term investment (Musharika. the suppliers of funds or depositors.e. Ijara. bank and borrower share risk of loss according to a valid sales contract. acceptance of deposits from savers on profit & loss basis and lend money to deficient individuals/business units on profit and loss basis.e. In this way depositor. It creates a strong economy on the principles of transparency and accountability. 1979). Fund based activities are called primary functions of Islamic bank i. Islamic Bank accepts deposits against savings and current accounts. It is also reported that Islamic banks could promote savings and investment activities by determination of an equilibrium profit sharing ratio between depositors and borrowers (Siddiqui.Comparative Study of Islamic Banking 34 Islamic banks perform two types of functions i.e. actual users of the capital or entrepreneurs.) on the basis of profit and loss. Salam. fund based and non-fund based. Banking transactions are undertaken among three parties i. Murabaha etc. Bank may receive deposits from people under current account and do not pay any interest but may charge a fee for its services. Mudariba.

Islamic banks are offering a variety of products and services to its customers.493 49.415 141.840 2. providing Hajj services.20% 200.933 4. execution of standing orders. Islamic bank proved a successful experience in Pakistan and gained popularity among general public.397 0. foreign exchange remittances. which is depicted in table 2.90% 205.212 146.50% 44.945 4. 2007-08 Islamic banks have shown tremendous growth during the recent years. collection of dividends. It requires the quality initiatives to retain valued customers by meeting their expectations for better performance.915 8. and purchase/sale of securities.1 Financial Performance of Islamic Banks Indicators FY03 FY04 FY05 FY06 FY07 FY08 (March) Assets of Islamic Banks Deposits of Islamic Bank Share in Bank Assets 12. They strive to expand their operations and perform multiple functions to attract the prospective customers for greater profit. It also performs the general utility services e.185 1.40% 71. .143 30.Comparative Study of Islamic Banking 35 Islamic bank performs some non-fund based functions like agency services and general utility services. There is a sharp increase in the volume and market share.g.932 2. currency exchanges and ATM services etc. Islamic bank can act as an agent to provide the different types of services like collection of cheques.1 as under Table-2.294 83.10% Source: Economic Survey of Pakistan.10% 119. a collection of utility bills.

4 0. *(March2008) .7 0. financing products.4 3 FY06 48.2 Financing Products offered by Islamic Banks (in %) Financing Products Murabaha Ijarah Musharka Diminishing Musharka Salam Istisna Qarz/Qarz-e-hasna Others FY03 79.4 16.7 0.7 24.8 1.9 0.Comparative Study of Islamic Banking 36 2. It provides credit facilities. (2007-08).8 1.4 0. Table-2.4 3 FY07 38.4 24.8 1.5 1. depositors.9 25.2 1.8 14. It deals with different types of customers i. borrowers and service users.7 0.8 FY05 44.1 1.9 7.3 24.4 Operations and Products of Islamic Bank Islamic banks are trade oriented financial institutions that provide interest free deposits and investment opportunities for the people.4 9.7 Source: Economic Survey of Pakistan.9 1.8 1 5.6 1.4 29.e.8 14. It accepts deposits from general public under general investment fund and specific investment fund that is clearly mentioned in the agreement between the bank and the customer while opening their bank accounts.6 2.4 29. funds transfer facilities and other services according to customers' needs.2 1.9 1.4 6.3 FY04 57.1 FY08* 38.9 25. Islamic bank actively performs several operations to provide a variety of products according to customers' requirements.

Medium Term Ijarah.2 reflects operations of bank for the provision of service to customers. Figure-2. Mudaribah and Diminishing Musharika etc. Ijarah-Wa-Iqtina etc. Utility Functions Primary Functions Islamic Bank Customers Advance Loans (Financing Products) Long Term Musharika. Muajjal.Comparative Study of Islamic Banking 37 Figure 2. Istisna etc. Salam. Service Quality Bank Services Customer Satisfaction Bank Customers Customers Fund Based Services .2 Operations of Islamic Bank General Investment Fund Specific Investment Fund Accept Deposits Non-Fund Based Services Customers Customers Agency & Gen. Short Term Murabaha.

financial institutions as well as government and private organizations) that eager to engage in long term relationships with the Islamic banks (SBP. corporate bodies. individuals.e.4.Comparative Study of Islamic Banking 38 2. households. There are different types of customers (i.3 Contributors towards Deposits of Islamic Bank Source: SBP. The comparison of various contributors to deposits of Islamic banks is given in figure 2. Islamic banks supervise deposits (as Mudarib or investment manager). It is found that customers are rapidly moving from conventional banks to Islamic banks due to growing trust in the Islamic banking products and practices. Profit or loss is shared between banker and the customers according to an agreed ratio. 2007 .3 Figure-2.1 Acceptance of Deposits Islamic banks are striving to capture the maximum number of customers to compete with conventional banks by providing a large number of products as an alternative for interest based products. 2007).

Increasing contribution of Diminishing Musharika shows the banks' vigilance to diversify their portfolio by attracting a maximum number of customers (SBP. The findings showed that equity capital and loans have a positive impact on the bank's profitability while deposits affect it negatively (Arby. But Mudarbaha is least preferred option with 0% weight-age. An empirical study was undertaken regarding the structure and performance of Pakistani banking sector.4. If they have positive feelings regarding bank services as satisfied customers they may repeat their transactions with the bank. It may be due to lack of supportive financial environment. 2003). Long-term financing options consist of Musharika. to meet running finance requirements of different business units. 2. Islamic banks provide Short-term products like Murabaha. medium-term and long-term according to their specific characteristics. Mudariba and Diminishing Musharika. It is observed that Murabaha and Ijarah financing are very popular among people.Comparative Study of Islamic Banking 39 Service experiences may create positive or negative feelings and perceptions among customers. dissatisfied and unhappy customers may think to switch to other bank. Istisna. Salam and Muajjal etc.2 Financing pattern and Products of Islamic banks Islamic banks provide a variety of financing products according to principles of Sharia’h to cope with the challenges of the recent age. These products may be categorized as short-term. On the other hand. Ijarah and IjarahWa-Iqtina are a medium term financing options offered to the customers. 2007). It inspires the people to deal on the basis of profit and loss to enhance the spirit of cooperation. .

4 Contribution towards Financing Products of Islamic Bank Source: SBP. Islamic banks could participate: by the provision of inputs to farmers. . provision of funds for supportive activities like effective marketing of farm output. In the agriculture sector. financing the purchase of inputs.Comparative Study of Islamic Banking 40 The financing contribution of each option is reflected in figure 2. The expansion of the banking industry requires a study to assess service quality in relation to customers' satisfaction and its influence on bank performance. 2007 Khan (1985) reported that Islamic bank could participate in productive activities by the provision of funds on profit and loss basis to different industries e.g. provision of funds at a crucial stage of harvesting.4. manufacturing and agriculture etc. Figure-2.

Dimensions of service quality differ due to many factors i. socio-cultural differences.. 1985). It is reported that services have four key features that differentiate it from goods i. 2. perishability. 2000). 2000). political conditions. Banks operating in Pakistan have realized the importance of service quality to expand their operations and portfolio. 2006. prevailing environment. technological advancements and demographic characteristics.e. It is reported that service quality leads to customer satisfaction in the Pakistani banking environment (Jamal and Naseer. demand or expectation. It is observed that service quality is a major factor in reference to customer acquisition and retention (Galloway and Ho. Service quality is a multilevel and multidimensional concept that varies in meanings among researchers (Cronin et al. desire. inseparability and heterogeneity (Parasuraman et al. Customer satisfaction is getting importance due to expansion of banking industry and innovative products according to customers’ needs across the globe especially in Pakistan. Saravanan and Rao. 1996. 2003).. 1996). It is an action of fulfilling a need.6 Customer Satisfaction in Pakistani Banking Sector Islamic banks are competing for more customers with each other besides stiff competition with conventional banks. 2002. .e. Ibáñez et al. 2007). intangibility.Comparative Study of Islamic Banking 41 2. Service quality is an important input of customer satisfaction in the banking sector (Spreng and Machoy. Gefan. It shows the organization’s ability to meet customers’ desires and needs (Hanson.5 Service Quality of Pakistan Banking Sector Service is defined as a set of benefits delivered from the service provider to the service consumer.

2007). Bank performance should be evaluated due to stiffer competition and customers' awareness of service quality. 1993. 1981). Barney. 1996. 1984.7 Performance of Pakistani Banking Sector Islamic banks require performance evaluation to compete with conventional banks in Pakistan. Chakravarty et al. Booker and Serenko. Banker and Sinkula. 1999. It could be linked with market orientation. organizational learning. Santos-Vijande et al. Almost 81% of banking assets are owned by the private sector while foreign investors contributed 47% of total paid up capital (Akhtar.Comparative Study of Islamic Banking 42 Overall satisfaction is the outcome of customer's evaluation of a set of experiences that are linked with the specific service provider (Westbrook. Performance of an organization could be assessed by resource-based view as explored by a number of researchers (Wernerfelt. 2003). Khalid (2006) reported that the performance of Pakistani banking sector had improved after privatization. human resource productivity. 2005).. 2. It is concluded that customer satisfaction enhances the reputation of the bank in the service environment (Bontis. 1994. 1994. Chitwood. . quality improvement or any other component (Day. Customer satisfaction is important due to an increased competition in banking sector (Bartell. Haron et al. Kotler. 1986). 2007). Similarly. 1996. banking industry in Pakistan has shown an unprecedented growth as the best performing sector having banking assets of more than $ 60 billions.

7 179.2 3845.7 2044.5 . Table-2.5 117.9 601.7 16.1 836.8 2427.8 13.7 1807.9 2694 488.6 38. of Braches Nationalized Commercial Banks Private Banks Specialized Banks Foreign Banks Assets (Rs.2 3173 119 223. 2007-08 2006-07 7852 1690 5597 534 31 4351.8 13.1 2907.3 Performance of Banks in Pakistan Indicators No.1 1017.2 70.7 3852 813.7 934.5 15.3. Billion) Nationalized Commercial Banks Private Banks Specialized Banks Foreign Banks Source: Economic Survey of Pakistan.5 2007-08 8233 1715 5935 534 49 5155.4 72. Billion) Nationalized Commercial Banks Private Banks Specialized Banks Foreign Banks Net Advances (Rs.Comparative Study of Islamic Banking 43 The performance of Pakistani banking sector during last few years is shown in Table 2.5 298. Billion) Nationalized Commercial Banks Private Banks Specialized Banks Foreign Banks Deposits (Rs.2 88.2 3255 665.6 1275.6 2425. Billion) Nationalized Commercial Banks Private Banks Specialized Banks Foreign Banks Net Investment (Rs.5 150.2 1199 172.7 429.8 26.9 836.6 120.

2008. Similarly assets. The impressive growth of Islamic banks can be associated with the introduction of new financing products according to principles of Sharia’h as an alternative for Riba-based financing products offered by conventional banks.8 72 2. Financing products offered by Islamic banks became popular among people due to flexible terms and conditions. financing and customers became manifold within few years.9 83 2.1 138 3. Islamic banks enjoyed tremendous growth within a shortest possible time.2 30 1.6 6 12 118 2.4.1 50 1. The performance of the Islamic banks is given in the Table 2.3 147 4. deposits.Comparative Study of Islamic Banking 44 Islamic banks are successfully competing with the conventional banks by capturing a reasonable share of the market. Table-2.5 1 3 17 .9 48 1. in Billion) Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 Descriptions Total Assets % of Banking Industry Deposits % of Banking Industry Financing & Invest.4 10 0.4 4 12 150 72 2. 206 4.8 2 9 70 44 1.3 2 7 48 13 0. % of Banking Industry Number of Full Fledge Islamic Banks Number of Conventional Banks With Islamic Banking Branches No. of Branches 289 Source: Islamic Banking Bulletin by SBP.4 Performance of Islamic Banks in Pakistan (Rs.4 30 1.5 8 0.

Customer Satisfaction and Bank Performance in the Banking Sector  Hypotheses. Conceptual Model and Theoretical Framework .Comparative Study of Islamic Banking 45 CHAPTER 3 Literature Review and Theoretical Framework  Service Quality  Customer Satisfaction  Bank Performance  Service Quality and Customer Satisfaction in the Banking Sector  Service Quality.

employee satisfaction.Comparative Study of Islamic Banking 46 Chapter 3 Literature Review and Theoretical Framework Banks are competing in a highly competitive environment to offer quality oriented services according to customers’ expectations.g. bank efficiency. service quality. financing products. financial performance etc. as the key segments for research. 3. Banks also focus on demographic characteristics of customers to assess their needs.1 Services This study examines the influence of different dimensions of service quality on the customer's feelings of satisfaction and its influence on bank performance. Different aspects of banks are studied by researchers e. operations. A model of service quality. Customers became a center for all banking activities due to increased competition for greater market share. customer satisfaction. A number of Islamic banks have started their operations in Pakistan during last few years. Many studies tried to assess the quality of services/products offered by the banks. It requires a study to analyze the bank services and its outcomes in the shape of customers’ satisfaction and performance. . Islamic banks face stiff competition from their peers and conventional banks prevailing in the economy. customer satisfaction and bank performance is developed in the light of literature to measure the performance of Islamic and conventional banks in Pakistan. Every bank is trying to enhance its performance by improving its service quality according to customers' expectations.

skills.1.) to the customers for the sake of reward (fee. 2002). consultancy and agency services that are diversified with the passage of time.e. etc. Parasuraman et al. touch or feel them (Hoffman and Bateson. Banks provide financial inter-mediation. Services may be coaching. consultancy and other modes to facilitate the customers. Hoffman and Bateson. Services are considered as intangible because we are unable to see.1 Definition of Service and Service Quality Business is a legal activity that is undertaken to earn a profit. 2002). trading (buying and selling of goods) and services (provision of benefits for reward or fee). 1985. teaching. Service is defined as a set of benefits delivered from a service provider to the service consumer.Comparative Study of Islamic Banking 47 3. inseparable because they are attached with a service provider. perishable as we are unable to store them. . touched or felt. Business activities can be divided into three categories i.). Services are different from goods because they are intangible as they cannot be seen. Physical existence of goods facilitates the customers to buy them due to its aesthetic characteristics. The service firm provides benefits (due to competency. and insubstantial due to heterogeneity (Parasuraman et al. salary. knowledge and experience etc. (1985) argued that evaluation of service quality is difficult as compared to physical goods. manufacturing (conversion of inputs into outputs by a transformation process). wages.

There are several studies that found a relationship between the service quality offered by banks and its consequences as satisfaction level among customers.Comparative Study of Islamic Banking 48 Hanson (2000) suggested that service quality shows the organization's ability to meet customers' desires and needs. 2000) . So organization must improve their services to meet the customers' wants and requirements. 2002). It is found that customers' perception of service quality is very important for managers to compete in the market (Hoffman and Bateson. It is a set of features. Service quality and customer satisfaction became core issues for the successful survival of any service organization. It contributes a lot to gain competitive advantage to maintain long-term relationship with customers (Zeithmal et al. Service quality got popularity among professionals and academia due to increased competition. It is reported that quality is observed as a major factor in reference to customer acquisition and retention (Galloway and Ho. Service quality is considered very important indicator towards customer satisfaction (Spreng and Machoy. 1996). Quality is an ability of any product to meet customers' expectations and requirements. characteristics or attributes that are required or expected by the customers. 1996). Morre (1987) identified that concentration on service quality leads to differentiation that enhance the competitive position of the organization for long term benefits.

It is said that service quality is the outcome of customers' comparison between expectations and performance (Gronroos. They focus on three dimensions of service quality to measure the performance of any product by considering functional quality. assurance and empathy. 1985. 1989). 1984. 1982). The Americans' perspective is concentration on functional quality to measure the performance of services (Parasuraman et al. 2004). European researchers concentrate on functional and technical aspects of services having a keen analysis of organization's image (Gronroos. They compared customers' responses regarding their perceived quality of services and their pre-purchase expectations.e. Parasuraman et al. 1985. Service quality is defined as a discrepancy between expected and perceived service. Firstly. . Lehthinen and Lehthinen. 1988. (1985. 1982). 1991). Kang and James. they identified ten dimensions but finally service quality is refined to five dimensions (Parasuraman et al. It is said that service quality represents the answers to some queries like what is expected by customers? What is delivered? Finally is there any difference? (Woodside et al. one is European and other is Americans. technical quality and corporate image. responsiveness. 1982. 1991.Comparative Study of Islamic Banking 49 There are two perspectives regarding service quality i. 1988) defined service quality as customers' evaluation between service expectation and service performance. They investigated the service quality of different industries by dividing the service quality into five dimensions: tangibility. reliability.

improvement in the reliability of equipment lessened dissatisfaction (Johnston. 2000). (2006) investigated service quality dimensions and found a significant effect of service quality on satisfaction in Spain. Ibáñez et al. . Similarly. geographical or other attributes that vary form one country to another.2 Dimensions of Service Quality There is an ongoing discussion about the service quality and its dimensions. However.Comparative Study of Islamic Banking 50 Asubonteng et al. religious. there are two perspectives of service quality: Europeans and Americans. Service quality is a multilevel and multidimensional concept. which varies in meanings among researchers (Cronin et al. In another study. Quality factors vary from one to another in reference to the importance and their impact on the satisfaction level of the customers.1. a conceptual framework to measure service quality from the customer's perspective is empirically tested for convergent validity. 1997). (1996) defined service quality as the difference between customers' expectations about the service before its use and their perceptions after receiving the service. cultural. 2007). uni-dimensionality and reliability (Saravanan and Rao. 2002). 3. Apparently. it was reported that service quality is the subjective comparison between what the customers require and what they actually get (Gefan. It was found that specific activities like increasing the speed of processing information have resulted in delighted customers.. It may be due to demographics. But there is a lack of consensus in the literature about the uniform dimensions among researchers.

reputation and credibility. competence. 1994).e. responsiveness.e. accessibility and flexibility. recovery. corporate quality and interactive quality (Lehthinen and Lehthinen. 1988. Gronroos (1990) explored six factors of service quality: attitude and behavior. understanding. courtesy. access. and security. tangibility. In another study. responsiveness. 1982). 1991). physical quality. . skills and professionalism. assurance and empathy (Pararsuraman et al. It is equally applicable in different service industries including banking industry. Similarly. They refined these dimensions and summed up into five dimensions like reliability. reliability and trustworthiness. in another study three dimensions of service quality are identified i. credibility.Comparative Study of Islamic Banking 51 Gronroos (1982) identified three dimensions of service quality as technical quality (actual outcome of the service). They continued their research to purify the dimensions of service quality and developed a widely used research instrument called SERVQUAL. Parasuraman et al. functional quality (service delivery process by interaction between service provider and service recipient). tangibility. a four-factor scale that consists upon 17 items was used to measure service quality in branches of an Australian commercial bank (Avkiran. communication. Both studies reflect almost the same characteristics of the service quality. reliability. (1985) investigated the different service industries and explored 10 dimensions of service quality i. and corporate image (perception of customers about service organization).

1. The reliability and validity coefficients of SERVQUAL were very high and increased its acceptability all over the world. A list of service quality dimensions used in the banking sector across the globe is given in table 3. The dimensions of service quality are frequently studies by the researchers according to their own local environment. Although there are different dimensions of service quality exist in the literature. 1991b) tested this research instrument in different industries like banking. Bahia and Nantel (2000) found six dimensions of service quality that consists of 31 items to measure the service quality in the banking sector. commitment. cultural and socioeconomic conditions. Sureshchander et al. communication. Oppewal and Vriens (2000) used 28 attributes to measure the service quality in retail banking sector. care. (2002) developed 41 items scale to measure the service quality in the banking sector. responsiveness and security.Comparative Study of Islamic Banking 52 Johnston (1995) identified 18 dimensions of service quality to measure the performance of service industries: aesthetic. cleanliness. But this study follows SERVQUAL instrument based on five dimensions to measure the impact of service quality on customer satisfaction and bank performance. There are numerous studies that identified a number of dimensions due to lack of global dimensions. integrity. reliability. competence. access. (1985. comfort. functionality. . Parasuraman et al. friendliness. Similarly. courtesy. availability. 1988. flexibility. attentiveness. It is also widely used by the researchers to assess the service quality in the banking sector. insurance and telephone repair industry.

Refined five dimensions of service quality and replicate in three service industries i. telephone repairing and insurance and devised final version of SERVQUAL . corporate quality and interactive quality Refined their previous work and elaborate three dimensions of service quality Identified ten dimensions of service quality: reliability. competence. banking. tangibility. skills and professionalism. communication. functional quality. empathy. responsiveness. responsiveness. corporate image Identified three dimensions of service quality: physical quality. access. courtesy. security Service quality leads to differentiation and enhance competitive position Refined their previous work and compiled ten dimensions of service quality into five: reliability. 7 1990 Gronroos 8 1991 Parasuraman et al.Comparative Study of Islamic Banking 53 Table-3. recovery. accessibility and flexibility. 5 1987 Morre 6 1988 Parasuraman et al.e. empathy Explored six dimensions of service quality: attitude and behavior. reputation and credibility 1982 Gronroos 2 3 1982 Lehthinen and Lehthinen 1984 Gronroos 4 1985 Parasuraman et al. understanding. assurance.1 Dimensions of Service Quality used in Banking Sector Year 1 Author (s) Dimensions Service Quality Suggest three dimensions of service quality: technical quality. credibility. reliability and trustworthiness.

Explored twenty eight attributes to measure service quality Developed six dimensions of service quality that consists of thirty one items Developed five dimensions of service quality that consists of forty one item scale Used 10 dimensions to measure service quality 10 1994 Avkiran 11 1995 Johnston 12 2000 Oppewal and Vriens 13 2000 Bahia and Nantel 14 2002 Sureshchander et al. Source: Generated Parasuraman et al. reliability. 15 2005 Malhotra et al. friendliness. (1988. responsiveness. availability. This study applied five dimensions of service quality that are explained as under: . attentiveness.. comfort. functionality. assurance and empathy. security. communication. commitment. cleanliness. courtesy. care. responsiveness. integrity. reliability.Comparative Study of Islamic Banking 54 9 1992 Cronin & Taylor Developed SERVPERF to compare with SERVQUAL Developed four factor scale that consists of seventeen items to measure Service quality Identified eighteen dimensions of service quality: aesthetic. access. competence. It consists of 22 items that are compiled into five dimensions: tangibility. 1991) developed SERVQUAL instrument to measure the dimensions of service quality that is frequently used by researchers. flexibility.

appearance of personnel and tools & equipment used for provision of services.This dimensions shows the magnitude of caring and individual attention given to customers. Empathy..2.This dimension indicates the employees’ knowledge. Similarly in another study. . courtesy and their ability to incorporate trust and confidence.1. Assurance. it is found that service reliability is the service “core” to most customers. This dimension of service quality evaluates the promises of banks and its execution from customers' point of view. It contains five elements to assess the accuracy and credibility of bank services. Responsiveness-It reflects the willingness or readiness of employees to provide quick services to customers. 3. TangiblesIt shows the physical aspects of the services as physical facilities. So managers should use every opportunity to build a “do-it-right-first” attitude (Berry et al.1 Reliability Reliability is the ability to perform services dependably and accurately in a consistent manner. staff attitude. 1990).Comparative Study of Islamic Banking 55 Reliability– This dimension shows the consistency of services towards performance and dependability. 1990). Reliability is very important determinant of product quality besides good personal service. Berry and Parasuraman (1991) reported that reliable service is the outcome of the continuous improvement. knowledge and skills (Walker.

2003)..2 Tangibility This dimension shows the physical aspects of the services as physical facilities. 2001. 2005).. It is found that customers prefer tangible dimension of service quality in UAE banking industry (Jabnoun and Al-Tamimi. Swanson and Kelley.3 Responsiveness This dimension reflects the willingness or readiness of employees to provide quick services to customers. 1996. It was found that correct match between staff skills and customers' expectation resulted in better service quality towards customers (Gollway and Ho. It is found that a bank can create customer relationships by delivering added tangible and intangible elements of the core products.2. 1996). appearance of personnel and tools used for the provision of services.1. It is more concerned with aesthetic part of the banks. Customers are very keen to employees' behavior in services industry especially in the banking industry. Dabholkar et al. Strong competitive positions are the outcome of product/service quality and differentiation.1. Zineldin (2005) studied the product/service quality and customer relationship factors in Sweden. 1990. 1993). .2.Comparative Study of Islamic Banking 56 3. Service recovery and problem solving have been recognized as important parts of services quality (Hart et al. Nelson and Chan. 3. It was reported that customers are very sensitive to employees' working environment in service organizations (Brown and Mitchell.

It is found that a bank can create customer satisfaction by ensuring trustworthy behavior and reflection of genuine commitments to service provision (Nelson and Chan. (1988) reported assurance as an essential dimension of service quality after reliability and responsiveness towards satisfaction. Service quality is also linked to the customer satisfaction as how employees use their knowledge & courtesy and their ability to incorporate trust and confidence. They found that responsiveness is rated as the most important dimension of service quality. . 2005).4 Assurance This dimension indicates the employees' knowledge. (2005) identified that assurance dimension of service quality has the strongest impact on customer satisfaction that leads to positive word of mouth outcome.1.Comparative Study of Islamic Banking 57 Tahir and Abu Bakar (2007) investigated service quality and customer satisfaction of commercial banks by using SERVQUAL in Malaysia.2. 2006). courtesy and their ability to convey trust and confidence. 3. Parasuraman et al. The results indicated that trust and commitment are important factors for customer satisfaction regarding relationship quality (Nelson. It was found that accurate communication. proper service delivery and effective conflict handling results into overall customer satisfaction regarding bank services in Malaysia (Nelson. Arasli et al. 2006). In another study. overall customer satisfaction was examined in reference to relationship quality in retail banking sector of Malaysia.

Customers of private banks have higher expectations and perceptions as compared to the customers of public banks in Greece (Kangis and Voukeates. In the banking sector customer care and individual attention is indispensable for the better performance due to stiff competition. 2007). Leeds (1992) reported that service quality primarily depends upon the dealings of bank personnel.2. skillfully handling of conflicts and efficient delivery of services resulted in satisfied customers for long term benefits (Nelson and Chan. (2005) examined the difference in perceptions of service quality dimensions between developing and developed countries. Bank customers considered empathy as an important dimension of service quality (Jabnoun and Al-Tamimi. It was found that approximate 40% of customers switched their current bank due to poor services and nearly three quarters of banking customers gave the highest preference to tellers' courtesy. Malhotra et al. 2003). . They found that in developing countries like India and Philippines results were systematically and significantly different. It is suggested that employees' commitment to deliver quality services. It is found that empathy is least preferred dimension of service quality by the customers of commercial banks in Malaysia (Tahir and Abu Bakar. 1997).5 Empathy This dimension shows the magnitude of caring and individual attention given to customers.1. Parasuraman et al. 2005). (1991) reported reliability is largely concerned with the service outcome while others related to the service process.Comparative Study of Islamic Banking 58 3.

Customers' perception of service quality is strongly dependent on customers' values and beliefs that vary from one culture to another (Furer et al. The results of these efforts are slow and sometimes have little influence. It is reported that technological factors of service quality are more important as compared to human factors of service quality in Indian banking industry (Sureshchander et al. They found that four dimensions: personal skills. 2005).. The study showed that the magnitude of the influence of each dimension of service quality on customer satisfaction is considerably differs.. On the other hand. (2003) explored the service quality in Greek banking industry..Comparative Study of Islamic Banking 59 Longo (2000) suggested that bank managers should be more aware about the significance of quality improvement efforts to gain competitive position in the market. Jabnoun and Khalifa (2005) proposed a measure of service quality and then tested it in conventional and Islamic banks in UAE. and image are significant in case of conventional banks. serviceability and durability are the most important dimensions of service quality in the banking sector (Leelapongprasut et al. values. 2003). 2002). It is said that there is direct and positive relationship between perceived quality and level of satisfaction (Iglesias and Guille´n. service quality is examined by conducting a survey of 300 bank customers in Thailand. it was found that expectations of bank customers were not met due to major gap in the empathy dimension. .. While only personal skill and values were found significant in Islamic banks. assurance has significant impact on the customer satisfaction of bank customers (Arasli et al. Similarly. 2005). The study depicted that reliability. Gounaris et al. 2004). Similarly. reliability.

It is suggested that service quality should be ensured by implementation of total quality management techniques in the banking sector (Al-Marri. . Glavell et al. An empirical study was conducted in UAE banking sector to investigate the service excellence. 2004). (2006) conducted an empirical analysis of customers from five Balkan countries: Greece.Comparative Study of Islamic Banking 60 Al-Hawari and Ward (2006) found that customer satisfaction plays an inter-mediator role in the relationship between service quality and financial performance of the banks in Australia. Findings show that Greece customers have higher levels of service quality perceptions as compared to Bulgarian customers (Petridou et al. The study suggested that there is a difference about the perception of service quality among customers of different countries. technological. environmental and socioeconomic factors influence the service quality perceptions of customers. Customers perception of service quality could be affected by the demographic features of the customers especially gender. It found a positive relationship between service quality and satisfaction (Liang and Wang. It was found that there is a significant difference in customers' perceptions of service quality in different countries. Greek customers have highest perceptions towards service quality. 2007). Ahmad and Zairi. Albania. 2006). It is concluded that gender influences the customer perception of service quality in the banking sector (Spathis et al.. 2007). Service quality offered by banks is examined by a comparative study of Bulgarian and Greece banks. The study investigated the customers' views towards service quality offered by banks. FYROM and Serbia. Bulgaria.. It is evident that political.

This comparison results into three types of customers: dissatisfied customers (expectations are more than actual performance of the service). 1982). Kotler (2000) defined satisfaction as a . satisfied customers (actual benefits realized from services are equal to or more than expectations). It is observed that organization's concentration on customer expectations resulted into greater satisfaction (Peters and Waterman. Westbrook (1981) reported that overall satisfaction is the outcome of customer's evaluation of a set of experiences that are linked with the specific service provider. It is an action of fulfilling a need.1 Definition of Satisfaction Satisfaction means a feeling of pleasure because one has something or has achieved something. This competition leads to the introduction of customeroriented products in the market to meet the expectations of customers. demand or expectation. Customers compare their expectations about a specific product/services and its actual benefits. Every rationale customer compares the cost (price) and benefit (utility) of any product or services. Pakistani financial markets experienced drastic changes after financial liberalization during early 1990s that provokes tough competition among financial institutions especially in banking sector.2 Customer Satisfaction Financial sector has shown unprecedented growth after deregulation in Pakistan. 3. indifferent customers (actual performance and expectation are exactly equal).2. desire.Comparative Study of Islamic Banking 61 3.

Customer satisfaction is a set of feelings or outcome attached with customer's experience towards any product/service (Solomon. 1996). Firstly. Satisfaction is a post purchase evaluative judgment associated with a specific purchase decision (Churchil and Suprenant. 1992). Continuous measurement of satisfaction level is necessary in a systematic manner (Chakravarty et al. they are competing with their peers and secondly they have to cope with the conventional banks. 3. Every banker tries to provide superior services to keep satisfied customers.2.2 Customer Satisfaction in Banking Financial liberalization and deregulation has increased the competition among banks to attract potential customers. 1996. Customers' feelings and beliefs also affect their satisfaction level. 1994). Customer satisfaction has become important due to increased competition as it is considered very important factor in the determination of bank's competitiveness (Bartell. Chitwood. The customer satisfaction is indispensable for the successful survival of any organization. . Haron et al.Comparative Study of Islamic Banking 62 person's feelings of pleasure or disappointment resulting from the comparison of product's perceived performance in reference to expectations. It is said that satisfaction is a function of customer's belief about fair treatment (Hunt. 1991). Romano and Sanfillipo. emergence and growing popularity of Islamic banking products raises competition among Islamic banks. 1996). 1993. Islamic banks have to face numerous challenges in the recent age. In Pakistan. 1996.

Bedal and Power. White. 1994. organizations must ensure the customer satisfaction regarding their goods/services (Gulledge. 1995. Holliday. It is found that satisfied customer repeat his/her experience to buy the products and also creates new customers by communication of positive message about it to others (Dispensa. 1997).. 1997). There are a number of studies that measured the customer satisfaction towards services in the banking sector (Anderson et al.1 Expectation-Outcome Experience of Customers Repeat Pre Purchase Expectations Actual Performance Satisfaction OR Dissatisfaction Switch Source: Generated . Figure-3. 1993. evaluation and psychological thinking of customers when they utilize any service. Satisfied customer is the real asset for any organization that ensures long-term profitability even in the era of great competition.Comparative Study of Islamic Banking 63 Yi (1990) defined customer satisfaction as a cumulative outcome of perception.. dissatisfied customer may switch to alternative products/services and communicate negative message to others. Dispensa. On the other hand. Brenhardt et al. 1994. So. 1996. 1996).

Figure-3.Comparative Study of Islamic Banking 64 Figure 3. Every organization deploys a reasonable amount to have satisfied customers.2. Customer satisfaction leads to better profitability by retaining existing customers and to attract new ones. delighted customers and loyal customers can be expressed in figure 3. Satisfied customer leads to delighted customers that eventually create the sense of brand loyalty among customers. The sequence of customer satisfaction in reference to satisfied customers.1 reflects expectation-outcome experiences of customers among bank customers.2 Customer Satisfaction for better Performance Cost (Price) = Expectation (Benefits) Satisfied Customers Delighted Customers (Customers) Brand Loyalty Greater & Long-term Profits (Better Performance) Source: Generated .

Customer satisfaction is the central tenet to compete in the market successfully. 1996). Customer satisfaction became the center of organizational efforts. 2000). Reichheld. 3. Researchers agree with the multidimensional nature of customer . Hackl and Westlund. Customer satisfaction is a multidimensional construct that requires multi-item scale for its measurement. 1996. larger market share and more returns on investments etc. Both streams of banks are striving to attract the potential customers at any cost. 1995.3 Determinants of Customer Satisfaction Banking industry expanded over a number of years due to the introduction of new products and services.. Customer satisfaction is an urgent challenge for Islamic banks as it was considered in case of conventional banks. 1998). (Scheuing. This increased competition requires the provision of quality services to have satisfied customers for sustainable benefits. Customer satisfaction is crucial to realize greater profitability. It may be due to an increasing number of new foreign and local banks and their working pattern as conventional banks or Islamic banks.2.Comparative Study of Islamic Banking 65 Organization should convey an attractive message to their customers about their product mix on rationale basis because exaggeration and unrealistic promises may result in dissatisfaction among customers. Financial institutions have experienced an intense competition and changing expectations of the customers (Cheng et al. It is prerequisite to retain customers to generate economic benefits. It is reported that delivery of high quality services is the key to sustain competitive advantage to have satisfied customers (Shemwell et al.

Similarly. This approach proved insufficient due to concentration on only one item.. Oliver and Swan. They asked customers to report overall feeling of satisfaction regarding a specific service experience. 1987. Oliva et al.e. 1987. (2002) investigated customer satisfaction by using a forty one-item scale that is further summed up into five dimensions.. Bitner and Hubert.. 2002). systematization of service delivery (nonhuman element). Supernant and Soloman. 1998). It is suggested that organizations especially banks should concentrate on customer satisfaction. Another study investigated customers' satisfaction by developing a five-item scale to test their model (Shemwell et al. Sureshchander et al. 1998. human element of service delivery. core service or service product. 1992. Cronin and Taylor (1992) used a single item scale to measure the customer satisfaction. 1989. Sureshchander et al. Customer satisfaction appears as the cumulative result of customer’s internal feelings about their experiences related to products/services. They suggested five dimensions of customer satisfaction i.. It could result into repeated . customer satisfaction was investigated in banking sector by using a six-item scale (Prince et al. 1994. 1994). tangibles of service (servicescapes) and social responsibility. They investigated the relationship between service quality and customer satisfaction in the banking industry. 1981. Crosby and Stephens. Shemwell et al. 1995). Customers' overall satisfaction is investigated by using a four-item scale with reference to service provider (Bitner and Hubert.Comparative Study of Islamic Banking 66 satisfaction and measured it accordingly (Westbrook and Oliver.

2003). Naseer. They found customer awareness about Islamic bank products like Murabaha. Jamal and Al-Khatib (1999) examined customer awareness and satisfaction by using a sample of 206 respondents towards Islamic banking in Jordan. Musharka and Mudarba but expressed a sense of dissatisfaction towards some of the services provided by Islamic banks. . customer satisfaction and other variables in Australian and Korean banks (Kayis. An empirical study indicates a strong relationship between perceived service quality. It is investigated that how customer satisfaction affects the customers' behavioral consequences. Kim and Shin. They suggested that bankers should develop professionalism and competency to maintain profitable relations with customers. It is reported that there is a positive association between customer satisfaction and word of mouth communication (Athanassopoulos et al.Comparative Study of Islamic Banking 67 purchase behavior that is inevitable for long-term business success. They aimed to find out the awareness and satisfaction level among customers of Islamic banks by considering their demographic data. The findings showed a strong impact of customer satisfaction on their decision to stay with the existing service provider and restrain their negative behavioral intentions. Metawa and Almossawi (1998) investigated the banking behavior of Islamic banking customers in Oman by collecting data from 300 customers. The findings showed that the most of the customers are highly satisfied with products and services of Islamic banks.. 2001).

2004). The study was based on 220 customers from 15 retail banks. 2002). It is found that customer satisfaction generates several outcomes like repeat purchase. increase in market share and more return on investment (Hackle and Westlund. Gustafsson (2005) defined satisfaction as a customer's overall evaluation pertaining to offer. It is reported that customer satisfaction helps to retain customers for greater profitability. 2000). positive word of mouth and long term profitability (Wirtz. 2005). settlement of conflicts and improvement in the quality of overall customer relations (Nelson and Chan. It is suggested that the bank can create customer satisfaction by incorporating trustworthy behavior. proper communication of information. Structural equation modeling is one of the statistical tools applied to measure customer satisfaction. Ting (2006) investigated the impact of customer satisfaction in Malaysian banking industry and found a U-shaped relationship between customers' perception of satisfaction and positive word of mouth referrals in the existence of changing ownership. It was found that overall . It is investigated that service quality works as input to appear as customer satisfaction (Malta. loyalty. It is explored that there is direct and positive relationship between perceived quality and level of satisfaction (Iglesias and Guille´n. There are several factors that yield customer satisfaction but service quality is one of them. The study found that overall satisfaction has a strong positive impact on customer loyalty regarding a wide range of products and services. 2003). reflection of genuine commitment to provide quality services.Comparative Study of Islamic Banking 68 Khalifa and Liu (2003) said that satisfaction is measured by the discrepancy between perceived performance and cognition like expectations or desires.

Comparative Study of Islamic Banking 69 customer satisfaction is the key determinant of relationship quality. service satisfaction and service handling (Nelson. (2006) investigated the customer satisfaction in the banking sector in New Zealand. commitment. Findings showed that customer satisfaction is the most important factor that influences customer decisions. Molina. It was found that supplier-customer relationships are critical in banking sector for delivery of quality services to have loyal customers for long-term profits (Ndubisi et al. Norizan and Nizar (2007) investigated perceived service quality and satisfaction as a key determinant for retention of customers in retail banking in United Arab Emirates. It is evident from a survey of 230 retail-banking customers that responsiveness and reliability showed greatest impact on customer satisfaction in United States (Lopez. 2006). The main indicators of customer satisfaction were listed as trust. communication. Martý and Esteban (2007) investigated the customer satisfaction in retail banking by an empirical analysis of 204 bank customers. 2007). Customers' age groups and educational level also contributed to their decision whether to stay with a current bank or not. Hart and Rampersad. 2007). service quality. They found a direct relationship between confidence benefits and customer satisfaction. Cohen et al. They found that satisfaction is important for retention of retail banking customers in UAE.. .

Tvorik and McGivern (1997) investigated performance by comparing economic and organizational factors. Performance evaluation enables the organization to assess its efficiency and effectiveness over a period of time by comparing with its objectives or with market leader to overcome its weaknesses. 1984). It consists of physical. quality of products.3 Bank Performance Organization is a structured entity that is established to achieve specific goals. human resources and sales volume etc. Researchers explored a number of indicators to measure organizational performance (Dess & Robinson. productivity. innovation. Every organization is trying to enhance the performance of individuals for overall improvement of the whole organization. Business organization is primarily formed for the sake of profit by performing legal activities. Multiple aspects like profitability. Organization as it is goal oriented. human. leverage. There are several criteria to evaluate the performance of banks for successful survival in the era of globalization and competition. can evaluate any organization. 1979). informational and financial resources that are combined to realize certain objectives. Successful organizations realized the . management performance. boundary-maintained and socially constructed systems of human activity (Aldrich. Inception of Islamic banks necessitated the importance of performance evaluation to compete with conventional banks in Pakistan. They concluded that organizational factors influenced the profitability more than that of the economic factors.Comparative Study of Islamic Banking 70 3. market share. Bank is also one of the business organizations that offer a large number of products and service for profit. liquidity.

1998).Comparative Study of Islamic Banking 71 importance of ongoing performance measurement practices (Weiss and Hartle. 1983). It is reported that an organization can maximize the customer satisfaction for better profitability. There are a number of studies in the literature that used non-financial measures to evaluate the effectiveness and performance of organization (Quinn and Rohrbaugh. Organization's performance could be assessed by resource-based view as explored by a number of researchers (Wernerfelt. Generally. Financial indicator like return on investment (ROI). human resource productivity. Deshpande et al.. profitability. Venkatramanand. 1999). Santos-Vijande et al. Organizational performance reflects an organization's understanding and knowledge regarding customer needs and expectations (Kohli and Jaworski. 1994. 1990.e. 1995). earning per share (EPS) and return . 1986). 1990). 1993. 1984. quality improvement or any other component (Day. market share and cost reduction. internal process. human relations. organizational performance is assessed by the application of financial measures. Prahalad and Hamel. It may be shown by varied combination in the literature. 1986 a. Wheelen and Hunger (1998) argue that appropriate performance measures depend on the organizations and their objectives i. Slater and Narver. increased sales volume that ultimately improves its performance for long term benefit (Baker and Sinkula. 1983.. 1999. Banker and Sinkula. organization learning. Organizational performance could be linked with market orientation. Barney.e. It is suggested that four models i. 2005).b. open system and rationale goal model could represent the organizational performance (Quinn and Rohrbaugh.

It should be manageable as it can be handled easily based on simple calculations and manipulation of data. There are different qualitative and quantitative tools that are used to measure the bank performance. market share. Return on investment is used to reflect the profitability while corporate performance was measured by operating cash flows and return on investment capital (Sorenson. 2002). Financial ratios reflect the financial performance of the organization by an examination of financial statements as indicated by profitability. return on investments and current ratios. productivity. return on assets.1 Performance Evaluation of Islamic Banks Islamic banks are competing for more customers with each other besides stiff competition with conventional banks. (2003) measured firm's financial performance using the financial indicators such as return on assets. asset utilization and growth ratios (Ho and Wu. leverage. innovation. It reflects management's clarity about organization's current situation and its viability to achieve its goals. The relationship between organizational innovation and performance was investigated by application of return on sales. human resources. The measure of performance evaluation should be meaningful. 2007). 3. are used by number of organizations to measure their progress. management performance. quality of goods and service etc. 2006). There are several measures that were adopted by the researchers to assess the bank performance like profitability. liquidity. Rashid et al. sales volume.Comparative Study of Islamic Banking 72 on equity (ROE) etc. liquidity.3. return on equity and market-to-book ratio (Kuo and Wu. It must be measurable as it should be .

The study measured the organizational performance using financial ratios such as earnings on shareholders funds. But employees of foreign banks significantly contributed towards profitability (Arby. 4 trillion along with Rs.2 Performance of Pakistani Banking Sector Pakistani banking sector has shown an excellent growth during last few years. 3. It may be material. 2003). Financial performance of banking sector was outstanding due to sufficient profitability. Total banking assets surpassed the limit of Rs. as it should provide material results of significant improvement (Ernst & Young. . It is reported that employees of domestic banks do not contribute towards profitability. (1997) examined the influence of quality on the performance of an organization. 2007). Chapman et al. return on total assets and labor productivity ratio.3.Comparative Study of Islamic Banking 73 quantifiable and operationalized. Islamic banks also experienced unprecedented growth by a 67% increase in total assets of this segment. assets management quality. better risk management practices and continuous improvements for the provision of quality services. 100 billion pretax profits. 1995). It is found that there is a positive relationship between strategic quality indicators and financial performance parameters. Islamic banking system has proved a successful alternative for the conventional banking system (SBP. strong solvency.

Comparative Study of Islamic Banking 74 The performance of Pakistani banking system from a period of 2000-2006 is shown in figure 3.3 Total Assets of the Banking System CY: Calendar Year. LPBs: Local Private Banks. FBs: Foreign Banks. 2007 Islamic banks are successfully competing with conventional banks around the globe and have a great potential to replace the traditional Riba-based banking system. SBs: Specialized Banks Source: SBP. In Pakistan. the Islamic banks showed a very satisfactory growth during last few years having a complete alternative banking system.3 as under: Figure-3. A very healthy competition is witnessed between the two banking streams that reflect the superiority of Islamic banks as they are growing . PSCBs: Public Sector Commercial Banks. CBs: Commercial Banks.

7 billion (SBP. Table-3. Placements Other Assets Total 1042 12915 8 100 2701 44143 6 100 4539 71493 6 100 14996 11929 4 13 100 8397 1899 1994 625 12915 8652 1242 1978 Percenta ge 65 15 15 5 100 67 10 15 2004 Amou nt 30185 6559 5123 2276 44143 27535 2007 11900 Percenta ge 68 15 12 5 100 62 5 27 2005 Amou nt 49932 9006 7811 4745 71493 45786 1854 19314 Percenta ge 70 13 11 7 100 64 3 27 2006 Amou nt 83740 10843 16348 8363 11929 4 65613 7328 31358 Percenta ge 70 9 14 7 100 55 6 26 Source: SBP. 83.) 2003 Sources Amou nt Deposits Borrowings Capital & Other Funds Other Liabilities Total Uses Financing Investments Cash. Progress of Islamic banks in Pakistan is shown in the table 3. 2007 .2. 2007). Bank Balance.2 Sources & Uses of Funds by Islamic Banks in Pakistan (2003-06) (Million Rs.Comparative Study of Islamic Banking 75 at a rate of 114 percent in terms of size and structure. The total assets are growing at a very favorable rate of 67% with deposits amounting Rs.

Better decisions results more profitability and improved performance for the institution and its shareholders (Crider. It is reported that Pakistani banking sector has shown good performance by attracting a large number of customers due to the provision of quality services (Arby.e. Findings showed that improved service quality resulted in increased service fee and risk could be reduced by geographical diversification and hedging. Dominant banks have almost similar influence on markets of different size. It is reported that two principle paths can improve financial performance of banks i. by improving operational efficiency or improvement in customer services (Duncan and Elliott. Performance measurement became indispensable for the successful survival banks due to stiff competition and customers' awareness of service quality. . Deregulation increased the branch network of banks to attract more and more customers that resulted into more profits with increased risks due to changing demographics.Comparative Study of Islamic Banking 76 In today's global. 2003). 2007). Dick (2003) examined the service quality and bank performance in the United States. 2004). dynamic and competitive environment banks should improve and diversify their products and services to meet changing customers' demands to enhance their performance for successful survival. Dick (2005) reported that market concentration is not affected by its size. Performance evaluation provides sufficient information to take better and informed business decisions. There are a few studies available in the literature that measured the performance of Islamic banks across the global. The study found that service quality is enhanced and focused by dominant banks.

However. The increasing number and size of Islamic banks is also a positive sign of development and success. 1994). It is concluded that there is strong association between dimensions of service quality and overall customer satisfaction (Anderson and Sullivan. It has captured a reasonable market share with excellent growth rate of 114% per annum. 1993). 1999). The relationship between service quality and customer satisfaction is investigated by a number of researchers across the globe. It is found that the banking industry has a link between service quality and customer satisfaction (Avkiran. . expansion of global and integrated banking sector has to face many challenges of legislation. There are six fullfledged Islamic banks working in different cities of Pakistan and 13 conventional banks have started partial Islamic banking practices by establishing a large number of branches exclusively engaged in Islamic banking practices (SBP.Comparative Study of Islamic Banking 77 3. 2003). Islamic banking practices resulted a notable increase in the supply of loans. Mishkin (2001) reported that banking and financial services are the integral part of services industry and its contribution is increasing with the passage of time. technological and structural changes (Angur et al. 2006). It is found that government intervention played an important role to manage funds besides other economic factors in the economy (Makiyan.4 Service Quality and Customer Satisfaction in Banking Islamic banks showed remarkable progress.

A survey of 801 customers indicated that customers' perception of service quality differs in terms of demographic characteristics (gender. (1985).. 1997).Comparative Study of Islamic Banking 78 Levesque and McDougall (1996) investigated the influence of key determinants of service quality on customer satisfaction in financial institutions. education and income) of the respondents (Urban and Pratt. They found a substantial impact of service problems on customer satisfaction and their intensions to switch. Oppewal and Vriens (2000) empirically investigated the relationship between service quality and customer satisfaction by using original SERVQUAL instrument with 10 dimensions as devised by Parasuraman et al. Bahia and Nantel (2000) developed an alternative scale for measurement of service quality in retail banking.al. 2000). An empirical study was conducted to measure customer awareness and satisfaction by using a sample of 206 respondents towards Islamic banking in Jordan. Results showed that Technical/Functional quality model is better (Lassar et. Jamal and Al-Khatib. In another study SERVQUAL is compared with Technical/Functional quality of services in private banks. ethnicity. They found that BSQ dimensions are more reliable than SERVQUAL dimensions. It is observed that customers have awareness about products of Islamic bank but expressed a sense of dissatisfaction towards some of the services (Naseer. Islamic banks working in different parts of the world assessed their performance in reference to service quality and customers' responses. This study gave a direction to relate . 2000). It is suggested that service quality is an essential determinant of customer satisfaction (Yavas et al. 1999). They developed BSQ and compared with SERVQUAL.

Gounaris and Stathakopoulos.Comparative Study of Islamic Banking 79 service quality and customer satisfaction. Financial sector is becoming more conscious about the performance evaluation regarding quality of products/services according to customers’ expectations. 2001). and restrain their negative behavioral intentions. Kim and Shin (2003) conducted a comparative analysis of Australian and Korean banks to find out the quality management practices and its outcomes. They found a meaningful relationship between perceived service quality and customer satisfaction. 2004). Jamal (2004) investigated the customer behavior in retail banking by considering service quality its outcomes. They suggest that organizations should focus on service quality as an input to customer satisfaction for long-term benefits and business success. Now banks have realized the importance of service quality for successful survival in today's global and highly competitive environment (Wang et al. . Service quality gained significance with the passage of time due to increased competition among service firms. Kayis. It was observed that customers have varied experiences of satisfaction and dissatisfaction for utilization of self-service technologies. The study found a strong impact of customer satisfaction on their decision to stay with the existing service provider. findings reveal a positive correlation between financial performance and customer service quality scores (Duncan and Elliott. In another study. It was examined that how customer satisfaction affects the customers' behavioral consequences. (Athanassopoulos. 2003).

. Al-Hawari and Ward (2006) found that customer satisfaction plays an inter-mediator role in the relationship between service quality and financial performance of the banks. 2005). Both types of customers have clearly distinctive feelings regarding their service experience (Nelson and Chan. The study found that four dimensions were significant in case of conventional banks. 2005). It was found that overall customer satisfaction is one of the key determinants of relationship quality (Nelson. While only personal skill and values were crucial in determining service quality in Islamic banks. So. understanding of changing needs and expectations of customers is an essential prerequisite for the financial sector (Joseph et al.. However. It is found that bank-customer relationship quality is evident between satisfied and dissatisfied customers. Jabnoun and Khalifa (2005) proposed and tested a measure of service quality to compare conventional and Islamic banks in UAE. In another study. 2006). Findings indicated that financial institutions require reasonable procedures to evaluate the overall satisfaction of their customers. overall customer satisfaction was investigated in Malaysian banking industry by collecting data from 220 customers of 15 retail banks. It is suggested that bank should start service quality improvement programs to enhance customer satisfaction and customer loyalty (Razak et al.Comparative Study of Islamic Banking 80 Curry and Penman (2004) reported that service quality is inevitable for differentiation to compete in the banking sector. Banks should maintain the level of services by proper allocation of resources to meet customer requirements. 2007). They suggested that the right service could retain the customers for long-term benefits.

Customer Satisfaction and Bank Performance There are few studies available in the literature that investigated the relationship between service quality. Kim and Shin. Swan and Combs (1976) stated that satisfaction could be linked with performance because people feel satisfied when products perform according to their expectations. 2004). Islamic banking practices came with numerous benefits for individuals. Banks are dominant players of financial market having multiple opportunities in the recent age. customer satisfaction and bank performance. organizations and society. The expansion of the banking industry requires a study to assess the service quality offered by banks and customers' feelings regarding their experience and how it affects bank performance. Heskett et al. Rust et al. 1994. It was documented that an increase in service quality and professional . There are few studies that investigated direct and positive relation between service quality and profitability (Zahorik and Rust. 1995). It is suggested that service performance appraisal system of the organization should be improved in line with customer satisfaction in the banking sector (Kayis..5 Service Quality.. 2003). Financial performance of banks and other financial institutions could be measured by using the conventional method of accounting as well as latest measures of risk and expected returns (Duncan and Elliott. 1993).Comparative Study of Islamic Banking 81 3. 1992. It is found that service firms show poor performance due to lack of knowledge about customers' expectation (Zeithmal et al. But they experience dissatisfaction when performance is below than their expectations.

productivity and profitability. It is concluded that the success of banks could be evaluated by the implementation of service quality programs to retain customers as satisfied with services (Yavas. (1994) reported that there is an evident relationship between services and profitability. The success of banks depends upon customers' willingness to stay with them (Ennew. 1997). 1992). Ebrahim and Joo (2001) reported that Islamic banks have shown an excellent performance in Brunei Darussalam during last few years and captured 11. It is suggested that the performance of banks can be measured as how they develop and maintain relations with their customers. 2001).Comparative Study of Islamic Banking 82 behavior resulted greater customer satisfaction and reduced customer erosion (Leeds. 1996). Heskett et al. It is reported that customer satisfaction with services in banking has declined over a number of years. so banks must focus on each customer to maximize their profits (Hallwell. Newman and Cowling (1996) examined service quality in retail banking by comparing two banks in UK. It is concluded that customer satisfaction resulted into profitability. . Islamic banks could reap many benefits due to diversification and innovation of their products/services according to Priniciples of Sharia’h. They also found that service quality helps to reduce the costs. The study suggested that customer satisfaction affects customer loyalty that leads to greater profitability. 1996).5% of total market share. They found that service quality is essential for banks due to link between quality. The study recommended that an improvement in service quality is necessary for higher satisfaction level (Allred. and Shemwell.

2003). 2003). Kim and Shin. Similarly. Similarly. resources and the performance triad in India. The study found three dimensions as reliable and valid namely empathy. 2002).Comparative Study of Islamic Banking 83 Starkey. In another study. service quality has significant influence on bank reputation (Wang et al.. Williams and Stone (2002) examined the customer management performance in Malaysia by comparing banking industry with other industries. 2003). Customers analyze different aspects of services to repeat their experiences in the future. It is found that superior delivery of services results into superior profitability (Kotler. 1000 retail banking customers were analyzed in Malta and it is found that customer satisfaction played a mediating role between service quality and service loyalty (Caruana. service quality and performance of banks. It is reported that customer satisfaction partially mediates the relationship between effect of . Jabnoun and Al-Tamimi (2003) measured service quality in the UAE commercial banks by using a modified version of SERVQUAL. 2002). Nath and Pal (2003) examined efficiency of banking services by considering service quality. findings of another study suggested that organizations should concentrate on service quality and customer satisfaction to gain competitive position in the market for long-term business success (Kayis. Mukherjee. Findings proved that there is a relationship between resources. It was found that there is significant relationship between service quality and financial performance (Duncan and Elliot. Findings showed that customer management performance is very poor in retail banking and insurance industry as compared to other industries under the study. human skills and tangibles.

2003). Findings showed that dimensions of service quality have a positive impact on bank performance (Akroush. The study concluded that profit and loss sharing option is very attractive for the bank. Gao. Gritti and Foss (2007) empirically investigated the relationship between customer satisfaction and loyalty and its impact on profitability in Italian banking sector. the service quality and bank performance examined in Jordan based on a sample of 346 respondents. Equity based ventures help the bank to reduce risk and monitoring costs (Ghannadian and Goswami. It is reported that bank efficiency and shareholders' value is the outcome of customer satisfaction score. Jia and Zhao (2006) examined the service quality and its attributes to measure the performance of retail banks in China. It could increase the bank efficiency by reducing divergence in efficiency scores (Tripe. Islamic banking practices in developing economies helped to minimize risk and inflation. 2004). They conducted statistical analysis of the national survey to identify existing obstacles and their solutions to improve service quality and customer satisfaction for six major local banks in China. They found that customer satisfaction influences loyalty that results into direct effect on financial and non-financial customer value. They suggested that provision of better service quality than competitors could result into satisfied and loyal customers for greater benefits. In another study. 2007). . 2008).Comparative Study of Islamic Banking 84 justice and word of mouth in the banking sector (Maxham. It is suggested that customer satisfaction scores require an adjustment for branch locations for customer service.

Comparative Study of Islamic Banking 85 3. technological and structural changes (Angur et al. 2000). (1985. Parasuraman et al. expansion of global and integrated banking sector has to face many challenges of legislation. banks are providing a wide range of products and services and facing intensive competition to attract potential customers. They explored ten dimensions of service quality and refined into five dimensions. Demographic characteristics should be considered by the bank managers to understand their customers. ethnicity. It is reported that banking and financial services are the integral part of services industry and its contribution is increasing with the passage of time (Mishkin.6 Hypotheses. This study assessed the customers’ perception of service quality on the basis of gender due to traditional and . However. 1991b) devised SERVQUAL model and investigated the service quality. 1992). 2001). 1999). Conceptual Model and Theoretical Framework The expansion of the banking industry requires a study to assess service quality in relation to customers' satisfaction and its influence on bank performance. 2002). The relationship between service quality and customer satisfaction is becoming crucial with the increased level of awareness among bank customers (Sureshchander et al. education and income (Urban and Pratt. Customers' perception of service quality differs in terms of gender. It was documented that an increase in service quality and professional behavior resulted a greater customer satisfaction and reduced customer erosion (Leeds. Islamic banks are striving to capture the maximum number of customers to compete with conventional banks by providing a large number of products as an alternative for interest based products. In Pakistan.

Iheduru. Boyd et al. Kinsey. findings showed that there is difference in choice factors by male and . Ogenyi. 1988. In another study. 2002). (1994) investigated the bank selection criteria on the basis of demographic characteristics and found a significant difference between service quality perception of white collar customers and low income customers.. a varied pattern of customer satisfaction and behavioral outcomes is observed among male and female bank customers (Yavas. 2002). There are number of studies that investigated service quality perception of bank customers in the different parts of the world (Imam. 2004). Babakus and Ashill. Due to these factors men have more access to banking. 2004). It is reported that gender roles and responsibilities are shaped due to specific cultural. 1980. It is found that gender affects the service quality perception of bank customers and they show a varied response towards different dimensions of service quality (Spathis. Customers' perception of service quality is strongly dependent on customers' values and beliefs that vary from one culture to another (Furer et al. Ayadi (1996) concluded that female bank customers are engaged in lesser banking activities than male customers due to lower income. It is reported that customers' perception of service quality is very important for managers to compete in the market (Hoffman and Bateson. 2007). Anakwue. education and insurance facilities as compared to women (Ajakaiye and Olomola. 1997.Comparative Study of Islamic Banking 86 cultural context in the prevailing socio-economic conditions of Pakistan. 2002. 1987. Similarly. 2003). In Muslim countries male is responsible for financial activities outside the home while female performs domestic activities inside the home (Obbe. 2002). social and religious factors. Omar and Ogenyi.

However. 1997). (Malhotra et al. Based on these studies. an improvement in service quality is necessary for higher levels of satisfaction among banking customers (Allred... Levesque and McDougall (1996) reported that service quality has a significant impact on customer satisfaction and their intensions to switch. 2005). 2003).A. 2001). it is suggested that service performance appraisal system of an organization should be improved in line with customer satisfaction in the banking sector (Kayis. Similarly. it can be hypothesized that there is significant difference in the perception of bank customers on the basis of gender. It is found that service quality is an important determinant of customer satisfaction by dealing with complaint behavior and commitment in Turkish banking industry (Yavas et al.Comparative Study of Islamic Banking 87 female bank customers in selection of their respective bank (Omar. Iglesias and Guille´n (2004) explored direct and positive relationship between perceived quality and level of satisfaction.S. H1: There is a significant difference in the perception of service quality among bank customers on the basis of gender. . It was reported that in developing countries like India and Philippines results were systematically and significantly different from developed countries like U. Kim and Shin. Caruana (2002) suggested that banks should concentrate on service quality and customer satisfaction to gain competitive position in the market. 2008).

4 Graphical display of the hypothesized relationship between service quality and customer satisfaction Service Quality + Customer Satisfaction . understanding of changing needs and expectations of customers is an essential prerequisite for the financial sector (Joseph et al. Above-mentioned literature provides a foundation to hypothesize that there will positive relationships between service quality and customer satisfaction in Pakistani banking sector. However. It is found that there is a positive relationship between service quality and customers satisfaction (Razak. Chong and Lin. 2006). 2007). H 2: There is positive relationship between service quality and customer satisfaction in the banking sector of Pakistan. It is suggested that the meeting of customers' expectation is crucial to increase customers' satisfaction by delivery of better quality services (Gao. Figure-3. Jia and Zhao. 2005).Comparative Study of Islamic Banking 88 Curry and Penman (2004) reported that service quality is important for differentiation to compete in the market and retain the customers as satisfied for long-term benefits.

1997). Progress of banks can be evaluated by the implementation of service quality programs to retain customers as satisfied (Yavas et al. Customer satisfaction affects customer loyalty that leads to greater profitability (Swan and Combs. 1976). 1996). Performance of banks could be measured as how they develop and maintain relations with their customers. 1993).Comparative Study of Islamic Banking 89 Banks are dominant players of financial market having multiple opportunities in the recent age. The success of banks depends upon customers' willingness to stay with them (Ennew. productivity and profitability.. There is an evident relationship between quality of services and profitability. Figure-3. Newman and Cowling (1996) found that service quality is important for banks due to link between quality. H 3: There is positive relationship between service quality and bank performance in Pakistan. so banks must focus on each customer to maximize their profits.5 Graphical display of the hypothesized relationship between service quality and bank performance Service Quality + Bank Performance . It can be hypothesized that there will be positive relationship between service quality and bank performance. It is found that services firms show poor performance due to lack of knowledge about customers' expectation (Zeithmal et al. Hallwell (1996) concluded that customer satisfaction resulted into profitability.

H 4: There is positive relationship between Customer satisfaction and bank performance in Pakistan.. They suggest that Islamic banks should diversify their products/services according to principles of Sharia’h.. Figure-3. Ebrahim and Joo (2001) reported that Islamic banks have shown an excellent performance. Mukherjee. Yeung et al. There is a significant relationship between service quality and financial performance (Duncan and Elliot. On the basis of literature it is hypothesized that there will be positive relationship between customer satisfaction and bank performance in Pakistan. It is recommended that profit and loss sharing option is very attractive for the bank..6 Graphical presentation of the hypothesized relationship between customer satisfaction and bank performance Customer Satisfaction + Bank Performance . 2003). It helps the bank to reduce risk and monitoring costs (Ghannadian and Goswami. 2002. 2002. 2002). Several studies measured the relationship between customer satisfaction and performance of the firm (Anderson et al.Comparative Study of Islamic Banking 90 Customer satisfaction is an important driver for better organizational performance especially in the banking sector due to increased competition. there is a severe shortage of literature that specifically measured the performance of banks with reference to service quality and customer satisfaction. However. Nath and Pal (2003) found relationship between resources. 2004). service quality and performance of banks. Al-Hawari and Warid. Wiele et al. 2006). So it is concluded that superior delivery of services results into superior profitability (Kotler. 1994.

It is suggested that customer satisfaction could increase the bank efficiency by reducing divergence in efficiency scores (Tripe. 2007). Figure-3. it is assumed that customer satisfaction will mediate the relationship between service quality and bank performance.7 Graphical presentation of the hypothesized mediating role of customer satisfaction between service quality and bank performance Customer Satisfaction Service Quality Bank Performance . H 5: Customer satisfaction mediates the relationship between service quality and bank performance in the banking sector of Pakistan. On the basis of literature. It is documented that customer satisfaction results into financial and non-financial customer value (Gritti and Foss.Comparative Study of Islamic Banking 91 Gao. 2008). Jia and Zhao (2006) suggested that provision of better service quality than competitors could results into satisfied and loyal customers for greater benefits. While it is found that customer satisfaction plays an inter-mediator role in the relationship between service quality and financial performance of the banks in Australia (Al-Hawari and Ward. 2007). It is reported that quality implementation initiatives mediate the relationship between service quality and bank performance (Akroush. 2006).

Comparative Study of Islamic Banking 92 Figure.8 Service Quality. Customer Satisfaction and Bank Performance in Pakistan Human Element Tngble of Srvce Syszn Srvc Dlvry Reliability Tangibility Assurance Service Quality Customer Satisfaction Social Rspnsblty Core Service Responsiveness Bank Performance Empathy Independent Variable Mediating Variable Dependent Variable Conceptual Model and Theoretical Framework .3.

Comparative Study of Islamic Banking 93 Summary of Hypotheses H1: There is a significant difference in the perception of service quality among bank customers on the basis of gender H2: There is positive relationship between service quality and customer satisfaction in the banking sector of Pakistan H3: There is positive relationship between service quality and bank performance in Pakistan H4: There is positive relationship between customer satisfaction and bank performance in Pakistan H5: Customer satisfaction mediates the relationship between service quality and bank performance in the banking sector of Pakistan. .

Comparative Study of Islamic Banking 94 CHAPTER 4 Methodology  Research Method  Pilot Test  Main Study  Measures and Instruments  Reliability and Internal Consistency of the Variables .

determinants of customer satisfaction and bank performance.0 and VPLS 1. Jamal 2004. 2003. Structural equation modeling (SEM) technique was used to test the proposed model. 2004. Stratified random sampling method was adopted for this study as it was used by previous studies (Sureshchander et al. Morris et al. Data analysis was carried out by using SPSS 15. academicians. Kumar. The pretest was carried out to test the model in the local settings as it was tested for the first time in Pakistan. Pearson’s correlation and structural equation modeling. The conceptual model was tested by using Partial Least Square method that is .Comparative Study of Islamic Banking 95 Chapter 4 Methodology 4. A pilot study was undertaken (by consulting with bankers. Jamal. 2005).0 Research Method This study examines the relationship between service quality and customer satisfaction and further how it affects the bank performance. The study aims to analyze the influence of selected variables in Pakistani banking sector by a comparison of Islamic and Conventional banks. It intends to test several hypotheses devised in the light of existing literature in Pakistani perspective.04 to apply regression analysis. Sample size met the minimum required criteria for the use of regression (Rosco. This study investigates the dimensions of service quality. Lee et al. A total of 2300 questionnaires were distributed among respondents of 144 branches of selected banks (72 branches of IB and 72 branches of CB). professionals and customers of both streams) before conducting the actual survey. independent t-test. 1975. 2002. 2005). 1992. Hair et al.

Gefan et al. Bullock. Thomson. 1995. A structured questionnaire was developed to record the responses of customers and employees of Islamic and conventional banks operating in Pakistan.e. 2000. This study is based on primary data that was collected from the existing customers and employees of selected banks in Pakistan.Comparative Study of Islamic Banking 96 consistent with the past studies (Bollen. 1989. The population consisted of 5671978 bank customers using products/services of selected banks (468 693 customers of IB and 5203385 customers of CB). customers were selected randomly to collect data by self-administrated questionnaires. . Chin et al. 1994. The study also adopted “personal contact” approach i. 1998. professionals and customers enabled the researcher to modify and refine the research instrument in Pakistani environment. The researcher explained the questionnaire and the objective of survey by telling its purpose. While the population of bank employees consisted of 69056 employees working in selected banks (3575 employees of IB and 65481 employees of CB). respondents were approached personally. 2005) The population of the study comprised of the customers and employees of Islamic and conventional banks with 8233 branches (341 braches of IB and 7892 of CB) working in Pakistan (SBP. Conducting a comprehensive literature review and consulting with bank managers. This study selected 144 bank branches (72 of IB and 72 of CB) to collect data from the respondents by stratified random sampling from 12 major cities of Pakistan that represents all parts of the country. 2008). the meaning of the items and what is expected from the respondents. From each group of bank (Islamic bank or Conventional bank).

829 0. A sample of 408 (102 from each category) customers and employees was selected to compare Islamic and conventional banks working in Pakistan.739 0. of Items Cronbach’s Guttman Alpha Coefficient Split Half-Coefficient 4 5 4 4 5 4 8 5 6 6 8 0.1 Reliability Statistics of the Scales Constructs/Variables of the Study CB Service Quality CB Tangibility CB Reliability CB Responsiveness CB Assurance CB Empathy CB Customer Satisfaction CB Core Service CB Human Element CB Systemization of Service Delivery CB Tangibles of Service CB Social Responsibility CB Performance No.913 0.750 0.769 0.879 0.800 0.813 0.829 0.836 0.840 0. 2006). It is highly recommended that questionnaire is a reliable tool to measure the impact of customer service management on perceived business performance in Malaysian banks and finance companies (Wei and Nasir.825 0.875 0.841 0.699 0.917 0. 4.837 0.757 0.745 0.803 0.1 Pilot Test A pilot study was undertaken before conducting the actual survey. Table-4.823 0.Comparative Study of Islamic Banking 97 The data were collected by using self-administrative questionnaires from the customers and employees of Islamic and Conventional banks in Pakistan.711 .

947 for Guttman Split-Half. Performance of conventional bank is determined by eight items scale.944) and Guttman Split-Half (0.837 0.745) and Guttman Split-Half (0. Systemization of service delivery.858 0.858 0.849 0.e. Service quality of conventional bank is measured by 22 item scale that produced Cronbach alpha (0. Tangibles of services and Social responsibility. .630 to 0.898 0.906).855 0. Customer satisfaction of conventional bank is assessed by 29 items scale that resulted into Cronbach's alpha (0.769 0. It contains five dimensions namely Core services. Cronbach's alpha and Guttman Split-Half were used to check the reliability of the variables. 0.947).843 0. It consists upon five dimensions i.827 0. Reliability. Service quality of Islamic bank is investigated by using 22 items scale that reflects Cronbach alpha (0. Human element.711).845 0.754 0. Assurance and Empathy. Responsiveness.886 0.968) and Guttman Split-Half (0.733 0.624 Table 4.630 0. which showed Cronbach alpha (0.865 0.624 to 0.968 for Cronbach's alpha and 0.919) having five dimensions i.867 0.1 shows the reliability coefficients of the constructs/variables for the data collected for the pilot study. Tangibility.824 0.730 0.e.759 0.e.764 0.946) and Guttman Split-Half (0.Comparative Study of Islamic Banking 98 IB Service Quality IB Tangibility IB Reliability IB Responsiveness IB Assurance IB Empathy IB Customer Satisfaction IB Core Service IB Human Element IB Systemization of Service Delivery IB Tangibles of Service IB Social Responsibility IB Performance Source: Generated 4 5 4 4 5 4 8 5 6 6 8 0. It ranges from moderate to very high coefficients i.794 0.

408 .802 . Responsiveness.343 -.088 .084 .322 -.679 -.632 -.225 .937 .003 .508 -.691 -.927 -.Comparative Study of Islamic Banking 99 Tangibility.580 -.962) and Guttman Split-Half (0. Performance of Islamic bank is measured by eight items scale that produced Cronbach alpha (0.618 .115 -.119 -.829 -.630) and Guttman Split-Half (0.502 -.349 -.365 .609 -.673 -. Reliability.353 .095 -.2 Descriptive Statistics Constructs/Variables CB Tangibiles CB Reliability CB Responsiveness CB Assurance CB Empathy CB Service Quality CB Core Service or Service product CB Human Element of Service Delivery CB Systemiztion of Service Delivery or non-Human element CB Tangiblies of Services (Servicescapes) CB Social Responsibility CB Bank Performance CB Customer Satisfaction IB Tangibles IB Reliability IB Responsiveness IB Assurance IB Empathy IB Service Quality IB Core Service or Service IB Human Element of Service IB Systemization of Service Delivery or non-Human element IB Tangibles of Service (Servicescapes) IB Social Responsibility IB Customer Satisfaction IB Bank Performance Skewness -. It comprises of five dimensions namely Core services.093 . Assurance and Empathy.996 -.451 -.920 -.211 Kurtosis .415 .263 -. Table-4. Tangibles of services and Social responsibility.023 .147 -.777 -.032 -.448 -. Customer satisfaction of Islamic bank is evaluated by 29 items scale that indicated Cronbach alpha (0.507 -.461 -.112 -.785 -.165 -.669 -.580 -.624).898).439 -.440 -.019 .150 -. Human element.525 -.837 -. Systemization of service delivery.800 -.

A self-administrated structured questionnaire was used to collect the data from participants. customer satisfaction and bank performance by comparing both the banking streams i. It indicates the normality of data regarding selected variables of the study. 4. Similarly.2 Main Study A stratified random sample of (1728 respondents dealing with) 144 branches of selected Islamic and conventional banks was drawn for this study. It reflects the skewness and kurtosis for service quality (its dimensions). customer satisfaction (its dimensions) and bank performance for Islamic and conventional banks.Comparative Study of Islamic Banking100 Table 4. Islamic and conventional banks. Islamic bank or conventional bank.e. From each group of bank.2 shows the skewness and kurtosis of the constructs and variables for the pilot study.e. The data were collected from the . The population was divided into two groups of banks according to type of bank (IB or CB) to record their responses. Then researcher selected respondents randomly from each stratum and combined them to form the full sample. It enabled the researcher to find out the relationship between service quality. customers and employees were selected randomly to assess their responses. bank employees were also selected from each group of the bank to collect their views regarding bank performance. The stratification was done based on the type of the bank i. Bank customers were approached to get their responses regarding service quality and level of satisfaction while bank employees were contacted to measure the performance towards their respective banks.

Comparative Study of Islamic Banking101 respondents residing in the 12 major cities of Pakistan i.e. Islamabad, Rawalpindi, Lahore, Karachi, Quetta, Peshawar, Gujranwala, Sargodha, Multan, Sialkot, Gujrat, and Faisalabad. The researcher selected the most populous cities that represent the approximately 20% of total population of the Pakistan (World Gazette, 2009).The researcher collected data from the customers and employees of selected Islamic banks and conventional banks working in Pakistan that is given in table 4.3. Table-4.3

Selected Banks included in the study

Islamic Banks Meezan Islamic Bank Dubai Islamic Bank Limited Albaraka Islamic Bank Limited Bank Islami Pakistan Limited First Dawood Islamic Bank Limited Emirates Global Islamic Bank Limited Source: Generated

Conventional Banks National Bank of Pakistan Habib Bank Limited Pakistan MCB Bank Limited United Bank Limited Askari Bank Limited Bank Alfalah Limited

The researcher used a set structured questionnaire in English to collect data from customers of IB and CB as well as from the employees of IB and CB respectively. This study selected 144 branches of banks (72 branches of IB and 72 branches of CB) from 12 major cities of Pakistan that representing all provinces. A total of 2300 questionnaires were distributed among respondents to gather their responses. There were 1728

Comparative Study of Islamic Banking102 completed and useable questionnaires available for data analysis. Data were organized and entered into SPSS 15.0 version to apply specific statistical tools to test the hypotheses of the study. This study used PLS based SEM to investigate the relationships among service quality, customer satisfaction and bank performance by comparing Islamic and Conventional banks working in Pakistan. Firstly, Islamic and conventional banks were selected randomly from the list of banks issued by SBP. Then, the researcher collected details from the head office of the respective banks regarding addresses and location of branches in each city and each branch is selected randomly. Similarly, selected branch was contacted to have the details regarding customers (name and address etc.). A complete list of customers and employees of selected branches was obtained to record the responses of 12 respondents (6 customers and 6 employees) that were selected randomly. The total number of branches and respondents in selected cities are listed in table 4.4.

Table-4.4 Details regarding Branches and Respondents (City wise) City Islamabad Karachi Lahore Peshawar Quetta Rawalpinidi Total CB Branches 78 374 241 76 45 143 Total IB Branches 18 107 67 19 08 16 Selected Customers Employees Branches from each Branch from each Branch 6* 6 6 6 6 6 6** 6 6 6 6 6 6*** 6 6 6 6 6

Comparative Study of Islamic Banking103 Multan Gujranwala Faisalabad Gujrat Sialkot Sargodha 73 96 164 88 101 79 12 07 18 07 07 06 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

*6 Branches of IB and 6 Branches of CB from each city ** 6 Customers of IB and 6 customers of CB from each branch ***6 Employees of IB and 6 employees of CB from each branch

4.3

Measures and Instruments

A survey was conducted using a structured questionnaire in order to empirically measure and test the magnitude of the relationship among service quality, customer satisfaction and performance of banking sector in Pakistan. Service firms used SERVQUAL instrument to investigate the service quality in the banking, insurance and telephone repair industries. Customers of selected banks were asked to give their responses regarding their banker by considering different aspects of service quality.

Customers’ responses regarding service quality are collected by a modified version of SERVQUAL model developed by Parasuraman et al. (1988, 1991). It contained 22 items divided into five dimensions i.e. tangibility, reliability, responsiveness, assurance and empathy. Each items is assessed by a seven point Likert scale as it stands for 1 = strongly disagree to 7 = strongly agree.

Comparative Study of Islamic Banking104 Sureshchander et al. (2002) investigated customer satisfaction in the banking sector by using a forty one-item scale that is further summed up into five dimensions. Customers of Islamic and conventional banks were approached to collect data regarding their feelings of satisfaction or dissatisfaction towards bank services. Customer satisfaction was judged by a modified version of research instrument applied by Sureshchnader et al. (2002). It consisted of 29 items that were classified into five dimensions i.e. core service or service product; human elements of service deliver; systematization of service delivery (nonhuman element); tangible of service (servicescapes) and social responsibility. Customers were asked to give their feelings of satisfaction related to their banking experiences. Customers’ responses were evaluated on a seven point Likert scale ranging from 1 (reflects very high dissatisfaction) to 7 (reflects very high satisfaction) with respect to all 29 items.

There are a number of studies in the literature that used non-financial measures to gauze the effectiveness and performance of organization (Quinn and Rohrbaugh, 1983; Kohli and Jaworski, 1990; Baker and Sinkula, 1999). Bank performance was measured by the collection of data from the employees of selected banks. Performance of Islamic and Conventional banks is measured by a modified version of an eight-item research instrument developed by Quinn and Rohrbaugh, (1983). The responses were recorded regarding bank performance by considering different aspects. Every respondent was asked to rank a number of aspects regarding his/her bank i.e. quality of product, market share, internal process coordination, profitability, and personnel rotation etc. Bank performance was assessed by using five point Likert scale as 1 = Decreasing revolution to

your bank shows a sincere interest in solving it Your bank performs the service right the first time Your bank provides its services at the time it promises to do so Your bank issues error free bills. leaflets or reports) visually appealing at your bank When your bank promises to do something by a certain time. customer satisfaction and bank performance is given in table 4. statements and other documents Employees of your bank tell customers exactly when services will be performed Responsive-ness Employees of your bank give you prompt services Employees of your bank are always willing to help you Employees of your bank are never too busy to respond to your requests .5 A Summary of operationalization of All Variables of the study Dimensions of Service Quality Used in the Study Dimensions Elements Your bank uses modern looking equipment Your bank’s physical facilities are visually appealing Tangibles The employees of your bank are neat appearing Service related materials (such as pamphlets. Table.5.4. A summary of all variable operational i. Here revolution stands for development or progress (of that specific element) in relation to specific bank in which respondent is working.Comparative Study of Islamic Banking105 5 = Increasing revolution. it does so Reliability When you have a problem.e. service quality.

Comparative Study of Islamic Banking106
The behavior of your bank employees instills confidence in you You feel safe in your transactions with your bank Assurance Employees of your bank are consistently courteous with you Employees of your bank have the necessary knowledge to answer your questions Your bank gives you individual attention Your bank has business hours convenient to all its customers Empathy Your bank has employees who give you personal attention Your bank has your best interests at heart Employees of your bank understand your specific needs Determinants of Customer Satisfaction Used in the Study Determinants Elements Diversity and range of Bank’s services (having a wider range of financial services from the bank, e.g. deposits, retirement accounts, loans for purchase of cars, houses, foreign exchange, traveler’s cheques, safe deposit lockers, etc.) Bank’s Service innovation (providing information/details on regular Core service or service basis through post: telephonic banking; ATM; room service facility; cards to defense personnel, etc.) product Availability of most service operations in every branch/department of the bank. Convenient operating hours and days (e.g. working on Saturday and Sunday s, extended service hours during evenings, weekdays, etc.) Providing service as promised Effectiveness of the employees’ skills and ability for actions whenever a critical incident takes place (i.e. when a problem arises) Whenever a critical incident takes place (i.e. when a problem arises), the degree to which organization succeeds in bringing the condition back to normalcy by satisfying the customer. Human element of Prompt service to customers. service delivery Extent to which the feedback from customers is used to improve service standards. Employees who instill confidence in customers by proper behavior. Making customers feel safe and secure in their transactions.

Comparative Study of Islamic Banking107

Employees who have the knowledge and competence to answer customers’ questions having best interests at heart. of Having a highly standardized and simplified delivery process so that services are delivered without any hassles or excessive bureaucracy. service delivery Enhancement of technological capacity (e.g. computerization, networking of operations, etc.) to serve customers more effectively. (nonhuman element) Systematization Degree to which the procedures and processes are perfectly fool proof. Adequate and necessary personnel for good customer service. Adequate and necessary facilities for good customer service. The ambient conditions such as temperature, ventilation, noise and odour prevailing in the bank’s premises. Extent of the physical layout of equipment and other furnishings being comfortable for customers to interact with employees. Tangibles of service (servicescapes) Having house keeping as a priority and of the highest order in the organization Visually appealing sings, symbols, advertisement boards, pamphlets and other artifacts in the bank. Employees who have a neat and professional appearance. Visually appealing materials and facilities associated with the service. Equal treatment stemming from the belief that every one, big or small, should be treated alike. “Service transcendence”- making customers realize their unexpected needs by giving more than what they expect. Social responsibility Giving good service at a reasonable cost, but not at the expense of quality. Having branch locations in most places convenient to all sections of society (e.g. villages, down town areas, etc.) A sense of public responsibility among employees (in terms of being punctual, regular, sincere and without going on strikes). Extent to which the organization leads as a corporate citizen and the level to which it promotes ethical conduct in everything it does.

Comparative Study of Islamic Banking108

Determinants of Organizational Performance

Elements Quality product Internal process coordination Personnel activities coordination Share market Profitability Productivity Voluntary personnel rotation Personnel absenteeism

4.4

Reliability and Internal Consistency of the Variables

The internal reliability and consistency of the constructs and variables was measured by the Cronbach’s alpha and Guttman Split-Half coefficients. Cronbach’s alpha and Guttman split-half coefficients range from 0.579 to 0.961. The coefficients reflected moderate to high reliability and consistency of the constructs and variables of the study.

Cronbach’s alpha lies between 0 – 1, 0 represents no reliability while 1 reflect the strong reliability of the research instrument. The researcher has established varied criteria for alpha coefficients as 0.40, 0.50, and 0.60 or in some cases 0.70. There are several studies available in the literature that recommended that Cronbach’s alpha should be above 0.60 (Nunnally, 1967; Nunnally, 1978; Peter, 1979; Nunnally and Bernstein, 1994).

Comparative Study of Islamic Banking109 Similarly, Cronbach’s alpha above 0.70 is recommended to reflect the construct reliability (Segars, 1997; Hair et al., 1998). Skewness shows asymmetrical distribution of data. The coefficient of skewness is used to assess the magnitude of the asymmetry that lies between +1 to -1. The coefficient of skewness reflects the direction as (+) sign indicates that data is positively skewed and (–) sign reveals the negative slope while 0 coefficients reflects that there is no skewness. Kurtosis reflects the flatness or convexity of the curve. It lies between +3 and -3. There are three possibilities as shown by β i.e. 0 indicates that curve is normal, neither flat nor peaked. If it is β > 3 then curve is more peaked than normal and if β< 3 then curve is flatter than a normal curve.

Table-4.6 Reliability Statistics of the Scales for IB Constructs/Variables of the Study IB Service Quality IB Tangibility IB Reliability IB Responsiveness IB Assurance IB Empathy IB Customer Satisfaction IB Core Service IB Human Element IB Systemization of Service Delivery IB Tangibles of Service IB Social Responsibility IB Performance Source: Generated 4 8 5 6 6 8 0.867 0.891 0.833 0.855 0.839 0.597 0.852 0.883 0.765 0.815 0.832 0.579 4 5 4 4 5 0.841 0.809 0.784 0.741 0.820 0.834 0.774 0.744 0.705 0.777 No. of
Items

Cronbach’s

Guttman

Alpha Coefficient Split Half-Coefficient

832). Customer satisfaction is measured by 29-item scale that consists upon 5 dimensions.834). Tangibles of services contain 6 items with Cronbach alpha (0.918).777).744).960) and Guttman Split-Half (0. Social responsibility consists upon 6 items and shows Cronbach alpha (0. The reliability coefficients of customer satisfaction are reported as Cronbach's alpha (0. Responsiveness is the combination of 4 items resulted into Cronbach alpha (0. It produced reliability coefficients as Crobach alpha (0. Systemization of service delivery is the combination of 5 items having alpha (0. Human element is represented by 8 items and produced Cronbach alpha (0.841) and Guttman Split-Half (0. Service quality of Islamic banks is measured by 22 items scale (consists upon five dimensions).891) and Guttman Split-Half (0.852). Core service dimension of customer satisfaction contains 4 items with Cronbach alpha (0.597) and Guttman Split-Half (0.774).6 reflects the reliability coefficients of the constructs/variables used for Islamic banks.579).944) and Guttman Split-Half (0. Tangibility dimension consists of 4 items with Cronbach's alpha (0. Performance of Islamic banks is measured by 8 item scale that produced Cronbach alpha (0.833) and Guttman SplitHalf (0.765).883).809) and Guttman Split-Half (0.867) and Guttman split-Half (0.839) and Guttman Split-Half (0. Reliability contains 5 items and produced Cronbach alpha (0. Assurance has 4 items with Cronbach alpha (0. .855) and Guttman Split-Half (0.921).741) and Guttman Split-Half (0.705).815).820) and Guttman Split-Half (0. Empathy dimension of service quality is the collection of 5 items having Cronbach alpha (0.784) and Guttman Split-Half (0.Comparative Study of Islamic Banking110 Table 4.

711 Table 4. Service quality of conventional banks is measured by 22 items scale (consists upon five dimensions).821).7 indicates the reliability coefficients of the constructs/variables used for conventional banks.885). Tangibility dimension consists of 4 items with Cronbach's alpha (0. of Items Cronbach’s Guttman Alpha Coefficient Split Half-Coefficient 4 5 4 4 5 4 8 5 6 6 8 0.728).830 0.848 0. Responsiveness is the combination of 4 items resulted into Cronbach alpha (0.830) and Guttman Split-Half (0.752) and Guttman Split-Half (0.707 0. .707).715 0. Empathy dimension of service quality is the collection of 5 items having Cronbach alpha (0.826 0. Reliability contains 5 items and produced Cronbach alpha (0.821 0.791 0.775 0. Assurance has 4 items with Cronbach alpha (0.738).774 0.775).892 0.Comparative Study of Islamic Banking111 Table-4.728 0.826) and Guttman Split-Half (0.831) and Guttman Split-Half (0.817 0.845 0.752 0.790 0.940) and Guttman Split-Half (0.7 Reliability Statistics of the Scales for CB Constructs/Variables of the Study CB Service Quality CB Tangibility CB Reliability CB Responsiveness CB Assurance CB Empathy CB Customer Satisfaction CB Core Service CB Human Element CB Systemization of Service Delivery CB Tangibles of Service CB Social Responsibility CB Performance Source: Generated No.774) and Guttman Split-Half (0.738 0.831 0. It produced reliability coefficients as Crobach alpha (0.801 0.853 0.805 0.869 0.

845) and Guttman SplitHalf (0. 1991). 0.892) and Guttman Split-Half (0. 0. 0. Cronbach alpha coefficients for the constructs and variables of the study are consistent with previous researches e. The reliability coefficients of customer satisfaction are reported as Cronbach's alpha (0.848) and Guttman Split-Half (0. 0. Social responsibility consists upon 6 items and shows Cronbach alpha (0.70 (Hair et al. Core service dimension of customer satisfaction contains 4 items with Cronbach alpha (0.83 (Finn & Lamb.961) and Guttman Split-Half (0.67 to 0.g.59 to 0.60 (Nunnally & Bernstein.805).801) and Guttman split-Half (0. Systemization of service delivery is the combination of 5 items having alpha (0.711). Human element is represented by 8 items and produced Cronbach alpha (0.938).64 to 0. 1988). 1988).790). Customer satisfaction is measured by 29item scale that consists upon 5 dimensions.869).715) and Guttman Split-Half (0.Comparative Study of Islamic Banking112 Performance of conventional banks is measured by 8 item scale that produced Cronbach alpha (0. Tangibles of services contain 6 items with Cronbach alpha (0. . 1991).83 (Babakus & Boller.88 (Parasuraman et al.817). 1994) and 0.75 (Carman.791). 0.853) and Guttman Split-Half (0. 1990).

Comparative Study of Islamic Banking113 CHAPTER 5 Interpretation of the Results  Demographics of the Respondents  Descriptive Statistics of the Variables  Hypotheses Testing  Regression Model Results  Testing the Model  Discussion .

Pearson correlation.g. Regression analysis is used to test the magnitude of relationships between the constructs of the conceptual model as proposed in hypotheses. t-test. Section VI consists upon model testing by PLS based SEM and section VII shows the discussion. customer satisfaction and bank performance in Pakistan. education level. This chapter consists upon seven sections to show the results. . Other statistical tools e. Section I represents the demographic characteristics e. Section II shows descriptive statistics regarding selected constructs and variables of the study.0 Results Descriptive statistics are used to have a snapshot of demographic characteristics of the respondents. In section III. gender. monthly household income and bank usage pattern.g.Comparative Study of Islamic Banking114 Chapter 5 Interpretation of Results 5. hypotheses are tested by application of Independent T-test and Pearson’s correlation etc. occupation. age. Partial Least Square (PLS) and Structural Equation Modeling (SEM) are applied by the researcher to analyze service quality. section V reflect the regression models to assess the magnitude of relationship among variables.

They are supposed to perform the economic activities to generate revenues for their family members.1 Summary of Demographics of the Respondents Demographics Gender Male Female Marital Status Single Married Age 18-24 Years 25-34 Years 35-44 Years 45-54 Years 55 Years and above 29. monthly income and bank usage pattern. Demographics of the respondents are shown as under.90 46.1 Demographics of the Respondents The researcher collected data regarding the demographics of the respondents i.90 39.10 27. In Pakistani culture. Table-5.Comparative Study of Islamic Banking115 5.10 78. gender.e. marital status.80 53.90 24.90 3. age.50 39. occupation.20 55. Male segment of the population is dominant.70 6. educational level.10 Percentage (IB) Percentage (CB) .20 13.10 75.90 21.70 7.50 44.10 19.50 13.

40 8.80 10.50 4.40 3.80 20. 50 000 and above 10. 10 000 to Rs.90 53.60 23.60 6.90 3. 20 000 Rs.90 6.60 13.60 15.90 28.30 8.70 16.00 14.20 4.30 16.20 . 30 000 Rs.Comparative Study of Islamic Banking116 Educational Level Primary Secondary College University-Master University-M. 10 000 Rs.40 22.20 1.40 18. 30 000 to Rs.90 6. 40 000 to Rs.40 10.10 12. 50 000 Rs.80 23.90 2.70 22.Phil University-PhD Others Occupation Students Businessmen Education/Medical Services House Wife Bankers Professionals/Senior Management Others Monthly Household Income Under Rs.50 4.00 12.30 0.30 30.90 5. 40 000 Rs.20 60. 20 000 to Rs.10 23.10 6.50 21.40 11.00 1.40 19.

Hassan and Shahid.60 15. 1994).50 34.50 11. 2004). In case of IB 79% are male customers and 21% of the sample is represented by female customers. While the CB reflects that 76% respondent are male and 24% are female. cultural and religious factors also influence the banking activities.00 20. 1980). Male customers are more inclined towards IB as compared to CB but female customers prefer CB as compared to IB. 29.30 . While most of the customers of Islamic banks fall in the age group of 25-35 years (Khan. Social. 2008). Men are responsible for financial activities outside the home while female performs domestic duties inside the home (Obbe. It is consistent with the literature as men and women are differentiated due to role and perception in the society (Woldie and Adersua.80 5.20 53. The results showed that married customers are interested in IB while single customers prefer CB. It is found that the majority of primary bank customers are male between 20 to 55 years old in Nigeria (Ojo. Marital status is one of the important factors in demographic. The distribution of customers according age reflects that young and mature people (25-34) are more interested to interact with IB while young people (18-24 years) are inclined towards CB.10 30. While 46% married and 54% unmarried customers are using the products of CB in Pakistan.Comparative Study of Islamic Banking117 Bank Usage Pttern-(Length of Bank Services Utilization) Less than a Year 1 up to 3 Years 3 Years up to 5 Years 5 Years and above Source: Generated Table 5. This study reveals that 56% married customers and 44% unmarried customers are dealing with IB.1 showed that male customers are greater than female customers.

80%). bankers (19. students and businessmen are equally interested in CB (23.30%) with their existing bank followed by bank experience with less than a year (29. On the other hand.60%) and bankers (12. 1947. While occupational classification of bank customers indicates that businessmen (30. It is reported that bank customer education and income level have significant impact on banks usage (Khan. It may be due to the fact that Islamic Banks are new entrants in the Pakistani banking industry and they have started their operation during last few years (2002 and onwards).20%). Table 5. Majority of IB customers are banking from 1 up to 3 years (55.70%) prefers IB as compared to CB customers with the same income group (14. But the larger number of CB customers have University-Master degree (60.e.90%).30%). people with income group of Rs 50000 and above (16.90%) prefer IB. Similarly. August 14.40%) and professionals (11.20%).e. Hassan and Shahid.1 also shows the bank usage pattern of the customers. Bank customers with high income i. But conventional banks are well established due to long life as they have been working in Pakistan since the independence of Pakistan i. 2008).30% each) followed by professionals (13.50%) followed by college graduates (28.20%) followed by college graduates (22. customers of CB have long-term relations with their existing banks as the majority of bank customers are banking from 1 up to 3years (34 %) followed by bank experience of 5 years and above (30. Customers are classified according to time duration being the customers of IB or CB.Comparative Study of Islamic Banking118 Educational profile of the bank customers shows that majority of IB customers have University-Master qualification (53.20%).30%). On the other hand. .

591 .399 -.2 shows the skewness and kurtosis for the constructs and variables of the main study.343 -.642 -.822 -.610 .Comparative Study of Islamic Banking119 5.023 .112 .908 -.018 -.681 -.771 -.473 -.858 -.778 .300 .2 Skewness and Kurtosis of Constructs/Variables Skewness CB Tangibiles CB Reliability CB Responsiveness CB Assurance CB Empathy CB Service Quality CB Core Service or Service product CB Human Element of Service Delivery CB Systemiztion of Service Delivery or non-Human element CB Tangiblies of Services (Servicescapes) CB Social Responsibility CB Bank Performance CB Customer Satisfaction IB Tangibles IB Reliability IB Responsiveness IB Assurance IB Empathy IB Service Quality IB Core Service or Service Product IB Human Element of Service Delivery IB Systemization of Service Delivery or non-Human Element IB Tangibles of Service (Servicescapes) IB Social Responsibility IB Customer Satisfaction IB Bank Performance -.813 -.072 . .882 -.132 .295 -.336 Source: Generated Table 5.429 .012 -.010 -.817 -.750 -.870 .663 -.859 -1.839 -.701 -.249 . It reflects the skewness and kurtosis for service quality (its dimensions).142 .904 -.682 .923 -.065 -.781 -.424 Kurtosis -. customer satisfaction (its dimensions) and bank performance for Islamic and conventional banks.719 -.429 .452 -.153 .410 .208 .2 Descriptive Statistics of the Variables Table-5.259 .710 .629 -.552 -.523 -.307 .

8972 1.141 .69 5.9093 4.72 1.00 2.00 2.9354 5.9615 .88 2.9340 1.72 7. 1.9454 1.5886 .75 1.1896 5.83 6.9091 1.1715 5.9854 4.67 1.193 1.9365 .9584 4.9866 .25 1.50 1.029 1.50 1. service quality (its dimensions). .00 7.00 7.00 7.e.1865 3. It reflects minimum value.7792 S.50 1.2622 5.1406 5. maximum value.80 6.042 1.42 1.88 1.8867 .017 . mean and standard deviation of each construct and variable i.00 7. customer satisfaction (its dimensions) and bank performance regarding selected Islamic and conventional banks.075 .8678 4.00 6.031 .001 .2099 5.63 7. 7.1583 5.0011 4.83 6.20 1.Comparative Study of Islamic Banking120 Table-5.88 7.9589 .23 2.00 7.2352 5.00 7.099 1.83 5.007 1.2597 5.75 1.54 6.50 1.00 6.9246 5.9854 1.50 7.9967 4.D 1.65 1.00 7.63 1.25 1.40 1.3194 5.9160 4.9949 1.75 6.80 2.00 6.00 Max.3 Descriptive Statistics of the Constructs/Variables Min.00 6.131 .1296 5.7080 4.50 1.00 6.40 1.3 shows descriptive statistics for the constructs and variables of the study.8958 5.008 .5026 CB Tangibiles CB Reliability CB Responsiveness CB Assurance CB Empathy CB Service Quality CB Core Service or Service product CB Human Element of Service Delivery CB Systemiztion of Service Delivery CB Tangiblies of Services (Servicescapes) CB Social Responsibility CB Bank Performance CB Customer Satisfaction IB Tangibles IB Reliability IB Responsiveness IB Assurance IB Empathy IB Service Quality IB Core Service or Service Product IB Human Element of Service Delivery IB Systemization of Service Delivery IB Tangibles of Service (Servicescapes) IB Social Responsibility IB Customer Satisfaction IB Bank Performance Source: Generated Table 5.00 7.00 6.061 1.00 Mean 4.00 1.8611 3.00 2.1160 5.0465 4.

95 Source: Generated 0.003 Gender Male N M Std.3 Hypothesis Testing Table-5.968 430 0. Dev.968 and highly significant as p-value is 0.Comparative Study of Islamic Banking121 5. There is a significant difference in the perception of Male and Female customers about service quality of Islamic banks in Pakistan. 0. So. Levene's statistic (2. ethnicity.83 341 5.065) for equality of variances is not significant (p=0. education and income (Urban and Pratt. 2000).26 Table 5. Customers' perception of service quality differs in terms gender.4 Independent Samples T-Test for Difference in the Perception of Service Quality among Male and Female Customers of IB Levene’s Test for Equality of Variances T-test for Equality of Mean F Sig t df Sig.91 0. The null hypothesis is accepted.065 Female 91 4.003 (2-tailed).151).151 2. The results show that male customers have higher level of perceptions towards services quality of Islamic banks with lesser variation as compared to female customers. The t-statistic for equality of means is 2. . equal variances are assumed.4 shows the results for customers' perception of service quality offered by Islamic banks in Pakistan. (2-tailed) 2.

92 Source: Generated 0.577 (2tailed). The null hypothesis is rejected. So.5 reflects the results of Independent Sample t-test for customers' perception of service quality offered by conventional banks.5 Independent Samples T-Test for Difference in the Perception of Service Quality among Male and Female Customers of CB Levene’s Test for Equality of Variances T-test for Equality of Mean F Sig t df Sig.396 -0.721 Female 104 4.95 328 4.Comparative Study of Islamic Banking122 Table-5. The t-statistic for equality of the mean is -0. equal variances are assumed.558 and not significant as p-value is 0.396). There is no significant difference in the perception of Male and Female customers about the service quality of conventional banks. (2-tailed) 0. 2002). 0.87 Table 5.577 Gender Male N M Std.558 430 0. . Dev. Levene's statistic (0. It is reported that customers' perception of service quality is very important for managers to compete in the market (Hoffman and Bateson.721) for equality of variance is not significant (p= 0.87 0.

034 0.729 0.05 level (2-tailed).6 Summary of Correlation between Selected Variables Variables IBSQL and IBCS CBSQL and CBCS IBSQL and IBPRF CBSQL and CBPRF IBCS and IBPRF CBCS and CBPRF Pearson Correlation 0.Comparative Study of Islamic Banking123 Table-5.696*** 0.698) between IBSQL and IBCS. It supported the hypothesis that service quality is positively related to customer satisfaction in conventional banks working in Pakistan. The results reflect that the service quality leads to greater satisfaction among bank customers. It is consistent with the literature as it is reported that there is a positive relationship between service quality and customer satisfaction (Razak.01 level (2-tailed) ** Correlation is significant at the 0.031 *** Correlation is significant at the 0. table 5. It supported the hypothesis that service quality is positively related to customer satisfaction in Islamic banks working in Pakistan.776 0.041 0.000 0. 2007).6 shows the relationship between IBSQL and IBCS. It is found that there is strong positive relationship (r = 0.775 0. Chong and Lin. (2-tailed) 0. It is found that there is positive relationship between service quality and customer satisfaction in .696) between CBSQL and CBCS. Table 5.255** Sig.034 -0.000 0.698*** 0.6 reveals that there is a strong positive correlation (r = 0. Similarly.

Jia and Zhao.825 0.899 .133 -0.7. It supports the hypothesis that there is a positive relationship between customer satisfaction and performance of conventional banks. as results are contradictory to hypothesis and it rejects the null hypothesis.150 Sig. Table 5.6 indicates a weak positive relationship between IBSQL and IBPRF. It is reported that the meeting of customers' expectation is crucial to increase customers' satisfaction by delivery of better quality services (Gao. The results are in line with the hypothesis as there is a positive relationship between service quality and performance of Islamic banks working in Pakistan. there is a significant positive relationship between CBCS and CBPRF. Table 5. results reflect the relationship between CBSQL and CBPRF. On the other hand. 2003). Similarly.027 0. A snapshot of pair-wise correlation between selected variables is shown in table 5. It reflects a weak negative relationship between customer satisfaction and performance of Islamic banks.264 0.Comparative Study of Islamic Banking124 Pakistan (Jamal and Naseer.7 Summary of Pair-wise Correlation between Selected Variables Variables IBSQL and CBSQL IBCS and CBCS IBPRF and CBPRF Source: Generated Pearson Correlation 0.6 shows correlation between IBCS and IBPRF. 2006). Table-5. (2-tailed) 0. There is weak positive relationship between service quality and performance of conventional banks in Pakistan.

F-statistics (21. test 1.504] 0.000 0.811] [4.028 0.493) [5.691 21.139) (0.135) (0. D. p= 0.000) between the dimensions of service quality and customer satisfaction in Islamic bank.Comparative Study of Islamic Banking125 5.360(Tgty) + 0.1 Regression Model Results Dimensions of Service Quality and Customer Satisfaction Table-5.000 Predictor (Constant).372 Asnc 0.360 Rlty 0.691 that indicates the goodness of the model. There is highly significant linear relationship (i.W.166 R2 F-Stat.e.831] [5. reliability.4. IBDSQL Dependent Variable: IBCS Table 5.000 Tgty 0.151(Asnc). The coefficient of determination is 0.110 0.372(Rspv) + 0.239(Rlty) + 0.000 0.8 Summary of the IBDSQL-IBCS Linear Regression Model (based on SPSS results) (Coefficients.248 (0.324] [2.248 + 0. Four dimensions of service quality namely tangibility.091) [5.239 Rspv 0.227) reflects that variation (influence) of Independent Variable (IBDSQL) is appropriately explained in the dependent variable (IBCS).151 Epty 0.113) (0. The estimated regression model is: IBCS = 0. The Durbin Watson results (1.112) (0.821 0.005) impact on customer .4 5. t-values in Brackets and p-values in italics) Constant 0.003 0.243] [1. Standard Error in Parenthesis. responsiveness and assurance have significant (p<0.621] 0.8 reflects the results of IBDSQL-IBCS regression model.227 (0.821) also supported the model.

146 Table 5.427 16.507 0.466 2.293 21.971 1. tolerance level and VIF that remain within the acceptable range.000 13.563 12.545 0.9 reveals the multicollinearity coefficients for IB to indicate the correlation of the predictor variables.836 2.110). The results show that there is no multicollinearity among the independent variables.579 14.118 2.300 Tolerance VIF 0.496 0.9 Summary of the Multicollinearity Coefficients for IBDSQL-IBCS Regression Model Dimensions Constant Tgty Rlty Rspv Asnc Epty Source: Generated Source: Generated Condition Index 1. While empathy has no significant influence on customer satisfaction (p=0. The coefficients are listed in terms of conditions index.016 1.472 0. . Table-5.Comparative Study of Islamic Banking126 satisfaction in Islamic banks.

669 22.10 Summary of the CBDSQL-CBCS Linear Regression Model (based on SPSS results) (Coefficients. reliability. The estimated regression model is: CBCS = 0. F-statistics (22. . It reflects that the coefficient of determination (R2= 0.089 Epty 0.539) [5.301(Epty).e.321 Rlty 0. There is highly significant linear relationship (i.096) (0.323(Rspv) + 0.000 Tgty 0.101) (0.087) indicates that variation (influence) of Independent Variable (CBDSQL) is appropriately explained in the dependent variable (CBCS). test 1. tangibility.005) impact on customer satisfaction in conventional banks.321(Tgty) + 0.007 0.000 Predictor (Constant).286] [2.025 0.007 0.117) [2.452) impact on customer satisfaction in case of conventional banks.043] 0.251 Rspv 0.116) (0. t-values in Brackets and p-values in italics) Constant 0. Four dimensions of service quality i.087 (0.251(Rlty) + 0.10 shows results of CBDSQL-CBCS model. On the other hand.802] [2. D.669) is appropriate and indicates the goodness of the model.W.000) between the dimensions of service quality and customer satisfaction in conventional banks.Comparative Study of Islamic Banking127 Table-5.e.110) (0.962 0. responsiveness and empathy have significant (p<0. p= 0.223 (0. Standard Error in Parenthesis.323 Asnc -0. assurance has no significant (p=0.757] 0.452 [2.301 R2 F-Stat.806] 0.058] [-0.034 0. CBDSQL Dependent Variable: CBCS Table 5.223 + 0.

tolerance level and VIF that lies within the acceptable range.948 16.404 0.595 13. Hence there is no multicollinearity among independent variables.11 indicates the multicollinearity coefficients for dimensions of service quality and customer satisfaction in case of CB.000 14.471 0.119 2.11 Summary of the Multicollinearity Coefficients for CBDSQL-CBCS Regression Model Dimensions Constant Tgty Rlty Rspv Asnc Epty Source: Generated Condition Index 1.Comparative Study of Islamic Banking128 Table-5.640 12.035 2.475 2.592 2. . The coefficients are listed in terms of conditions index.494 1.026 Table 5. The table further depicts correlation of the predictor variables.869 Tolerance VIF 0.491 0.628 0.357 19.

Standard Error in Parenthesis.000 0.000) between service quality and customer satisfaction in Islamic bank.e. The coefficient of determination is 0.641(IBSQL).888] 0. IBSQL Dependent Variable: IBCS Table 5. t-values in Brackets & p-values in italics) Constant 1. F-statistics (67.4.803 (0. There is highly significant linear relationship (i.12 Summary of the IBSQL-IBCS Linear Regression Model (based on SPSS results) (Coefficients.093) [6.000 R2 0.512 F-Statistics 67.Comparative Study of Islamic Banking129 5.2 Service Quality and Customer Satisfaction Table-5. p= 0.512 that indicates the goodness of the model.451 Predictor (Constant).641 (0.499) [3.005) impact on customer satisfaction in Islamic banks.12 shows the results of IBSQL-IBCS model. .451) shows that variation (influence) of Independent Variable (IBSQL) is appropriately explained in the dependent variable (IBCS).611] 0.803 + 0. Service quality has significant (p<0.001 IBSQL 0. The estimated regression model is IBCS = 1.

F-statistics (65.551] 0.808 (0.822 (CBSQL). CBSQL Dependent Variable: CBCS Table 5. t-values in Brackets and p-values in italics) Constant 0. Service quality has significant (p<0.595 Predictor (Constant).495 F-Statistics 65. Standard Error in Parenthesis.005) impact on customer satisfaction in conventional banks.102) [8.000) between service quality and customer satisfaction in conventional banks. The estimated regression model is CBCS = 0.495 that indicates the goodness of the model.000 CBSQL 0. p= 0.5.000 0.099] 0.000 R2 0.808 + 0.521) [1. The coefficient of determination is 0.Comparative Study of Islamic Banking130 Table.13 Summary of the CBSQL-CBCS Linear Regression Model (based on SPSS results) (Coefficients.595) reflects that variation (influence) of Independent Variable (CBSQL) is appropriately explained in the dependent variable (CBCS).e.822 (0. . It shows significant linear relationship (i.13 represents the results of CBSQL-CBCS model.

676] 0.074) [0.835 + 0.121 Predictor (Constant).121).000 IBSQL 0. p-value (0.729) impact on performance of Islamic banks. Standard Error in Parenthesis. .026 (IBSQL).396) [9.835 (0.729 0. Service quality has no significant (p=0.Comparative Study of Islamic Banking131 5.729) and F-statistics (0.4. IBSQL Dependent Variable: IBPRF Table 5.14 Summary of the IBSQL-IBPRF Linear Regression Model (based on SPSS results) (Coefficients.347] 0.14 shows output of IBSQL-IBPRF model.002.026 (0. It reflects variation (influence) of Independent Variable (IBSQL) in the dependent variable (IBPrf). The estimated regression model is IBPRF = 3.002 F-Statistics 0. t-values in Brackets and p-values in italics) Constant 3.729 R2 0.3 Service Quality and Bank Performance Table-5. The coefficient of determination is 0.

000 CBSQL 0. The estimated regression model is CBPrf = 3.760 (0.502) [7.776 R2 0.776) and F-statistics (0.15 Summary of the CBSQL-CBPRF Linear Regression Model (based on SPSS results) (Coefficients.028 (CBSQL).Comparative Study of Islamic Banking132 Table-5. t-values in Brackets & p-values in italics) Constant 3. . p-value (0.001). Service quality has no significant (p=0.229 Predictor (Constant).490] 0. Standard Error in Parenthesis.001 F-Statistics 0. CBSQL Dependent Variable: CBPRF Table 5.098) [0. It shows R2 (0.776) impact on performance of conventional banks.15 depicts the results of CBSQL-CBPRF model.760 + 0.028 (0.229).776 0.286] 0.

Comparative Study of Islamic Banking133 5. . Standard Error in Parenthesis. IBCS Dependent Variable: IBPRF Table 5. It is reported that customer satisfaction has no significant (p=0.385) [10.073) [-0.102 Predictor (Constant). The coefficient of determination is 0.16 reflects the results of IBCS-IBPRF model.000 IBCS -0.021 (0.600] 0.775) impact on the performance of Islamic banks in Pakistan.4.287] 0.775 R2 0.16 Summary of the IBCS-IBPRF Linear Regression Model (based on SPSS results) (Coefficients.102).775 0.001.775) and F-statistics (0. t-values in Brackets & p-values in italics) Constant 4.001 F-Statistics 0. p-value (0.4 Customer Satisfaction on Bank Performance Table-5.082 (0.

Comparative Study of Islamic Banking134 Table – 5.176 (0.031 R2 0. The coefficient of determination is 0. CBCS Dependent Variable: CBPRF Table 5.065.000 CBCS 0.17 represents CBCS-CBPRF model.031) impact on the performance of conventional banks.17 Summary of the CBCS.176 (CBCS). Standard Error in Parenthesis.CBPRF Linear Regression Model (based on SPSS results) (Coefficients.065 F-Statistics 4.080) [2.404) [7.857 0.020 + 0.020 (0. Customer satisfaction has significant (p=0.857). .204] 0.031) and F-statistics (4.474] 0. pvalue (0. t-values in Brackets & p-values in italics) Constant 3. The estimated regression model is CBPRF = 3.031 Predictor (Constant).

In structural model. Straub and Boudreau. PLS is superior over first generation regression models because it has ability to analyze complicated models in a single and unified process (Gefan. 1977. It reflects complex relationships of variables regarding whole model in a meaningful fashion (Hanushek and Jackson. 1998b). Bullock et al.5 The Model Testing by SEM Structural Equation Modeling (SEM) investigates both structural model and measurement model. 1995. Straub and Boudreau (2000) reported that PLS is used by researchers to examine the significance of association among different variables as a major SEM technique. Chin. . PLS is widely used by numerous researchers for data analysis tool due to several benefits (Gefan and Straub. SEM is more appropriate for mathematical modeling of complex interactions of variables for theoretical and practical implications (Dubin. PLS is less affected by deviations from multivariate normal distribution. This study used PLS based SEM to investigate the relationships among service quality. customer satisfaction and bank performance in Pakistan. 1989). 2000). 1994). Bollen. Bogazzi and Fornell (1982) reported that SEM is a second-generation tool for data analysis based on LIZRAL and PLS. it investigates causation among selected constructs and variables while measurement model reflects the loadings of items on their constructs. 2005).Comparative Study of Islamic Banking135 5. 1976.. It examines influence of relationships on cause-effect paths by considering numerous variables. It is considered as a theory building method (Thompson. Gefan.

T-Values in parenthesis and R2 (RSq) .Comparative Study of Islamic Banking136 Figure-5.1 Structural Model Results-Relationship among Slty. CrSn and IPRF Coefficients.

T-Values in parenthesis and R2 (RSq) . CrSn and CPRF Coefficients.Comparative Study of Islamic Banking137 Figure-5.2 Structural Model Results-Relationship among Slty.

It uses bootstrap technique to estimate t-values for the constructs and variables understudy. R2 is used to examine the significance of relationships among service quality. t-values and R2 similar to simple regression.864 -0.746 0.059 0. It reflects the coefficients.735 29.043 1.600 -1.234 0.005 0.005 Table 5.1 and 5.232 0. CrSn and IPRF/CPRF based on PLS results Link Slty->Crsn CrSn-> Iprf Slty->IPRF Slty->Crsn Slty-> CPRF CrSn->CPRF Source: Generated Coefficients 0.604 0. There is a strong relationship between service quality and customer satisfaction while weak relationship is observed between service quality and .777 -0.611 R2 0. t-values and R2 for service quality. customer satisfaction and performance of Islamic banks.9373 1. customer satisfaction and bank performance.015 0.015 0. The PLS structural modes indicate coefficients. Similarly.Comparative Study of Islamic Banking138 The results of the PLS structural models are presented in Figure 5.072 -1.2.18 shows the relationship between the constructs and variables of the study. The standardized coefficients reflect the relative strength of the statistical relationships.108 T-Values 59.18 Summary of relationship among Slty. Table 5.

table 5. The results support the hypothesis that customer satisfaction mediates the relationship between service quality and performance of conventional banks. But customer satisfaction does not affect the performance of the Islamic banks as evident from path coefficients. The results show that service quality significantly affects customer satisfaction as shown by path coefficients in the structural model (Figure 5.18 also reflects the coefficients. customer satisfaction affects the performance of conventional banks. The results of structural model (Figure 5. Similarly. t-values and R2 for service quality.Comparative Study of Islamic Banking139 performance of Islamic banks as well as customer satisfaction and bank performance.2) reveal that service quality has strong influence on customer satisfaction as indicated by path coefficients. . Results show that there is a strong relationship between service quality and customer satisfaction while weak relationship is observed between service quality and performance of conventional banks as well as customer satisfaction and bank performance. On the other hand.1). It plays a mediating role between service quality and performance of conventional banks as shown by the path coefficients of the structural model. customer satisfaction and performance of conventional banks. The results reject the null hypothesis because customer satisfaction does not mediate the relationship between service quality and performance of Islamic banks.

It is said that “stratified sampling. In this approach. . It helps to estimate the relationship among variables and constructs by producing path coefficients (Fu. Davidson and Hinkley. It facilitates the inference about complex parameters of the distribution e.. subjects in data set are resampled with replacement (Efron. Bootstrap method is beneficial due to its simplicity and flexibility. 2006). bootstrap resampling is performed with strata. 1979). Fox (2002) reported that bootstrap methods can be used for several sampling schemes. odds ratio and percentile points. 1997). correlation coefficients. It is suggested that bootstrap is an effective method of testing mediation because it can be performed with small sample and it does not need normality (Chernick. (2007) reported that structural equation modeling (SEM) is frequently used technique to test the complex models that contain multiple constructs and indicators. proportions. 1999. 2006). The researcher used bootstrap approach due to a number of benefits. 2003) and mediating role of customer satisfaction with reference to service quality and other variables (Al-Hawari and Ward. Maxhall. 2000.Comparative Study of Islamic Banking140 Bovaird et al. It helps to derive estimates of standard errors and confidence intervals for complex estimators of complex parameters in a straightforward way. Path coefficients are used to estimate mediating role of customer satisfaction regarding selected variables (Moutinho and Smith. PLS is applied by researchers as an effective estimation procedure across the globe (Maikranz et al. Similarly. building up a bootstrap sample munch as the original sample was composed from subsamples of the strata”. Bootstrap approach is used for statistical inference based on resampling methods.g. 2007). PLS is used to analyze predictive complex relationships between variables and constructs of a given data set.

Above-mentioned results are consistent with the results of regression.2498 0.6004 -1.8760 0.2320 0.6294 68.0139 0.8602 0. as measured by using SPSS for this study.8604 80.0163 59.0146 0. 1980.7352 Table 5.Comparative Study of Islamic Banking141 Table-5.0166 0.8620 0.19 shows the results of the structural model bootstrap for service quality.1936 63.9732 1. Falk and Miller.0113 0. customer satisfaction and performance of Islamic banks.0578 52.0169 0.9071 0.8640 0.6050 0.8645 0.0093 0.8871 0.1337 Link Slty->Tgty Slty->Rlty Slty->Rspv Slty->Asnc Slty->Epty Crsn->Smdlv Crsn->TgSv Crsn->Slrby Crsn->Helmt Crsn->Csrv Slty->Crsn Crsn->IPRFc Slty->IPRFc Source: Generated T-Statistic 15.9050 0.8850 0.0184 66.8617 0. Bootstrapping is a re-sampling procedure adopted to enable the inferential hypothesis testing in the PLS for obtaining standard errors (Wold. It is used to estimate the significant relationships among observed constructs.5165 59.0132 0.4436 53.8741 0.2340 -0.0134 0.9038 0.0160 0.9060 0.8879 0.2485 0.8675 0.0398 0. .19 Structural Model-Bootstrap for IB Entire Sample Mean of Standard estimate Sub-samples Error 0.0145 -0.9040 0.1186 0. 1992).8600 0.0841 51.5819 0.8850 0.8640 0.6515 97.9058 0.

8989 0.9309 0.1012 53.7811 0.5677 13.0433 Table 5. It is used to estimate the significant relationships among observed constructs.0160 0.8667 0.8814 0.1209 0.0453 0.8800 0.8871 0.8682 0.4452 59.7460 45.0147 0.5940 0.8570 0.8870 0.7770 0.1537 67.2413 109.0590 -0.0085 0.8500 0.6065 81.9219 69.0155 0.8690 0.0670 0.9060 0.1080 0. It is found that results of PLS are consistent with the results of regression.9000 0. customer satisfaction and performance of conventional banks.0876 0.0267 -0.20 Structural Model—BootStrap of CB Link Slty->Rspv Slty->Rlty Slty->Tgty Slty->Asnc Slty->Epty Crsn->Csrv Crsn->Helmt Crsn->Smdlv Crsn->TgSv Crsn->Slrby Crsn->CPRFc Slty->Crsn Slty->CPRFc Source: Generated Entire Sample Mean of Standard estimate Sub-samples Error 0.8670 0. .20 reflects the results of the structural model bootstrap for service quality.9055 0.0133 0.0127 0.0566 T-Statistic 56.0161 0.5789 0.0717 -1.9570 53.8596 0.0112 0.8516 0.6108 29.5900 1.9300 0.0187 0. as measured by using SPSS for this study.Comparative Study of Islamic Banking142 Table-5.

Comparative Study of Islamic Banking143 5. the most of the customers fall in the age group of 25-34 years in case of IB and 18-24 year in case of CB. 1980. education level. Demographic profile shows the classification of respondents on the basis of gender. It is evident that male customers perform more banking activities than female customers (Obbe. Hoffman and Bateson (2002) reported that perception of service quality is very important for researchers and managers to compete in the market. 1984. The relationship among selected variables was investigated by collecting primary data from respondents of selected banks. age. Similarly. cultural.. occupation. It is in line with literature. The results show that male customers are greater than female customers that were using products/services of selected banks working in Pakistan. income and bank usage pattern. marital status. it is reported that the most of the bank customers dealing with Islamic banks fall in the group of 25-35 years besides education level and income group (Khan et al. 2004). Alsop.6 Discussion This study was conducted to compare the responses regarding service quality. and religious factors. Woldie and Adersua. Five hypotheses were developed on the basis of exiting literature to find out the hypothesized relationships among variables in Pakistani environment. Customers’ Perception of service . It is consistent with literature as men and women customers using bank products/services could be differentiated due to social. 2008). customer satisfaction and bank performance of Islamic and conventional banks operating in Pakistan.

2008). education and income) of the respondents (Urban and Pratt. On the other hand. Results show that the service quality perception of bank customers is different among customers of Islamic and conventional banks. ethnicity. customers' perception of service quality differs in terms of demographic characteristics (gender. 2008). Yavas et al. It is in line with previous research that there is strong positive relationship between service . 2004).. 2002). 1996. However. It is found that customer’s demographic features play an important role towards banking experiences (Khan et al. it is concluded that there is no difference in the choice regarding bank products/services between male and female customers (Omar.Comparative Study of Islamic Banking144 quality strongly depends on customer’s values and beliefs that may vary from one culture to another (Furer et al. 2006). The second hypothesis of the study assumed that there is positive relationship between service quality and customer satisfaction in Pakistani banking sector. 2000). Similarly. Findings are consistent and contrary to the hypothesis but both are supported by literature. it is reported that there is significant difference in customers’ perception of service quality in different countries (Glavell et al.. results show that there is no difference in the perception of male and female customers about the service quality offered by CB.. as there is strong positive relationship between IBSQL and IBCS. It is consistent with the literature as reported that life style and demographic characteristics are important indicators regarding products/services in retail banking (Galloway and Blanchard. Similarly. Results supported the hypothesis.. Findings reveal that service quality perception of male customers is significantly different from the perception of female customers in case of IB.

Bahia and Nantel.. 1996. It is found that there is weak positive relationship between service quality and customer satisfaction regarding Islamic banks. 2000. Iglesias and Guille`n (2004) reported a direct and positive relationship between service quality and satisfaction level of customers regarding their banking experiences. 1997. Nelson. Similarly. weak positive relationship is found between service quality and customer satisfaction in Conventional banks.. 2007). 2003). Similarly. 2006). Similarly. a positive relationship is found between service quality and financial performance of banks (Duncan and Elliot. The third hypothesis of the study revealed that service quality is positively related to bank performance. 2001. Oppewal and Vriens. The results are consistent with the literature. Similarly. Yavas et al. Arasli et al. There are a number of studies that reported a positive relationship between service quality and customer satisfaction in the banking sector (Levesque and McDougall.Comparative Study of Islamic Banking145 quality and customer satisfaction in Pakistan (Jamal and Naseer. It is reported that there is direct and positive . Furthermore. 2005. as a strong relationship is reported between service quality and customer satisfaction regarding products offered by Islamic banks (Metawa and Almossawi. The findings are supported by the previous studies (Athanassopoulos et al.. Al-Hawari and Ward. 1997). 2005. 1998). it is found that there is strong positive relationship between CBSQL and CBCS. Jabnoun and Khalifa. Tahir and Abu Bakar. 2000. The results are consistent with the literature as positive relationship between service quality and organizational performance parameters is reported (Chapman et al. the relationship between SQL and CS is stronger in Islamic banks as compared to Conventional banks in Pakistan. 2006. 2004)..

2000). 2002). 1976.. 1992. 1999). customer satisfaction generates positive outcomes for long-term profitability (Wirtz. This study also investigated the relationship between customer satisfaction and bank performance.. it is found that there is a significant relationship between service quality and financial performance of banks (Duncan and Elliot. Baker and Sinkula. Heskett et al. 1996. A positive link between customer satisfaction and bank performance is reported by a number of researchers (Swan and Combs. 2008). It was hypothesized that customer satisfaction is positively related to bank performance. 2007). 1994. Rust et al. Jamal and Al-Khatib. In another study. Interestingly. Results are in line with literature. It could be linked with findings that customers of Islamic banks have awareness but showed dissatisfaction regarding some of the products of Islamic banks (Naseer. Hallwell. findings showed that service quality has a positive impact on bank performance (Akroush. The results reflect a significant positive relationship between customer satisfaction and performance of conventional banks.Comparative Study of Islamic Banking146 relationship between service quality and customer satisfaction (Zahorik and Rust. Similarly. 1995). 1999). It identified the gap prevailing in the Pakistani banking sector towards lack of customer orientation and awareness among bank customers. it is found that there is weak negative relationship between customer satisfaction and performance of the Islamic banks. increased market share and more return on investments (Zairi. . 2003. it is found that customer satisfaction helps to increase the bank performance due to greater profitability. Gritti and Foss. Similarly.

Jabnoun and Al-Tamimi.1) represents that customer satisfaction does not play a mediating role between service quality and performance of Islamic banks. Booker and Serenko. It is found that four dimensions of service quality i. Zineldin. 2005. Swanson and Kelley. 1991. tangibility. responsiveness and assurance have a significant impact on customer satisfaction in Islamic banking. It is consistent with literature as customer satisfaction does not mediate between service quality and tangible aspects of service environment (Jamal and Naseer. The literature helps to investigate the mediating role of customer satisfaction between service quality and bank performance in Pakistan. The path coefficients of the structural model (Figure 5. The multicollinearity coefficients and Durbin Watson test also reveals the absence of the autocorrelation among the selected constructs/variables. But assurance has no significant impact on customer satisfaction in Pakistan. Bontis. 2007). Similarly four dimension of service quality namely tangibility. Nelson. reliability. 2003. But empathy has no significant effect on customer satisfaction in Islamic banks. . It is also supported by other studies (Maxham. The findings showed that customer satisfaction does not mediate between service quality and bank performance in case of Islamic banks due to lack of customer orientation and awareness campaigns. 2003). 2001.e. 2006).Comparative Study of Islamic Banking147 The researcher investigated the influence of dimensions of service quality on customer satisfaction. reliability. 2003.. responsiveness and empathy have a significant effect on customer satisfaction in case of conventional banks in Pakistan. The results are consistent with the literature as it is reported by a number of studies in the banking sector (Parasuraman et al. supported the model.

065 0.2) Partially Supported Supported 67.721 ----Supported Rejected F-Statistic R2 Status (Upheld/Rejected) Correlation and Regression H2a H2b H3a H3b H4a H4b Path Analysis H5a H5b Source: Generated Path Coefficients of structural model (5.21 Summary of Hypothesis Hypothesis T-Statistics H1a H1b 2. 2006).451 65.102 4. 2006). customer satisfaction mediates the relationship between service quality and performance of conventional banks in Pakistan as reflected by path coefficients of the structural model (Figure 5. Jia and Zhao.512 0. Duncan & Elliot.065 Supported Supported Supported Supported Rejected Supported . Al-Hawari & Ward.857 0.001 0.229 0. Table 5.1) Path Coefficients of structural model (5.002 0.495 0. It is suggested that provision of better service quality could result into satisfied customers for better profitability (Gao.595 0. 2004.001 0.2).Comparative Study of Islamic Banking148 On the other hand. The results are supported by previous studies undertaken in the banking sector that reveals the mediating effect of customer satisfaction in the different parts of the world (Moutinho & Smith.121 0. 2000.

results indicate that service quality offered by Islamic banks leads to greater satisfaction among Islamic banks customer as compared to customer of conventional banks. in case of CB model it is found that customer satisfaction mediates the relationship between service quality and performance of conventional banks. However. results IB model reflect that customer satisfaction does not mediate the relationship between service quality and performance of Islamic banks. The results show that there is significant difference in the perception of bank customers about service quality offered by Islamic banks on the basis of gender. Similarly. .1 Comparison between IB and CB Model This study aims to compare Islamic and conventional banks operating in Pakistan with reference to service quality.6. Finally. But there is significant positive relationship between customer satisfaction and bank performance in case of conventional bank as compared to Islamic bank. On the other hand. customer satisfaction and bank performance. However. The researcher has developed five hypotheses in the light of existing literature to compare the both banking streams in Pakistan. the intensity of relationship between service quality and bank performance is approximately same between Islamic and conventional banks. there is strong positive relationship between service quality and customer satisfaction as shown by the responses of the customer of IB and CB.Comparative Study of Islamic Banking149 5. While there is no significant difference in the perception of male and female customer regarding service quality offered by conventional banks.

Comparative Study of Islamic Banking150 CHAPTER 6 Conclusion. Implications and Suggestions  Conclusion  Suggestions  Limitations and Future Research  Contribution of the Study  Practical Implications  Unique Status of the Study .

Islamic banks are getting popularity due to interest free products. A large number of new banks have started operations in Pakistan. Implications and Suggestions 6. The existence of Islamic and conventional banks in Pakistan created stiff competition among banks to attract and retain greater number of customers by the provision of quality services. Similarly.1 Conclusion Financial services industry especially banking sector witnessed unprecedented growth during the last few years in every part of the world. customer satisfaction and bank performance in the light of existing literature. Pakistani economy experienced an increase in the contribution of the banking sector towards GDP due to an expansion of the market and diversification of products/service to meet customers' expectations. customer satisfaction and bank performance by comparing Islamic and conventional banks operating in Pakistan. inception of Islamic banking operations in 2002 opened new avenues to exploit the opportunities. .Comparative Study of Islamic Banking151 Chapter 6 Conclusions. risk sharing activities and strong ties with the religion. This study examined the relationship among service quality. The researcher developed and tested a model of service quality. Islamic banks work as welfare organization to promote trade and economic activities in line with the instructions of Islam to provide a number of interest-free products/service.

reliability. The magnitude of relationship between service quality and customer satisfaction is greater in Islamic banks as compared to conventional banks.Comparative Study of Islamic Banking152 It is concluded that there is significant difference in the perception of customers of Islamic banks about service quality on the basis of gender. responsiveness and empathy have significant impact on customer satisfaction in case of CB but assurance has no significant influence on customer satisfaction. Similarly four dimension namely tangibility.e. there is no significant difference in the perception of male and female bank customers. The results show that there is strong direct and positive relationship between service quality and customer satisfaction in Pakistani banking sector. The study identified significant positive impact of service quality on customer satisfaction in case of CB but a gap is identified between customer satisfaction and bank performance in case of Islamic banks. tangibility. The gap between customer satisfaction and performance of Islamic banks may be due to the lack of customer orientation. Islamic banks are more concerned towards expansion of their branch network instead of customer orientation. Finally. While in case of conventional banks. it is proved that customer satisfaction partially mediate the relationship between service quality and bank performance in Pakistan as shown by the . responsiveness and assurance have significant impact on service quality except empathy in case of Islamic banks. However is found that that four dimensions of service quality i. reliability. It is proved that service quality also influence the bank performance while there is weaker relationship between customer satisfaction and bank performance.

Comparative Study of Islamic Banking153 results of structural models.2 Suggestions This study examines the service quality. customer satisfaction and bank performance regarding Islamic and conventional bank in Pakistan. The results of proposed model reflect that customer satisfaction does not play the mediating role between service quality and performance of Islamic banks.bankers . It is concluded that managers should improve the quality of services to retain their customers as satisfied customers for long-term benefits. So IB should focus on customer orientation to have satisfied customers to reduce the gap between CS and PRF. The results show that CS does not mediate the relationship between SQL and PRF in case of IB. Islamic banks should develop marketable products according to Islamic instructions to compete with conventional banks. IB should enhance awareness regarding its products (services) to compete with CB for long term benefits and should introduce new products/services according to Shariah principles to attract greater number of customers. customer satisfaction mediates the relationship between service quality and performance of conventional banks in Pakistan. On the other hand. they should make arrangements to enhance awareness among customers and employees of banks for improvement of their products/services to enhance performance. 6. The study has developed an understanding about the relationship among service quality. Similarly. customer satisfaction and bank performance by comparing a number of selected Islamic and conventional banks in Pakistan.

It is suggested that Islamic banks should create awareness among bank customers by attractive advertising tactics to attract greater number of customers. diversified and marketable products to meet the requirements of the different segments of the economy. Bankers should introduce new. qualification etc. There is significant difference in the perception of male and female customers in case of IB. Bankers should improve their services by blending traditional facilities and modern technology to meet customers’ expectation for better performance . They should take initiatives for active participation of female customer due to remarkable potential as they represent 51% of total population. They are required to introduce specific products to meet the expectations of different segments on the basis of gender. age. They are required to implement an effective mechanism to measure the customer satisfaction for corrective action. diversified and marketable products to meet requirements of different segments of the economy as weak relationship between SQL and PRF is identified in this study. Islamic bank should actively introduce innovative products and services according to principles of Sharia’h.Comparative Study of Islamic Banking154 are required to develop a mechanism to evaluate their services in relation to customer satisfaction for corrective action by conducting surveys etc. Bankers should improve their services by blending of traditional facilities and modern technology to meet customers’ expectation for better performance in future as service quality has strong positive effect on customer satisfaction. Islamic banks and conventional should improve quality of service to meet customer expectations for long term benefits. So bankers are should develop an effective strategy to attract female customers by meeting their specific requirements. Bankers should introduce new.

Arby. Chapra. profit and loss based equity transactions stimulate investment and productive activities in the economy (Haque and Mirakhor. subjective dimensions like open-internal process model. On the other hand. . 6. 1985). ROI) and liquidity (Current Ratio. Similarly. equity based contracts are highly recommended due to long term benefits towards economy and society (Wieltzman. However. While conventional bank provides interest-oriented products/services that are strictly prohibited by Allah Almighty and His prophet Muhammad (Peace be Upon Him).3 Limitations and Future Research This study has some limitations that might be addressed in future research. 2003). Firstly.Comparative Study of Islamic Banking155 in future as service quality has strong positive effect on customer satisfaction as evident from the results. 1984. rational model and human relations model were used to measure the bank performance. IB is better than CB because Islamic Bank provide its products/services according to principles of Sharia’h. Conventional banks could be transformed towards Islamic banking practices to play a positive role for the welfare of the society to deal in profit and loss basis. Acid-test Ratio) might be used to assess the influence of service quality and customer satisfaction on financial performance of the banks. objective measures such as profitability (ROE. Bankers should patch up the service quality and customer satisfaction towards better performance of the banks especially in case of Islamic banks to gain substantial benefits. 1986.

The model should be tested in other services sectors to check the generalizability of the findings. Despite the limitations. Several countries especially Muslim countries have initiated Islamic banking practices along with conventional banking during last two decades that requires a study to compare . The researcher does not include the Islamic bank branches (Stand alone Islamic banking branches-SAIBBS) of conventional banks for sake of precision. as simple regression is unable to support the analysis of all paths at the same time and PLS also has some limitations. These branches may be taken for further research. this study only considered the full fledged Islamic banks to compare with the conventional banks.Comparative Study of Islamic Banking156 Secondly. These techniques have certain limitations. Finally. The scope of this study is limited to banking sector by comparing conventional and Islamic banks in Pakistan. the study makes a meaningful contribution in the literature with reference to Pakistan. 6. LISREL can investigate the relationship among constructs and variables of the model more appropriately. regression analysis and PLS tools are used to test the proposed model. so this model might be tested by LISREL for further research.4 Contribution of the Study This study contributes towards the body of knowledge to address the issues as identified in the knowledge gap. It contributes towards theoretical as well as practical fronts. Similar study may be carried out to compare the practices of conventional and Islamic Leasing companies and Insurance companies etc.

They . Similarly. tangibility. reliability. Bankers are required to concentrate on different dimensions of service quality i. assurance and empathy to improve their products/services to have satisfied customers. customer satisfaction and bank performance of selected Islamic and conventional banks in Pakistan.Comparative Study of Islamic Banking157 the both banking systems. responsiveness. It helps to enhance the understanding towards the relationship among service quality. Similarly. sample was drawn from the 12 most populous cities of Pakistan from four provinces and capital territory to enhance generalizeability of the findings. 6.5 Theoretical and Practical Implications This study has theoretical and practical implications for bank managers. This study incorporated bank performance with service quality and customer satisfaction. The results showed that perception of customers of Islamic banks is greater than the perception of customer using service of conventional banks. customer satisfaction and bank performance regarding Islamic and conventional banks in Pakistan. Bank managers should take quality initiatives to improve their products by considering demographic characteristics of the customers to retain them as satisfied customers for better performance. policy makers and academicians. banker dealing with Islamic banking should enhance the awareness about products/services by launching an effective marketing campaign. There is lack of customer orientation as well as lack of awareness about customer rights. The findings of the study are strong because it covers a large sample of 144 (72 IB and 72CB) bank branches to collect data from 1728 respondents to investigate the service quality.e.

It tested a local model of the SQL. It focused on different dimensions of service quality and customer satisfaction in Pakistani banking sector. The study could help the bankers to understand the bank customers for provision of better quality services to retain satisfied customer for better performance. The study examined the service quality. It compared Islamic banks with conventional bank with reference to selected constructs and variables. CS and PRF by considering different constructs/variables empirically. They should also improve the services offered by their special branches offering Islamic banking products/services. a country with population of more than 96% Muslims.6 Unique Status of the Study This study is unique in its nature due to a number of reasons. 6. . It incorporated bank performance with service quality and customer satisfaction. conventional bankers should offer profit and loss based products/services to meet the expectation of bank customers in Pakistan. On the other hand. It addressed the customers and employees of selected banks for empirical investigation.Comparative Study of Islamic Banking158 should also introduce new products and improve existing products/service by innovation according to principles of Sharia’h. customer satisfaction and bank performance in Pakistani environment.

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Service related materials (such as pamphlets. Your Islamic bank has your best interests at heart 22.Service Quality The following set of statements relate to your feelings about Islamic bank’ s service. There are no right or wrong answers. Your Islamic bank issues error free bills. Employees of your Islamic bank are never too busy to respond to your requests 14. Employees of your Islamic bank have the necessary knowledge to answer your questions 18. and circling a “7” means that you strongly agree. The behavior of your Islamic bank employees creates confidence in you 16. Pick one of the seven numbers next to each statement. Your Islamic bank uses modern looking equipment. Your Islamic bank has employees who give you personal attention 21. Employees of your Islamic bank understand your specific needs 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 . For each statement. Which of the following bank is your main bank (please tick)? A B C D E F Meezan Bank Limited Dubai Islamic Bank Limited Albarka Islamic Bank Limited Bank Islami Pakistan Limited First Dawood Islamic Bank Limited Qattar Islamic Bank Limited 3. Here circling a “1” means that you strongly disagree that your bank has that feature. When your Islamic bank promises to do something by a certain time.The employees of your Islamic bank are neat appearing 4.all we are interested in a number that best shows your perception about Islamic bank. Your Islamic bank performs the service right the first time 8. Employees of your Islamic bank give you prompt service 12. statements and other documents 10. 3. your Islamic bank shows a sincere interest in solving it 7. Your Islamic bank gives you individual attention 19. Employees of your Islamic bank tell customers exactly when services will be performed 11. 2. leaflets or reports) visually appealing at your Islamic banks 5. Employees of your Islamic bank are always willing to help you 13. For how long you have been banking with your main bank? A B C D Less than a Year 1 up to 3 Years 3 up to 5 Years 5 Years and above Part II. Your Islamic bank’s physical facilities are visually appealing.Comparative Study of Islamic Banking185 Part I. Strongly Disagree 1 2 1 2 1 2 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Strongly Agree 6 7 6 7 6 7 6 7 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 1. Employees of your Islamic bank are consistently courteous with you 17. please show the extent to which you believe your bank has the feature described by the statement. Your Islamic bank provides its services at the time it promises to do so 9. When you have a problem. it does so 6. Your Islamic bank has business hours convenient to all customers 20.Bank Usage Pattern 1. You feel safe in your transactions with your Islamic bank 15.

Whenever a critical incident takes place (i. Employees who instill confidence in customers by proper behavior. safe deposit lockers. houses. Making customers feel safe and secure in their transactions.) 1 2 3 4 5 6 7 5. 1 2 3 4 5 6 7 . loans for purchase of cars. working on Saturday and Sunday s. when a problem arises). Prompt service to customers.) 1 2 3 4 5 6 7 3.e. 4 = Neutral. foreign exchange. etc. Having a highly standardized and simplified delivery process so that services are delivered without any hassles or excessive bureaucracy. Adequate and necessary personnel for good customer service. computerization. Enhancement of technological capacity (e. 1 2 3 4 5 6 7 15. e. 1 2 3 4 5 6 7 14.g. room service facility. 2 = High Dissatisfaction. 1 2 3 4 5 6 7 13.Diversity and range of Bank’s services (having a wider range of financial services from the bank. 1 2 3 4 5 6 7 12.g. etc. 1 2 3 4 5 6 7 16. 1 2 3 4 5 6 7 10. 6 = High Satisfaction. Extent to which the feedback from customers is used to improve service standards. extended service hours during evenings. Availability of most service operations in every branch/department of the bank. deposits. etc. ATM. 3 = Slight Dissatisfaction. retirement accounts.Customer Satisfaction You are requested to tick any one option given against each item to measure the level of customer satisfaction with the bank.e.) 1 2 3 4 5 6 7 2. 1 2 3 4 5 6 7 8. 1 2 3 4 5 6 7 11. cards to defense personnel. weekdays. traveler’s cheques. 7 = Very High Satisfaction 1. 5 = Slight Satisfaction. Adequate and necessary facilities for good customer service. Effectiveness of the employees’ skills and ability for actions whenever a critical incident takes place (i. Employees who have the knowledge and competence to answer customers’ questions having best interests at heart. Providing service as promised 1 2 3 4 5 6 7 6.Comparative Study of Islamic Banking186 Part III.g. networking of operations. 1 2 3 4 5 6 7 9. 1 2 3 4 5 6 7 17. 1 2 3 4 5 6 7 4. Bank’s Service innovation (providing information/details on regular basis through post: telephonic banking. when a problem arises) 1 2 3 4 5 6 7 7. the degree to which organization succeeds in bringing the condition back to normalcy by satisfying the customer.) to serve customers more effectively. Degree to which the procedures and processes are perfectly fool proof. You are required to show satisfaction level against each item as: 1=Very highly Dissatisfaction. etc. Convenient operating hours and days (e.

Visually appealing materials and facilities associated with the service. noise and odour prevailing in the bank’s premises. Giving good service at a reasonable cost. 1 2 3 4 5 6 7 22. 1 2 3 4 5 6 7 25. Your Age: A 18-24 Years B 25-34 Years C 35-44 Years D 45-54 Years E 55 and Over . 1 2 3 4 5 6 7 Part IV-Demographics 1. The ambient conditions such as temperature. villages. symbols. A sense of public responsibility among employees (in terms of being punctual. pamphlets and other artifacts in the bank. etc.Comparative Study of Islamic Banking187 18.g. 1 2 3 4 5 6 7 27. 1 2 3 4 5 6 7 24. Your Marital Status: Unmarried Married 3. 1 2 3 4 5 6 7 20. big or small. ventilation. down town areas.making customers realize their unexpected needs by giving more than what they expect. 1 2 3 4 5 6 7 19. Extent of the physical layout of equipment and other furnishings being comfortable for customers to interact with employees. sincere and without going on strikes). Extent to which the organization leads as a corporate citizen and the level to which it promotes ethical conduct in everything it does. should be treated alike. but not at the expense of quality. Having branch locations in most places convenient to all sections of society (e. advertisement boards. “Service transcendence”. Employees who have a neat and professional appearance. 1 2 3 4 5 6 7 26. 1 2 3 4 5 6 7 29. Visually appealing sings. 1 2 3 4 5 6 7 23. Equal treatment stemming from the belief that every one.) 1 2 3 4 5 6 7 28. Having house keeping as a priority and of the highest order in the organization 1 2 3 4 5 6 7 21. regular. Your Gender: Male Female 2.

40 0000 to Rs. 40 000 E Rs.Comparative Study of Islamic Banking188 4. Your Educational Level: A Primary B Secondary C College D University-Master E University-M. 50 000 F Rs. Your Occupation: A Student B Businessman C Education/ Medical Services D Housewife E Banker F Investor G Professional / Senior Management H Other (please specify) 6. 30 0000 to Rs. 30 000 D Rs.Phil F University-PhD G Any other (please specify) 5. 20 000 to Rs. 10 000 B Rs 10 000 to Rs. Your Monthly household income: A Under Rs. 20 000 C Rs. 50 000 and above THANKS FOR YOUR COOPERATION .

Your responses must be kept confidential and only used for academic purposes. Performance is to be measured on Five point Likert scale as given below. Rising evolution 3. Share market 1. This questionnaire was designed to serve as an instrument for measuring the performance of banks in our country. Neutral 2.Comparative Study of Islamic Banking189 Dear Respondent The researcher requires your valuable responses. Likely to decrease evolution 5. Rising evolution 3. Likely to rise evolution 2. Decreasing evolution 4. Items are listed in reference to “Evolution” that means progress or development of each dimension in respect to your bank. Likely to rise evolution 2. Internal process coordination 1. Neutral . 1. Likely to decrease evolution 5. Decreasing evolution 4. Likely to decrease evolution 5. Likely to decrease evolution 5. Decreasing evolution 4. Quality product 1. Bank Performance Please encircle one option which you prefer most suitable with respect to your Bank. Likely to rise evolution 2. I know that time is very valuable to you but please spare a few minutes to answer the following questions. Rising evolution 3. Neutral 3. Rising evolution 3. Personnel activities coordination 1. Decreasing evolution 4. Your kind cooperation is highly appreciated. Neutral 4. Likely to rise evolution 2.

(__________________________________________) In which of the following banks you are currently working (please tick)? A B C D E F Meezan Bank Limited Dubai Islamic Bank Limited Albarka Islamic Bank Limited Bank Islami Pakistan Limited First Dawood Islamic Bank Limited Qattar Islamic Bank Limited For how long you are working in current bank? A B C D Less than a Year 1 up to 5 Years 5 up to 10 Years 10 Years and above THANKS FOR YOUR COOPERATION . Voluntary personnel rotation 1. Decreasing evolution 4. Likely to rise evolution 2. Likely to decrease evolution 5.Comparative Study of Islamic Banking190 5. Productivity 1. Rising evolution 3. 1. Decreasing evolution 4. Rising evolution 3. Likely to rise evolution 2. Likely to rise evolution 2. Rising evolution 3. Personnel absenteeism. Neutral 7. Likely to decrease evolution 5. Rising evolution 3. Likely to rise evolution 2. Decreasing evolution 4. Decreasing evolution 4. Neutral Bank Experience Please specify your designation. Neutral 8. Likely to decrease evolution 5. Neutral 6. Likely to decrease evolution 5. Profitability 1.

it does so 6. Your Conventional bank issues error free bills. 1 2 3. When your Conventional bank promises to do something by a certain 1 2 time. There are no right or wrong answers. and circling a “7” means that you strongly agree. 1 2 2. Pick one of the seven numbers next to each statement. leaflets or reports) visually 1 2 appealing at your Conventional banks 5.Comparative Study of Islamic Banking191 Part I. Employees of your Conventional bank tell customers exactly when 1 2 services will be performed 11. The behavior of your Conventional bank employees creates confidence in you 1 2 16. For each statement. Your Conventional bank performs the service right the first time 1 2 8. Your Conventional bank has business hours convenient to all customers 1 2 20. When you have a problem. Employees of your Conventional bank are always willing to help you 1 2 13. Your Conventional bank provides its services at the time it promises to do 1 2 so 9. Employees of your Conventional bank have the necessary knowledge to 1 2 answer your questions 18.The employees of your Conventional bank are neat appearing 1 2 4. Which of the following bank is your main bank (please tick)? A B C D E National Bank of Pakistan Habib Bank Limited MCB Bank Limited Bank Alfalah Limited Askari Bank Limited 3. Your Conventional bank’s physical facilities are visually appealing.all we are interested in a number that best shows your perception about Conventional bank. Service related materials (such as pamphlets. Employees of your Conventional bank are consistently courteous with you 1 2 17. statements and other 1 2 documents 10. Employees of your Conventional bank understand your specific needs 1 2 Strongly Agree 5 6 7 5 6 7 5 6 7 5 6 7 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 .Service Quality The following set of statements relate to your feelings about Conventional bank’ s service. your Conventional bank shows a sincere 1 2 interest in solving it 7. Here circling a “1” means that you strongly disagree that your bank has that feature. You feel safe in your transactions with your Conventional bank 1 2 15. Your Conventional bank has your best interests at heart 1 2 22. Employees of your Conventional bank give you prompt service 1 2 12. Strongly Disagree 1. Your Conventional bank has employees who give you personal attention 1 2 21. For how long you have been banking with your main bank? A B C D Less than a Year 1 up to 3 Years 3 up to 5 Years 5 Years and above Part II. please show the extent to which you believe your bank has the feature described by the statement. Employees of your Conventional bank are never too busy to respond to 1 2 your requests 14.Bank Usage Pattern 1. Your Conventional bank gives you individual attention 1 2 19. Your Conventional bank uses modern looking equipment.

deposits. computerization. Effectiveness of the employees’ skills and ability for actions whenever a critical incident takes place (i. Having a highly standardized and simplified delivery process so that services are delivered without any hassles or excessive bureaucracy. 1 2 3 4 5 6 7 . etc. Prompt service to customers. Adequate and necessary personnel for good customer service. Adequate and necessary facilities for good customer service. Whenever a critical incident takes place (i. 1 2 3 4 5 6 7 4. e. retirement accounts. loans for purchase of cars.e. Extent to which the feedback from customers is used to improve service standards. 1 2 3 4 5 6 7 9. 1 2 3 4 5 6 7 8. Availability of most service operations in every branch/department of the bank. etc. You are required to show satisfaction level against each item as: 1=Very highly Dissatisfaction. safe deposit lockers.g. Employees who have the knowledge and competence to answer customers’ questions having best interests at heart. Convenient operating hours and days (e. houses. Bank’s Service innovation (providing information/details on regular basis through post: telephonic banking. Employees who instill confidence in customers by proper behavior. cards to defense personnel. when a problem arises). 1 2 3 4 5 6 7 14.Comparative Study of Islamic Banking192 Part III.) 1 2 3 4 5 6 7 5. Enhancement of technological capacity (e. 4 = Neutral. working on Saturday and Sunday s. weekdays. 1 2 3 4 5 6 7 17. room service facility. 1 2 3 4 5 6 7 11. 2 = High Dissatisfaction.) 1 2 3 4 5 6 7 2. traveler’s cheques.g. 7 = Very High Satisfaction 1. extended service hours during evenings.Providing service as promised 1 2 3 4 5 6 7 6. 1 2 3 4 5 6 7 10.g. 1 2 3 4 5 6 7 15. foreign exchange.Making customers feel safe and secure in their transactions. etc. etc. 3 = Slight Dissatisfaction. networking of operations. 6 = High Satisfaction. 1 2 3 4 5 6 7 13. 1 2 3 4 5 6 7 12. the degree to which organization succeeds in bringing the condition back to normalcy by satisfying the customer. 1 2 3 4 5 6 7 16.e. ATM.Customer Satisfaction You are requested to tick any one option given against each item to measure the level of customer satisfaction with the bank.Diversity and range of Bank’s services (having a wider range of financial services from the bank.) to serve customers more effectively. when a problem arises) 1 2 3 4 5 6 7 7.) 1 2 3 4 5 6 7 3. 5 = Slight Satisfaction. Degree to which the procedures and processes are perfectly fool proof.

but not at the expense of quality.Comparative Study of Islamic Banking193 18. ventilation.g. Visually appealing materials and facilities associated with the service. “Service transcendence”.making customers realize their unexpected needs by giving more than what they expect. Employees who have a neat and professional appearance. A sense of public responsibility among employees (in terms of being punctual. etc. villages. 1 2 3 4 5 6 7 20. symbols. The ambient conditions such as temperature. Visually appealing sings. Your Gender: Male Female 2. Your Marital Status: Unmarried Married 3. Having house keeping as a priority and of the highest order in the organization 1 2 3 4 5 6 7 21. sincere and without going on strikes). 1 2 3 4 5 6 7 25. Extent to which the organization leads as a corporate citizen and the level to which it promotes ethical conduct in everything it does. 1 2 3 4 5 6 7 24. Equal treat stemming from the belief that every one. 1 2 3 4 5 6 7 22. regular. down town areas.) 1 2 3 4 5 6 7 28. Giving good service at a reasonable cost. Your Age: A 18-24 Years B 25-34 Years C 35-44 Years D 45-54 Years E 55 and Over . Having branch locations in most places convenient to all sections of society (e. 1 2 3 4 5 6 7 Part IV-Demographics 1. 1 2 3 4 5 6 7 19. 1 2 3 4 5 6 7 26. pamphlets and other artifacts in the bank. should be treated alike. Extent of the physical layout of equipment and other furnishings being comfortable for customers to interact with employees. advertisement boards. 1 2 3 4 5 6 7 29. 1 2 3 4 5 6 7 27. 1 2 3 4 5 6 7 23. noise and odour prevailing in the bank’s premises. big or small.

Phil F University-PhD G Any other (please specify) 5. 20 000 C Rs. Your Monthly household income: A Under Rs. 20 000 to Rs. Your Occupation: A Student B Businessman C Education/ Medical Services D Housewife E Banker F Investor G Professional / Senior Management H Other (please specify) 6.Comparative Study of Islamic Banking194 4. 50 000 and above THANKS FOR YOUR COOPERATION . 50 000 F Rs. 30 000 D Rs. 40 000 E Rs. 10 000 B Rs 10 000 to Rs. 30 0000 to Rs. Your Educational Level: A Primary B Secondary C College D University-Master E University-M. 40 0000 to Rs.

1. Rising evolution 3. Neutral . Rising evolution 3. Likely to decrease evolution 5. Your kind cooperation is highly appreciated. Bank Performance Please encircle one option which you prefer most suitable with respect to your Bank. Decreasing evolution 4. Rising evolution 3. Likely to rise evolution 2. Neutral 4. Personnel activities coordination 1. Quality product 1. Likely to decrease evolution 5. I know that time is very valuable to you but please spare a few minutes to answer the following questions. Items are listed in reference to “Evolution” that means progress or development of each dimension in respect to your bank. Your responses must be kept confidential and only used for academic purposes. Likely to rise evolution 2. Likely to rise evolution 2. Likely to rise evolution 2. Decreasing evolution 4. Internal process coordination 1. Neutral 2. Rising evolution 3. Likely to decrease evolution 5. Decreasing evolution 4. Performance is to be measured on Five point Likert scale as given below.Comparative Study of Islamic Banking195 Dear Respondent The researcher requires your valuable responses. This questionnaire was designed to serve as an instrument for measuring the performance of banks in our country. Neutral 3. Likely to decrease evolution 5. Share market 1. Decreasing evolution 4.

Neutral 6. (__________________________________________) In which of the following banks you are currently working (please tick)? A B C D E National Bank of Pakistan Habib Bank Limited MCB Bank Limited Bank Alfalah Limited Askari Bank Limited For how long you are working in current bank? A B C D Less than a Year 1 up to 5 Years 5 up to 10 Years 10 Years and above THANKS FOR YOUR COOPERATION . Likely to decrease evolution 5. Personnel absenteeism. Rising evolution 3. Likely to rise evolution 2. Likely to rise evolution 2. 1. Rising evolution 3. Profitability 1. Likely to decrease evolution 5. Neutral Bank Experience Please specify your designation. Neutral 7. Rising evolution 3. Likely to decrease evolution 5. Rising evolution 3. Likely to rise evolution 2. Likely to decrease evolution 5. Decreasing evolution 4. Decreasing evolution 4.Comparative Study of Islamic Banking196 5. Productivity 1. Decreasing evolution 4. Likely to rise evolution 2. Decreasing evolution 4. Neutral 8. Voluntary personnel rotation 1.

P. Box No. Peshawar Cantt. I. I. Karachi. Lahore. Bath Island. Fax Number: 2463553 MCB Bank Limited 22nd Floor. O.I. R. Telephone Office:0429200173.Fax #:042-9211442 SME Bank Limited 40. Phone #:0219213615. Lahore. Fax #: 051-9252737 ABN AMRO Bank 16 Abdullah Haroon Road. K. Phone: 021-9212200. Chundrigar Road. Chundrigar Road. Clifton.Comparative Study of Islamic Banking197 Appendix-II List of Banks Working in Pakistan Name of Bank National Bank of Pakistan Type of Bank Address Public Sector Banks Specialized Banks Private Banks Head Office. Fax # 2472258 . Chundrigar Road.The Mall. Fax Number:042-9200297 Industrial Development State Life Building No.I. Chundrigar Road. The Mall. I. Fazal-e-Haq Road Blue Area. I. Karachi. Karachi. Fax # 5657755 The Bank of Khyber 24. Civil Lines. Dr.Y. Fax# 2270078 Askari Bank Limited 1st Floor. Phone #: 051-9272289. Karachi Phone #: 2440100. Main Clifton Road. Chundrigar Road. Phone#5657681. I. Abdullah Shah Ghazi Road. Karachi. Phone #: 021-2420333. I. Rawalpindi. Karachi. MCB Tower. I. Islamabad Limited Phone #: 051-9252717. CL-10/20/2. Karachi Phone #: 2463570. Fax #: 021-9212774 First Women Bank Limited Building. Beaumont Road. Chundrigar Road. Ziauddin Ahmed Road. Fax #: 051-9271982 Mybank Limited 2nd Mezzanine Floor.I. Fax Number: 2471951 Atlas Bank Limited 3rd Floor. Wallace Road. The Mall. Karachi. Phone # 042Cooperative Bank Ltd 9211411. Phone #: 021-2635208. Fax Number: 091-5276838 The Bank of Punjab 7-Egerton Road. Phone # 0915272189. Fax #9217588 Arif Habib Bank Limited 2/1. Federation House. Fax Number: 21-5877197 NIB Bank Limited Muhammadi House. 2.Jang Building. Phone #: 5370499 Fax #:021-5370500 KASB Bank Limited Business & Finance Centre. I. Bank of Pakistan I. Fax Number: 021-9213617 The Punjab Provincial Bank Square. Fax #: 021-2631803 Allied Bank Limited Central Office. Karachi. Shaheen Commercial Complex. Karachi. Karachi Pakistan Limited Phone #: 5683097. Phone #: 021-2270075. AWT Plaza.16 Old Queens Road. A. Phone #: 215369283. Islamabad Zarai Taraqiati Bank 1-Faisal Avenue. Pone #: 2446800. Fax Number: 5683432 JS Bank Limited 1st Floor.1400. Business & Finance Centre. Off. Karachi.

Phone #: 021-2638398.Fax #2439561 Crescent Commercial Bank 6th Floor.Fax # 2419752 Soneri Bank Limited 5th Floor. B. Phone #: 2417021 & 90332085. Phone #: 051-111-092-092. I.H.A. ST-02. Shahrah-e-Faisal. Finance & Trade Centre.C. State Life Building. Karachi. Phone #: 021-2460466. Karachi.I. Amir Plaza. Bank Limited Shahrah-e-Faisal. Union. Phone #2637787. Fax #: 9206080. Islamabad Phone #: 051-111-092-092. Karachi. Fax Number: 021-5658059 Standard Chartered Bank 3rd Floor. Karachi. Maulana Deen Limited Muhammad Wafai Road. Chundrigar Road. Phone #: 021-5820326 Network Microfinance 94 West. Chundrigar Road. Chundrigar Road. Jinnah Avenue Bank Limited Blue Area. 4th Floor.I. I. Phone #2439582. AWT Plaza. Kayani Limited Road. Phone #: 021 4325576. Main Branch. Fax #: 051-9206080 Tameer Micro Finance 15-A. Shaheen Complex. Chundrigar Road. Islamabad.I. I. I. No.4325575 Pak Oman Microfinance 2nd Floor. Phone # 241 1530. Fax #2631368 Khushhali Bank Limited 94 West. 1st Floor.bFax Number: 2413492 Habib Bank Limited 22-Habib Bank Plaza. Chundrigar Road. Bank Limited Karachi. Karachi. I.S. Pone #: 021. P. P. Rozgar Microfinance Bank Business Executive Centre.A. Karachi. Karachi Phone #: 021-2795300. Building. Phone #: 2416966. Phone #: 0212419294. Phone #: 0215630946. Karachi. Chundrigar Road. O. Amir Plaza. Karachi. Fatima Jinnah Road. Fax Number: 021-2418920 Deutsche Bank AG Avari Plaza. 4th Floor. I. Fax # 2638211 HSBC Bank Middle East 1st Floor. I. Fax #: 2630496 Oman International Bank Ground Floor.R. Karachi.I. Phone #: 0212450288-89. I.Comparative Study of Islamic Banking198 Bank Alfalah Limited 2nd Floor. Block-8 Limited Clifton. Karachi. Chundrigar Road. Chundrigar Road.2412421. Fax Number: 021. Fax Number: 021-2414914 Faysal Bank Limited Faysal House.I. Fax # 241 1556 Habib Metropolitan Bank Spencer Building. (Pakistan) Limited I. Karachi. Block 7 & 8. 5556 I. Al-Rahim Tower. Box No. Box 3111. I. O. Fax #: 021-5658325 Citibank N. I. Jinnah Avenue Blue Area. O. P.I. Phone #:0215686267. Fax #: 021-2793102 United Bank Limited 8th Floor. Sidco Avenue Centre. Karachi. Central Commercial Area Bank Limited K. Phone #: 021-5207200. I. Phone # 2638080. Karachi. Box 3111. F-17/3. Fax Number: 021-5630949 Foreign Banks Micro Finance Banks . Chundrigar Road. Karachi. Chundrigar Road. M. Tower C. Fax #: 2434183 Saudi Pak Commercial Saudi Pak Building. I.Fax # 2460464 Bank Al Habib Limited Mackinnons Building. Limited Karachi. Nadir House Building.1.

Islamabad Phone #: 051-2800314-15. Fax #: 021 – 5822434 3rd Floor. Block-4. Tower A. Plot DC-7. Shahrea Faisal. 507-508. Clifton. Sharea Faisal. Sheraton Hotel & Towers Club Road. Karachi.) Emirates Global Islamic Bank Dawood Islamic Bank Limited Dubai Islamic Bank Pakistan Limited Source: SBP. Fax Number: 021-5630961 Nos. Karachi.C. Karachi Phone#: 021-5368556. Finance & Trade Centre. Phone #: 021-5610677. Street No. Beaumont Road. Fax Number: 021-5633427 2nd Floor. FTC Building. Fax #: 021-5638589 19th Floor. 5th floor. House No. Blue Area. Karachi. Karachi Phone #: 021. (E. Dolmen City Marine Drive. Tauheed Commercial Area. Phone #: 021-5630960. Block C Finance & Trade Centre Shahrea Faisal. Trade Centre. Fax #: 6309965 Hotel Arcade. Block-7. 3rd Floor. Islamabad. Block C. Karachi. Finance & Trade Centre Shahrea Faisal. 61/A Jinnah Avenue. Executive Tower. 2008 62-C.C. Kehkashan Clifton. Tower B Sharea Faisal. Civil Lines. F-8/2. T. Chundrigar Road. Fax #: 051-8318060-1 2nd Floor. Phone #: 021-5631033 Fax Number: 021-5631025 1st Floor. 4-Shahrah-e-Aiwan-e-Tijarat Lahore. Phone #: 021-5633392 & 5633409. I. Karachi. Saudi Pak Tower. Khan Road Karachi. Fax Number: 5630939-40 1st Floor. Karachi Phone #: 021-5638590-1. PNSC Building. Phone #:042-6362566. Karachi. 25th Commercial Street. Fax Number: 021-5630654 Camp Office. 23. Phone #: 021-5630630 & 5630666. Finance & Trade Centre. M. Progressive Plaza. Tower A. Phone # 5630950-51.S. 7-C.Fax #: 5610676 11th Floor. Phone #: 021-9202314. Karachi Phone #: 021-537979. Fax Number: 021-9202360 4th Floor. Fax #: 021-5821071. Fax #:2272465 Hassan Chambers.5822432. Phone #: 051-8438042.Comparative Study of Islamic Banking199 The First Micro Finance Bank Limited House Building Finance Corporation Pakistan Kuwait Investment Company Limited Pak Brunei investment Company Limited Development Finance Institutions Pak Oman Investment Company Limited Pak Iran Joint Investment Company Saudi Pak Industrial & Agricultural Investment Company Limited Pak Libya Holding Company Limited Pak-China Investment Company Limited Meezan Bank Limited BankIslami Pakistan Limited Albaraka Islamic Bank B. Karachi. Islamic Banks . Fax #: 051-2800308 5th Floor. Fax #: 021-5379796 PICIC Building. I. Phone #: 021-2272440. DHA Phase V.

A partnership agreement in which some partners contribute capital and others contribute their competencies to share profit or loss according to an agreed ratio. Consists upon Ijmah and Qiys to innovate banking products according to instructions of Islam. Partnership deed between investor and bank to provide competency & skills to share profit/ loss. A partnership agreement in which all partners contribute capital and work to share profit/loss.Comparative Study of Islamic Banking200 Appendix-III Riba: Definition of Terms Any excess amount or benefit (than principal amount) given by the debtor for debt or kind A set of instructions consists of the Holy Quran. . A contract in which bank made advance payment for goods/services to be delivered at future date A contract of credit sale that allows future payment for manufacturing goods for future delivery Sharia’h: Ijtihad: Mudarib: Ummah: Musharka: Mudaraba: Ijarah: Condition: Sadaqaat: Salam: Istisna: Muajjal: A financing contract in which bank purchase goods to be sold to customer by showing the purchase price and profit margin. Qarz/Qarz-e-Hasna: A debt. Diminishing Musharika: A partnership deed in which one party (banker) transfers (partnership) share to the other party (customer) with the passage of time. A lawful consideration as rent for hiring an asset or reward for hiring services Thus any excess given by the debtor out of his own accord and without the existence of a custom or habit that obliges him to give such excess is not considered as riba. Ijmah and Qiyas for every walk of life. which is given exclusively for sake of blessings of Allah Almighty without any consideration. Charity. All believers of the holy prophet Muhammad (Peace be upon him) also called Muslims. Sunnah. which is given without any interest or benefit to meet the financing need.

088 0.098 0.000 Slty 0.520 1.000 Slrby 0.587 0.736 0.607 0.476 0.606 0.655 0.784 0.567 0.781 1.000 Smdlv 0.417 0.729 0.725 0.610 0.740 0.679 0.711 0.869 1.018 0.019 0.058 0.673 0.775 0.757 0.044 Iprfc 0.597 0.757 1.000 Slrby 0.020 0.791 0.764 1.885 1.006 0.000 Rspv 0.726 0.806 0.392 0.887 0.570 0.618 0.000 Tgty 0.698 0.403 0.033 Results of VPLS for Conventional Banks Correlation of Latent Variables Constructs/Variables Tgty Rlty Rspv Asnc Epty Slty Crsn Csrv Helmt Smdlv TgSv Slrby Cprfc 1.826 1.453 0.000 Crsn 0.620 0.710 0.765 1.069 0.571 0.000 Epty 0.864 0.756 1.930 0.000 Helmt 0.850 1.598 0.799 1.689 0.552 0.864 0.862 0.857 0.565 0.000 Rlty 0.626 0.900 0.716 0.904 0.693 0.000 Epty 0.000 Asnc 0.728 1.003 .591 0.885 0.607 0.698 0.029 0.103 0.605 0.383 0.607 0.860 1.000 Crsn 0.691 0.030 0.742 0.720 0.594 0.727 0.663 0.Comparative Study of Islamic Banking201 Appendix-IV Results of VPLS for Islamic Banks Correlation of Latent Variables Construct/Variables Tgty Rlty Rspv Asnc Epty Slty Csrv Helmt Smdlv TgSv Slrby Crsn Iprfc 1.401 0.697 1.715 1.691 0.648 0.675 0.000 Tgty 0.639 0.442 0.880 0.630 0.700 0.053 0.466 0.053 0.055 0.638 0.759 0.426 0.084 0.025 0.033 0.690 0.535 0.729 1.437 0.000 Slty 0.668 0.565 0.034 0.867 0.000 Csrv 0.000 Smdlv 0.445 0.000 Rspv 0.591 0.483 0.000 TgSv 0.691 1.695 0.906 0.876 0.596 0.615 0.654 0.777 1.702 0.685 0.622 0.474 1.103 Cprfc 0.524 0.720 0.697 0.595 0.749 1.905 0.715 0.758 1.610 0.839 0.718 0.674 0.416 0.000 TgSv 0.668 0.000 Asnc 0.043 0.062 0.906 0.000 Helmt 0.012 -0.546 0.000 Rlty 0.678 0.764 0.711 0.705 0.804 0.000 Csrv 0.752 0.003 0.690 1.

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