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..................................................... 3 Background of Islamic banking in Pakistan .............................................................................. 10 Theoratical Frame Work ......................................................................................................................... 5 Literature Review .... 13 Questionnaires ...................... Conceptual Model and Theoretical Framework ..................................................... 6 Hypotheses................................................................................................................................................................................................... 15 ................................................................................... 12 Reserch Design ....................................................................................................Table of Contents INTRODUCTION.................................................................................................................................. 4 Problem Statement ...............................................
IB is trade oriented unit while CB works as a pure financial intermediary to deal on the basis of interest. Profit It aims at maximizing the profit but subject to principles of It aims at maximizing the profit without any restriction even at . IB generates income as profits that is variable while CB earns from the interest that is fixed. Profit is variable which may be negative in case of loss. It is suggested that riba-free and is necessary to realize the benefits of Islamic financial system and to ensure the well being of mankind (Chapra.INTRODUCTION Background of the Study There are two banking systems that exist in Pakistan namely Islamic banking and conventional banking. Riba and risk sharing practices. service charges and consultancy fee is the main source of earnings of Islamic banks. 1985). Islamic banking practices were initiated all over the world especially in the Muslim dominated parts of the globe. Further. Interest is the main source of income for conventional banks that is charged on different types of loans/products. The Organization of Islamic Conference (OIC) also supported the Islamic financial system in 1973 at Jeddah. and Meezan Islamic bank of Pakistan in 2002. In Malaysia. the Faisal Islamic Bank of Egypt in 1977. the Faisal Islamic Bank of Sudan in 1977. Islamic Banking world wide In Egypt the first modern Islamic bank was established in 1963 according to the principles of Islamic finance. the Bahrain Islamic Bank in 1979. Islamic Banking Act was passed in 1983 to transform the interest-based conventional banks into Islamic banks. Risk Sharing Risk is fully transferred to others. Dubai Islamic Bank in 1975. During the decade of 1990s. 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. Islamic and Conventional Banking Difference between Islamic Bank and Conventional Bank Main Difference Islamic Bank Islamic banks follow the Principles of Sharia'h given Allah Almighty to perform Operations and activities Conventional Bank Conventional banks follow by manmade principles to perform operations and activities Principles Source of Earnings Profit. The Islamic bank (IB) and conventional bank (CB) is differentiated on the basis of objectives. lender and bank. IB follows principles of Sharia'h given by Allah Almighty while CB follows manmade SOPs. Saudi Arabia. Risk is shared among borrower. risk is shared among lender. Similarly a number of Islamic banks were established as Philippine Amanah Bank in 1973. borrower and bank in IB while CB transfers the whole risk to others.
public sector enterprises and public companies limited by shares on the basis of Islamic modes of financing specified. Islamic banks help Muslim Ummah to invest their savings for halal returns according to principles of Sharia'h. 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. 1 January 1981 all domestic commercial banks authorized to accept deposits. While in conventional banking investors are guaranteed a predetermined rate of interest and it aims to maximize the return In Pakistan. based on revenue sharing (PLS). 1. hire and certified Mudarabah The first step to put the entire financial system according to Islamic principles. Broad Problem Area The basic aim of the Islamic banking is to perform interest-free activities.Maximization Sharia'h. It may be negative in case of loss. risk sharing. Over the next year for three years. the provision of specialized credit institutions loan (which has already been transferred to non-interest bearing assets). Background of Islamic banking in Pakistan The first attempt to establish an Islamic banking system took place in Pakistan in late 1950 with the creation of a local Islamic bank in a rural area. Similarly. Islamic bank works as a trading concern (Mudarib or Wakalah) to generate its income. mortgage purchase. lesser financial crisis. 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. investments accounted for assistance to purchase certificates of PTC.These are rough spheres of government and its agencies. The fee was much lower than the interest rate.On July 1. the export invoices. Musharakah (PCA). Some homeowners’ religious funds deposited without interest and then loaned to small landowners for agricultural development.1985 in January. when the credit needs of the specialist public sector in economic activities towards non-interest. fair distribution of income. banks cannot accept interest-bearing deposits and all deposits are subject to existing rules PLS . 1985. facilitate production and business activities Literature also supported that interest-free (profit and loss sharing) system is viable and superior to an interest-based system. The borrower pays no interest on credit advanced. the cost of other stakeholders. but little has been collected to cover its operations. It generates income as financial intermediary. Income of conventional bank is constant even if business suffers from loss because it charges fixed rate of interest irrespective of profit volume Objectives Nature of Earnings Income of Islamic banks varies depending upon business environment. Islamic banks deal in equity based (profit/loss) contracts that are more suitable for the economy as compared to interest-oriented conventional banks. Its prime goal is The maximization of shareholders' value at any cost. With an Islamic financial system began in 1979-1980. Islamic banks are equally beneficial for non-Muslim community by promoting brotherhood and cooperation in the society Islamic banks ensure stable economy. reduce injustice. All funds provided by banks to government. was taken to develop new financial instruments other than interest-bearing deposits.
customer satisfaction and bank performance 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 . A comparative study is demanded/needed based on the exiting literature to analyze the relationship between service quality.Problem Statement The existence of Islamic and conventional banks in Pakistan created competition to attract a large number of customers. Everyone is striving to realize greater profits by delivering quality services according to customers' expectations.
2002). 1996). trading (buying and selling of goods) and Service defined as a set of benefits delivered from a service provider to the service consumer. 2002).). customer satisfaction and bank performance is developed in the light of literature to measure the performance of Islamic and conventional banks in Pakistan Service Quality Business is a legal activity that is undertaken to earn a profit. etc. Business activities can be divided into three categories i. consultancy and other modes to facilitate the customers. A model of service quality. bank efficiency. 1985.Literature Review Banks are competing in a highly competitive environment to offer quality oriented services according to customers' expectations. touched or felt (Parasuraman et al. knowledge and experience etc. manufacturing (conversion of inputs into outputs by a transformation process).g. as the key segments for research. salary. Banks provide financial inter-mediation. employee satisfaction. (1985) argued that evaluation of service quality is difficult as compared to physical goods Hanson (2000) suggested that service quality shows the organization's ability to meet customers' desires and needs. It is a set of features.) to the customers for the sake of reward (fee. Morre (1987) identified that concentration on service quality leads to differentiation that enhance the competitive position of the organization for long term benefits. Every bank is trying to enhance its performance by improving its service quality according to customers' expectations. It is found that customers' perception of service quality is very important for managers to compete in the market (Hoffman and Bateson. Services may be coaching. characteristics or attributes that are required or expected by the customers. Different aspects of banks are studied by researchers e. wages. operations. Service quality and customer satisfaction became core issues for the successful survival of any service organization contributes a lot to gain competitive advantage to maintain long-term relationship with customers (Zeithmal et al. Hoffman and Bateson. skills. 2000) . financial performance etc. financing products. teaching. It requires a study to analyze the bank services and its outcomes in the shape of customers' satisfaction and performance. There are several studies that found a relationship between the service quality offered by banks and its consequences as satisfaction level among customers. Banks also focus on demographic characteristics of customers to assess their needs. Services are different from goods because they are intangible as they cannot be seen. consultancy and agency services that are diversified with the passage of time. So organization must improve their services to meet the customers' wants and requirements. This study examines the influence of different dimensions of service quality on the customer's feelings of satisfaction and its influence on bank performance.e. service quality. customer satisfaction. Parasuraman et al. The service firm provides benefits (due to competency. It is reported that quality is observed as a major factor in reference to customer acquisition and retention (Galloway and Ho. Quality is an ability of any product to meet customers' expectations and requirements.
Empathy. 1991) developed SERVQUAL instrument to measure the dimensions of service quality that is frequently used by researchers. Assurance. Islamic banks have to face numerous challenges in the recent age. It consists of 22 items that are compiled into five dimensions: tangibility. courtesy and their ability to incorporate trust and confidence. appearance of personnel and tools & equipment used for provision of Services Responsiveness It reflects the willingness or readiness of employees to provide quick services to customers. Parasuraman et al. one is European and other is Americans. Every banker tries to provide superior services to keep satisfied customers. This study applied five dimensions of service quality that are explained as under: Reliability This dimension shows the consistency of services towards performance and dependability Tangibles It shows the physical aspects of the service as physical facilities. It is found that satisfied customer repeat his/her .. This comparison results into three types of customers: dissatisfied customers (expectations are more than actual performance of the service). Customer satisfaction has become important due to increased competition as it is considered very important factor in the determination of bank's competitiveness (Bartell. The Americans' perspective foucs on five dimension of service quality to measure the performance of any product are tangibility. reliability.e. Firstly. responsiveness. they are competing with their peers and secondly they have to cope with the conventional banks. 1989).This dimension indicates the employees' knowledge.This dimensions shows the magnitude of caring and individual attention given to customers.There are two perspectives regarding service quality i. Customer Satisfaction in Banking Financial liberalization and deregulation has increased the competition among banks to attract potential customers. assurance and empathy.Satisfied customer is the real asset for any organization that ensures long-term profitability even in the era of great competition. (1988. assurance and empathy. 1993. 1994). indifferent customers (actual performance and expectation are exactly equal). European researchers focus on three dimensions of service quality to measure the performance of any product by considering functional quality. responsiveness. emergence and growing popularity of Islamic banking products raises competition among Islamic banks. Customers compare their expectations about a specific product/services and its actual benefits. Customer Satisfaction Every rationale customer compares the cost (price) and benefit (utility) of any product or services. they identified ten dimensions but finally service quality is refined to five dimensions 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. In Pakistan. Haron et al. technical quality and corporate image. Firstly. reliability. satisfied customers (actual benefits realized from services are equal to or more than expectations).
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. Kim and Shin..e. It is reported that employees of domestic banks do not contribute towards profitability. innovation. It may be due to an increasing number of new foreign and local banks and their working pattern as conventional banks or Islamic banks. open system and rationale goal model could represent the organizational performance (Quinn and Rohrbaugh. Multiple aspects like profitability. liquidity. systematization of service delivery (nonhuman element). 2003). core service or service product. quality of products. human relations. On the other hand.e. 1997). Bank Performance Bank is also one of the business organizations that offer a large number of products and service for profit Every organization is trying to enhance the performance of individuals for overall improvement of the whole organization. can evaluate any organization. (2002) investigated the relationship between service quality and customer satisfaction in the banking industry. customer satisfaction (Kayis. But employees of foreign banks significantly contributed towards profitability (Arby. 1984). Determinants of Customer Satisfaction Banking industry expanded over a number of years due to the introduction of new products and services. Sureshchander et al.They suggested five dimensions of customer satisfaction i. assets management quality. 1998). 2003). 1983) Chapman et al. Four models i. Performance of Pakistani Banking Sector Pakistani banking sector has shown an excellent growth during last few years. productivity. (1997) examined the influence of quality on the performance of an organization. Financial performance of banking sector was outstanding due to sufficient profitability. strong solvency. dissatisfied customer may switch to alternative products/services and communicate negative message to others.experience to buy the products and also creates new customers by communication of positive message about it to others (Dispensa. There are several criteria to evaluate the performance of banks for successful survival in the era of globalization and competition. human element of service delivery. tangibles of service (servicescapes) and social responsibility An empirical study indicates a strong relationship between perceived service quality. Both streams of banks are striving to attract the potential customers at any cost. management performance. human resources and sales volume etc. The study measured the organizational performance using financial ratios It is found that there is a positive relationship between strategic quality indicators and financial performance parameters. leverage. market share. This increased competition requires the provision of quality services to have satisfied customers for sustainable benefits. better risk management practices and continuous improvements for the provision of quality services Islamic banking system has proved a successful alternative for the conventional banking System .(Dess & Robinson. It is reported that delivery of high quality services is the key to sustain competitive advantage to have satisfied customers (Shemwell et al. internal process.
2003) Stated that satisfaction could be linked with performance because people feel satisfied when products perform according to their expectations. Kim and Shin. (Hallwell. It is found that service firms show poor performance due to lack of knowledge about customers' expectation 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. But When they experience dissatisfaction This Shows performance is below than their expectations. .Service Quality. 1996). customer satisfaction and bank performance It is suggested that service performance appraisal system of the organization should be improved in line with customer satisfaction in the banking sector (Kayis. It was documented that an increase in service quality and professional behavior resulted greater customer satisfaction and reduced customer erosion which lead to Profitability. Customer Satisfaction and Bank Performance There are few studies available in the literature that investigated the relationship between service quality.
It was documented that an increase in service quality and professional behavior resulted a greater customer satisfaction and reduced customer erosion (Leeds. It is reported that gender roles and responsibilities are shaped due to specific cultural social and religious factors. H1: There is a significant difference in the perception of service quality among bank customers on the basis of gender.Hypotheses. Demographic characteristics should be considered by the bank managers to understand their customers. (1985. an improvement in service quality is necessary for higher levels of satisfaction among banking customers 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. Service Quality Customer Satisfaction + . The relationship between service quality and customer satisfaction is becoming crucial with the increased level of awareness among bank customers. In Muslim countries male is responsible for financial activities outside the home while female performs domestic activities inside the home Due to these factors men have more access to banking. Based on these studies. 1991b) devised SERVQUAL model and investigated the service quality. Conceptual Model and Theoretical Framework . They explored ten dimensions of service quality and refined into five dimensions. Parasuraman et al. ethnicity. education and income. However. education and insurance facilities as compared to women . Ayadi (1996) concluded that female bank customers are engaged in lesser banking activities than male customers due to lower income. it can be hypothesized that there is significant difference in the perception of bank customers on the basis of gender. Service quality has a significant impact on customer satisfaction and their intensions to switch. H 2: There is positive relationship between service quality and customer satisfaction in the banking sector of Pakistan.Above-mentioned literature provides a foundation to hypothesize that there will positive relationships between service quality and customer satisfaction in Pakistani banking sector . 1992). Customers' perception of service quality differs in terms of gender.
Several studies measured the relationship between customer satisfaction and performance of the firm It is reported that Islamic banks have shown an excellent performance. They suggest that Islamic banks should diversify their products/services according to principles of Sharia'h. Progress of banks can be evaluated by the implementation of service quality programs to retain customers as satisfied. There is a significant relationship between service quality and financial performance . H 5: Customer satisfaction mediates the relationship between service quality and bank performance in the banking sector of Pakistan. H 4: There is positive relationship between Customer satisfaction and bank performance in Pakistan. Customer Satisfaction + On the basis of literature it is found that customer satisfaction plays an inter-mediator role in the relationship between service quality and financial performance. Performance of banks could be measured as how they maintain relations with their customers. Based on literature it is hypothesized that there will be positive relationship between customer satisfaction and bank performance in Pakistan. H 3: There is positive relationship between service quality and bank performance in Pakistan.Newman and Cowling (1996) found that service quality is important for banks due to link between productivity and profitability. Service Quality Bank Performance + Customer satisfaction is an important driver for better organizational performance especially in the banking sector due to increased competition. Bank Performance Customer Satisfaction Service Quality Bank Performance . It is suggested that customer satisfaction could increase the bank efficiency by reducing divergence in efficiency scores. It can be hypothesized that there will be positive relationship between service quality and bank performance.
Theoratical Frame Work Service Quality. Customer Satisfaction and Bank Performance in Pakistan Syszn Srvc Dlvry Human Element Tngble of Srvce Reliability Assurance Service Quality Tangibility Customer Satisfaction Social Rspnsblty Core Service Bank Performance Responsiveness Empathy Independent Variable Mediating Variable Dependent Variable Conceptual Model and Theoretical Framework .
e. The study also adopted "personal contact" approach i. Customers were selected randomly to collect data by self-administrated questionnaires. It is highly recommended that questionnaire is a reliable tool to measure the impact of customer service management on perceived business performance in banks and finance companies 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 Conventional Banks National Bank of Pakistan Habib Bank Limited Pakistan MCB Bank Limited United Bank Limited Askari Bank Limited Bank Alfalah Limited . The researcher explained the questionnaire and the objective of survey by telling its purpose. The study aims to analyze the influence selected variables in Pakistani banking sector by a comparison of Islamic and Conventional banks. the meaning of the items and what is expected from the respondents. A pilot study was undertaken before conducting the actual survey. A structured questionnaire was developed to record the responses of customers and employees of Islamic and conventional banks operating in Pakistan.Reserch Design This study examines the relationship between service quality and customer satisfaction and further how it affects the bank performance. This study investigates the dimensions of service quality. Stratified random sampling method was adopted for this study Data analysis was carried out by using SPSS The population of the study comprised of the customers and employees of Islamic and conventional banks working in Pakistan. A questionnaires were distributed . respondents were approached personally. determinants of customer satisfaction and bank performance. This study is based on primary data that was collected from the existing customers and employees of selected banks in Pakistan.
Data were organized and entered into SPSS 15. It contained 22 items divided into five dimensions i.0 version to apply specific statistical tools to test the hypotheses of the study. service or service product. Customers' responses regarding service quality are collected by a modified version of SERVQUAL model developed by Parasuraman et al. assurance and empathy. responsiveness. systematization of service delivery (non. The responses were recorded regarding bank performance by considering different aspects. Each items is assessed by Likert scale as it stands for 1 = strongly disagree to 7 strongly agree . Customer satisfaction was judged by a modified version of research instrument applied by Sureshchnader et al. 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. Measures and Instruments Service firms used SERVQUAL instrument to investigate the service quality in the banking. human elements of service deliver. insurance and telephone repair industries. customer satisfaction and bank performance by comparing Islamic and Conventional banks working in Pakistan. 1991). tangible of service (servicescapes) and social responsibility.e. i. tangibility. quality of product.e. internal process coordination. (1988. market share.human element). Customers of Islamic and conventional banks were approached to collect data regarding their feelings of satisfaction or dissatisfaction towards bank services. Customers of selected banks were asked to give their responses regarding their banker by considering different aspects of service quality. profitability. and personnel rotation etc. Bank performance was assessed by using five point Likert scale as 1 = Decreasing revolution to 5 = Increasing revolution Here revolution stands for development or progress in relation to specific bank in which respondent is working . Every respondent was asked to rank a number of aspects regarding his/her bank i. reliability.e. (2002). Customers were asked to give their feelings of satisfaction related to their banking experiences. This study used to investigate the relationships among service quality.
) 1 2 3 4 5 6 7 3. retirement accounts. room service facility.) 1 2 3 4 5 6 7 5. For each statement. Your Marital Status: Unmarried Married . etc. e. foreign exchange. ATM.Questionnaires Part I. Bank's Service innovation (providing information/details on regular basis through post: telephonic banking. 5 = Slight Satisfaction. 7 = Very High Satisfaction 1. please show the extent to which you believe your bank has the feature described by the statement. etc. Availability of most service operations in every branch/department of the bank. weekdays. loans for purchase of cars. houses.g. Your Gender: Male Female 2. Strongly Disagree Your Islamic bank uses modern looking equipment your Islamic bank promises to do something by a certain time.Diversity and range of Bank's services (having a wider range of financial services from the bank. deposits. Pick one of the seven numbers next to each statement. and circling a "7" means that you strongly agree. Convenient operating hours and days (e. Providing service as promised 1 2 3 4 5 6 7 Demographics 1. 1 2 3 4 5 6 7 4.all we are interested in a number that best shows your perception about Islamic bank. You are required to show satisfaction level against each item as: 1=Very highly Dissatisfaction. 3 = Slight Dissatisfaction. safe deposit lockers.) 1 2 3 4 5 6 7 2. 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 Service Quality The following set of statements relate to your feelings about Islamic bank' s service. 4 = Neutral.Bank Usage Pattern 1.g. cards to defense personnel. 2 = High Dissatisfaction. extended service hours during evenings. There are no right or wrong answers. traveler's cheques. Here circling a "1" means that you strongly disagree that your bank has that feature. etc. working on Saturday and Sunday s. it does so Employees of your Islamic bank tell customers exactly when services will be performed Employees of your Islamic bank give you prompt service Islamic bank are consistently courteous with you Strongly Agree 1 2 3 4 5 6 7 Customer Satisfaction You are requested to tick any one option given against each item to measure the level of customer satisfaction with the bank. 6 = High Satisfaction.
40 0000 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. Neutral . 10 000 B Rs 10 000 to Rs. Rising evolution 4. Decreasing evolution 5. Your Educational Level: A Primary B Secondary\ C College D University-Master E University-M. Rising evolution 4. Decreasing evolution 5. Your Age: A 18-24 Years B 25-34 Years C 35-44 Years D 45-54 Years E 55 and Over 4. Likely to rise evolution 3. Likely to rise evolution 3. 30 0000 to Rs.Phil F University-PhD G Any other (please specify) 5. 50 000 and above . Likely to decrease evolution 1. 20 000 to Rs. Neutral Internal process coordination 2. Bank Performance Quality product 2.3. Likely to decrease evolution 1. 40 000 E Rs. 50 000 F Rs. 20 000 C Rs. Your Monthly household income: A Under Rs. 30 000 D Rs.
Rising evolution 3. Neutral . Likely to rise evolution 2.Personnel activities coordination 1. Decreasing evolution 4. Rising evolution 3. Likely to decrease evolution 5. Likely to decrease evolution 5. Decreasing evolution 4. Likely to rise evolution 2. Neutral Share market 1.
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