Professional Documents
Culture Documents
INTRODUCTION.............................................................................................................................. 3 Background of Islamic banking in Pakistan ............................................................................ 4 Problem Statement ............................................................................................................................. 5 Literature Review .............................................................................................................................. 6 Hypotheses, Conceptual Model and Theoretical Framework ............................................................ 10 Theoratical Frame Work ................................................................................................................. 12 Reserch Design ................................................................................................................................. 13 Questionnaires ................................................................................................................................. 15
INTRODUCTION
Background of the Study
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.
Conventional Bank
Conventional banks follow by manmade principles to perform operations and activities
Principles
Source of Earnings
Profit, service charges and consultancy fee is the main source of earnings of Islamic banks. Profit is variable which may be negative in case of loss. Risk is shared among borrower, lender and bank.
Interest is the main source of income for conventional banks that is charged on different types of loans/products.
Risk Sharing
Profit
Maximization
Sharia'h. Islamic bank works as a trading concern (Mudarib or Wakalah) to generate its income.
the cost of other stakeholders. It generates income as financial intermediary. Its prime goal is The maximization of shareholders' value at any cost. 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. It may be negative in case of loss.
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. A comparative study is demanded/needed based on the exiting literature to analyze the relationship between service quality, 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
Literature Review
Banks are competing in a highly competitive environment to offer quality oriented services according to customers' expectations. Different aspects of banks are studied by researchers e.g. operations, service quality, employee satisfaction, customer satisfaction, financing products, bank efficiency, financial performance etc. as the key segments for research. Banks also focus on demographic characteristics of customers to assess their needs. Every bank is trying to enhance its performance by improving its service quality according to customers' expectations. It requires a study to analyze the bank services and its outcomes in the shape of customers' satisfaction and performance. This study examines the influence of different dimensions of service quality on the customer's feelings of satisfaction and its influence on bank performance. A model of service quality, 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. Business activities can be divided into three categories i.e. manufacturing (conversion of inputs into outputs by a transformation process); trading (buying and selling of goods) and Service defined as a set of benefits delivered from a service provider to the service consumer. The service firm provides benefits (due to competency, skills, knowledge and experience etc.) to the customers for the sake of reward (fee, salary, wages, etc.). Services may be coaching, teaching, consultancy and other modes to facilitate the customers. Banks provide financial inter-mediation, consultancy and agency services that are diversified with the passage of time. Services are different from goods because they are intangible as they cannot be seen, touched or felt (Parasuraman et al. 1985; Hoffman and Bateson, 2002). Parasuraman et al. (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. So organization must improve their services to meet the customers' wants and requirements. It is found that customers' perception of service quality is very important for managers to compete in the market (Hoffman and Bateson, 2002). Quality is an ability of any product to meet customers' expectations and requirements. It is a set of features, characteristics or attributes that are required or expected by the customers. There are several studies that found a relationship between the service quality offered by banks and its consequences as satisfaction level among customers. It is reported that quality is observed as a major factor in reference to customer acquisition and retention (Galloway and Ho, 1996). Morre (1987) identified that concentration on service quality leads to differentiation that enhance the competitive position of the organization for long term benefits. 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. 2000)
There are two perspectives regarding service quality i.e. one is European and other is Americans. European researchers focus on three dimensions of service quality to measure the performance of any product by considering functional quality, technical quality and corporate image. The Americans' perspective foucs on five dimension of service quality to measure the performance of any product are tangibility, reliability, responsiveness, assurance and empathy. Firstly, 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, 1989). Parasuraman et al., (1988, 1991) developed SERVQUAL instrument to measure the dimensions of service quality that is frequently used by researchers. It consists of 22 items that are compiled into five dimensions: tangibility; reliability; responsiveness; assurance and empathy. 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, 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. Assurance- This dimension indicates the employees' knowledge, courtesy and their ability to incorporate trust and confidence. Empathy- This dimensions shows the magnitude of caring and individual attention given to customers.
Customer Satisfaction
Every rationale customer compares the cost (price) and benefit (utility) of any product or services. Customers compare their expectations about a specific product/services and its actual benefits. This comparison results into three types of customers: dissatisfied customers (expectations are more than actual performance of the service); satisfied customers (actual benefits realized from services are equal to or more than expectations); indifferent customers (actual performance and expectation are exactly equal). Customer satisfaction has become important due to increased competition as it is considered very important factor in the determination of bank's competitiveness (Bartell, 1993; Haron et al. 1994).
experience to buy the products and also creates new customers by communication of positive message about it to others (Dispensa, 1997). On the other hand, dissatisfied customer may switch to alternative products/services and communicate negative message to others.
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. 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.(Dess & Robinson, 1984). There are several criteria to evaluate the performance of banks for successful survival in the era of globalization and competition. Multiple aspects like profitability, liquidity, management performance, leverage, market share, productivity, innovation, quality of products, human resources and sales volume etc. can evaluate any organization. Four models i.e. human relations; internal process; open system and rationale goal model could represent the organizational performance (Quinn and Rohrbaugh, 1983)
Chapman et al. (1997) examined the influence of quality on the performance of an organization. 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. It is reported that employees of domestic banks do not contribute towards profitability. But employees of foreign banks significantly contributed towards profitability (Arby, 2003).
Newman and Cowling (1996) found that service quality is important for banks due to link between productivity and profitability. Performance of banks could be measured as how they maintain relations with their customers. Progress of banks can be evaluated by the implementation of service quality programs to retain customers as satisfied. It can be hypothesized that there will be positive relationship between service quality and bank performance. H 3: There is positive relationship between service quality and bank performance in Pakistan.
Service Quality
Bank Performance +
Customer satisfaction is an important driver for better organizational performance especially in the banking sector due to increased competition. 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. There is a significant relationship between service quality and financial performance . Based on literature it is hypothesized that there will be positive relationship between customer satisfaction and bank performance in 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. It is suggested that customer satisfaction could increase the bank efficiency by reducing divergence in efficiency scores. H 5: Customer satisfaction mediates the relationship between service quality and bank performance in the banking sector of Pakistan. Bank Performance
Customer Satisfaction
Service Quality
Bank Performance
Theoratical Frame Work Service Quality, Customer Satisfaction and Bank Performance in Pakistan
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
Reserch Design
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 selected variables in Pakistani banking sector by a comparison of Islamic and Conventional banks. This study investigates the dimensions of service quality, determinants of customer satisfaction and bank performance. A pilot study was undertaken before conducting the actual survey. A questionnaires were distributed . 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. This study is based on primary data that was collected from the existing customers and employees of selected banks in Pakistan. A structured questionnaire was developed to record the responses of customers and employees of Islamic and conventional banks operating in Pakistan. Customers were selected randomly to collect data by self-administrated questionnaires. The study also adopted "personal contact" approach i.e. respondents were approached personally. The researcher explained the questionnaire and the objective of survey by telling its purpose, the meaning of the items and what is expected from the respondents. 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
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
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 to investigate the relationships among service quality, customer satisfaction and bank performance by comparing Islamic and Conventional banks working in Pakistan.
Questionnaires
Part I- Bank Usage Pattern 1. 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. For each statement, please show the extent to which you believe your bank has the feature described by the statement. Pick one of the seven numbers next to each statement. Here circling a "1" means that you strongly disagree that your bank has that feature, and circling a "7" means that you strongly agree. There are no right or wrong answers- all we are interested in a number that best shows your perception about Islamic bank.
Strongly Disagree Your Islamic bank uses modern looking equipment your Islamic bank promises to do something by a certain time, 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
Customer Satisfaction You are requested to tick any one option given against each item to measure the level of customer satisfaction with the bank. You are required to show satisfaction level against each item as: 1=Very highly Dissatisfaction, 2 = High Dissatisfaction, 3 = Slight Dissatisfaction, 4 = Neutral, 5 = Slight Satisfaction, 6 = High Satisfaction, 7 = Very High Satisfaction 1.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.) 1 2 3 4 5 6 7 2. Bank's Service innovation (providing information/details on regular basis through post: telephonic banking; ATM; room service facility; cards to defense personnel, etc.) 1 2 3 4 5 6 7 3. Availability of most service operations in every branch/department of the bank. 1 2 3 4 5 6 7 4. Convenient operating hours and days (e.g. working on Saturday and Sunday s, extended service hours during evenings, weekdays, etc.) 1 2 3 4 5 6 7 5. Providing service as promised 1 2 3 4 5 6 7 Demographics 1. Your Gender: Male Female 2. Your Marital Status: Unmarried Married
3. Your Age: A 18-24 Years B 25-34 Years C 35-44 Years D 45-54 Years E 55 and Over 4. Your Educational Level: A Primary B Secondary\ C College D University-Master E University-M.Phil F University-PhD G Any other (please specify) 5. 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. Your Monthly household income: A Under Rs. 10 000 B Rs 10 000 to Rs. 20 000 C Rs. 20 000 to Rs. 30 000 D Rs. 30 0000 to Rs. 40 000 E Rs. 40 0000 to Rs. 50 000 F Rs. 50 000 and above
. Bank Performance
Quality product 2. Likely to decrease evolution 1. Decreasing evolution 5. Rising evolution 4. Likely to rise evolution 3. Neutral
Internal process coordination 2. Likely to decrease evolution 1. Decreasing evolution 5. Rising evolution 4. Likely to rise evolution 3. Neutral
Personnel activities coordination 1. Decreasing evolution 4. Likely to rise evolution 2. Likely to decrease evolution 5. Rising evolution 3. Neutral
Share market 1. Decreasing evolution 4. Likely to rise evolution 2. Likely to decrease evolution 5. Rising evolution 3. Neutral