1

FACTORS THAT INFLUENCE THE SELECTION OF
ISLAMIC BANKING:
A STUDY ON MALAYSIAN PREFERENCES



A research project submitted in partial fulfilment of the
requirements for the degree of

BACHELOR OF BUSINESS ADMINISTRATION
(HONOURS) BANKING AND FINANCE

FACULTY OF BUSINESS AND LAW
MULTIMEDIAUNIVERSITY

SEPTEMBER2012




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The copyright of this thesis belongs to the author under the terms of the Copyright
Act 1987 as qualified by Regulation 4(1) of the Multimedia University Intellectual
Property Regulations. Due acknowledgement shall always be made of the use of any
material contained in, or derived from, this thesis.

All rights reserved








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DECLARATION

I hereby declare that the work have been done by myself and no portion of the work
contained in this research project report has been submitted in support of any
application for any other degree or qualification of this or any other university or
institute of learning.

I hereby declare that pursuant to the provisions of the Copyright Act 1987 (the Act)
that I shall not during my tenure at the University or thereafter engage in any
unauthorized act of copying or reproducing or attempt to copy / reproduce or cause
to copy / reproduce or permit the copying / reproducing or the sharing and / or
downloading of any copyrighted material or facilities whether in hard copy or soft
copy format, of any material protected under the provisions of sections 3 and 7 of
the Act whether for payment or otherwise save as specifically provided for therein.
This shall include but not be limited to any lecture notes, course packs, thesis, text
books, exam questions, any works of authorship fixed in any tangible medium of
expression whether provided by the University or otherwise.

I hereby further declare that in the event of any infringement of the provisions of
the Act whether knowingly or unknowingly the University shall not be liable for
the same in any manner whatsoever and undertake to indemnify and keep
indemnified the University against all such claims and actions.







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ACKNOWLEDGEMENT
First and foremost, I would like to express thanks to The Almighty God for his
Mercifulness and compassionate love that has kept me in good health and also
strengthened me all the way from the start of this project to end the without
hardships.
I am sincerely grateful and thankful to my supervisor Dr. DevinagaRasiah for her
endless support and guidance throughout this research project. Therefore, I take this
opportunity to convey my appreciation to her. Dr. Devinaga, thank you very much
for your attention, valuable time, advice and brilliant ideas and guiding me
throughout every stage of this project. May God Almighty richly bless you!!
Finally, I thank my friend (Daniel Asika) and family especially my mother (Grace),
aunt (Stella) and my one and only sister (Dorean) Thank you very much for your
prayers and help towards the completion of this project. God bless you!!











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ABSTRACT

Islamic financing has earned substantial encroachments in the financial markets
that have attained awareness internationally. The outgrowth of strong Islamic
trends in the last three decades has reincarnated interest in Islamic economics,
especially in Islamic banking which is also called interest free banking. Presently,
Islamic banking extends to the public a number of high quality products and
services in order to create satisfaction among their customers or clients due to the
fact that there is strong competition and rapid change in technologies.

The main intention of this study is to examine and investigate major influential
factors that reflect to customers‟ selection and preference decision on Islamic
banking and to examine the reasons of consumers for select Islamic Banking
services rather than Conventional Banking services. Questionnaires were
administered personally and also sent to different individuals by mail to collect raw
data for analysis. The analysis affirms whether the relationships between consumer
awareness, convenience, attitude, social and religious perspective and confidence of
customers are either positively or negatively related to consumer selection and
preference of Islamic banking. This data was analyzed using SPSS 19 and found
that awareness and attitude influence the selection of Islamic banking; reason being
that they were familiar with and understand the products and services provided by
Islamic and banking.The study findings will be useful to the banking industry
especially Islamic Banking industry to enhance the marketing, and further
development of Islamic banking and its products and services.




Key words: Factor influences, customer preferences, and Islamic banking.


6

TABLE OF CONTENTS
COPYRIGHT…………………………………………………………………………...ii
DECLARATION……………………………………………………………………….iii
ACKNOWLEDGEMENT………………………………………………………...........iv
ABSTRACT…………………………………………………………………………….v
TABLE OF CONTENTS………………………………………………………………vi
LIST OF TABLES………………………………………………………………...........ix
LIST OF FIGURES…………………………………………………………………….x
CHAPTER 1 INTRODUCTION……………………………………………………….1
1.1 Introduction………………………………………………………………..........1
1.1.1 General history of Islamic banking……………………………………..1
1.2 Islamic Banking in Malaysia……………………………………………………2
1.2.1 The Background study…………………………………………….........3
1.2.2 Steps Taken Towards Islamic Banking…………………………............3
1.2.3 Development……………………………………………........................4
1.2.4 Present Scenario………………………………………………………...5
1.3 Characteristics of Islamic banking and its products and services…………........6
1.4 Problem Statement……………………………………………………………...7
1.5 Research Questions……………………………………………………………..8
1.6 Research objectives…………………………………………………………......8
1.7 Scope of Study……………………………………………………………….....9
1.8 Significance of study……………………………………………………….......9
1.9 Justification of study………………………………………………………….10
1.10 Definition of Terms…………………………………………………………...10
1.11 Organization of research………………………………………………………11
1.12 Conclusion…………………………………………………………………….12

CHAPTER 2: LITERATURE REVIEW……………………………………………..13
2.1 Introduction…………………………………………………………………….....13
2.2 Principles of Islamic banking……………………………………………………...13
2.3 Products and services under Islamic banking…………………………………......15
2.3.1 Musharakah……………………………………………………………15
2.3.2 Mudarabah………………………………………………………….....17
2.3.3 Murabaha……………………………………………………………...19
2.3.4 Ijarah…………………………………………………………………..22
2.3.5 Bai‟salam……………………………………………………………...22
2.3.6 Istisna……………………………………………………………….....23
2.3.7 Sukuk……………………………………………………………….... 24
2.4 Variables………………………………………………………………………27
2.5 Factors and selection criteria of Islamic banking……………………………..28
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CHAPTER 3: METHODOLOGY………………………………………………….....33
3.1 Introduction…………………………………………………………………….....33
3.2 Conceptual Framework……………………………………………………………33
3.3 Hypothesis of the study…………………………………………………………...34
3.4 Research approach…………………………………………………………….......35
3.5 Sources of data……………………………………………………………………36
3.6 Data collection…………………………………………………………………….36
3.7 Measurement………………………………………………………………………37
3.8 Sampling method……………………………………………………………….....37
3.9 Unit of Analysis…………………………………………………………………...37
3.10 Data analysis……………………………………………………………………..38
3.11 Summary…………………………………………………………………………39
3.12 Conclusion……………………………………………………………………….39

CHAPTER 4: RESULTS AND DISCUSSIONS……………………………………..40
4.1 Introduction………………………………………………………………………..40
4.2 Descriptive analysis on demographic profile……………………………………...40
4.2.1 Gender…………………………………………………………………...40
4.2.2 Age………………………………………………………………………41
4.2.3 Race……………………………………………………………………...42
4.2.4 Educational Level………………………………………………………..43
4.2.5 Occupation……………………………………………………………….45
4.2.6 Monthly Income …………………………………………………………46
4.3 Reliability analysis…………………………………………………………………47
4.4 Normality test………………………………………………………………….......48
4.5 Correlation……………………………………………………………………...….49
4.6 Hypothesis testing …………………………………………………………………50
4.7 Multiple regressions………………………………………………………......……50
4.7.1 Model Summary…………………………………………………………51
4.7.2 ANOVA…………………………………………………………………52
4.7.3 Analysis of Coefficients …………………………………………………52
4.7.4 Hypothesis result……………………..………………………………….53
4.8 Selection criteria ranking…………………………………………………………..54
4.9 Conclusion………………………………………………………………………....56


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CHAPTER 5: CONCLUSION AND RECOMMENDATION………………………..57
5.1 Introduction………………………………………………………………………..57
5.2 Limitations to the study…………………………………………………………....57
5.3 implications of the study…………………………………………………………..58
5.4 Recommendation for future research studies……………………………………...59
5.5 Conclusion…………………………………………………………………………59
REFERENCES………………………………………………………………………..61
APPENDICES………………………………………………………………………...64


















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LIST OF TABLES
Table No. Page

Table 2.1 Differences between Musharakah and Mudarabah
financial products

19
Table 2.2 Differences between Istisna and Salam financial
products

24
Table 2.3 Range of Islamic Banking Products and Services

25
Table 2.4 Performance of Islamic financial products and
services between 2006 – 2009

26
Table 2.5 Banking Selection Criteria

32
Table 4.1 Frequency table for Gender

41
Table 4.2 Frequency table for Age

42
Table 4.3 Frequency table for Race

43
Table 4.4 Frequency table for Education level

44
Table 4.5 Frequency table for Occupation

45
Table 4.6 Frequency table for Monthly Income 46
Table 4.7 Reliability Statistics 47
Table 4.8: Normality Test 48
Table 4.9 Correlations 49
Table 4.10 Model Summary 51
Table 4.11 ANOVA 52
Table 4.12 Coefficients 53
Table 4.13 Ranking Statistics 55



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LIST OF FIGURES

Figure No. Page
Fig.1 Illustration of how Musharakah works

16
Fig.2 Illustration of how Musharakah works

18
Fig.3 Illustration of how Murabaha works

21
Fig.4 Conceptual framework

34
Fig.5 A bar graph showing the percentage distribution of
respondent‟s Gender

41
Fig.6 A bar graph showing the percentage distribution of
respondent‟s Age

42
Fig.7 A bar graph showing the percentage distribution of
respondent‟s Race

43
Fig.8 A bar graph showing the percentage distribution of
respondent‟s Education Level

44
Fig.9 A bar graph showing the percentage distribution of
respondent‟s Occupation

46
Fig.10 A bar graph showing the percentage distribution of
respondent‟s Monthly Income
47



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CHAPTER 1: INTRODUCTION

1.1 Introduction
This research is on Islamic banking. Islamic banking is a financial system similar to
conventional banking only that it is basing upon the sharia law; a law that prohibits taking
or receiving of interests. This study is about determining the factors that influence in other
words motivate the consumers to choose Islamic banking products, mainly focusing on
preferences with in Malaysia. This chapter of the study includes first, the general history of
Islamic banking in the world, secondly, Islamic banking in Malaysia (background, steps
taken to implement it, its development, and performance now). Thirdly, the characteristics
of Islamic banking, then the research basics (problem statement, research question, and
objectives, research significance, the scope of study, justification, definition of terms and
finally the research structure and chapter conclusion).
1.1.1 General history of Islamic banking
Islamic Banking just like anything else in existence now started as an idea and later
developed and turned into a reality. The ideas first attempt was in Malaysia in the mid-
1940 and later in the late 1950‟s, a local experimental Islamic bank was set up in rural
Pakistan. The first modern Islamic banking experiment took place in Egypt (1963) secretly
due to the concern of consideration as an expression for Islamic fundamentalism. Ahmed
El Najjar led the initiation process, which happened, in the city of MitGhamr (Egypt). The
experiment was in form of a savings bank acting under the profit–sharing principle (one of
the Syri‟ah principles) which survived until 1967 while more banks being established in
the country modeled on the philosophy and code of Islamic banking which totaled to nine
banks offering Islamic banking services. They did not charge or pay interest, got involved
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in trade and industry as a form of investment, and shared their profits with their depositors.
In other words, they operated as savings investment institutions.
In 1971, Nasir Social Bank in Egypt was announced an Islamic commercial bank (interest
free commercial bank) though without Syri‟ah law reference charter. A few years later,
Islamic Development Bank (IDB), whose main objective was to secure monetary funds for
projects encouraged or promoted by its member nations, was set up by the OIC
(Organization of Islamic Countries) in 1974. Its operations are interest free and clearly in
accordance with the syri‟ah law and principles.
Politically, there were changes in the climate of many Islamic nations in the 70‟s in that the
undercover introduction of Islamic financial institutions was no more a necessity and
therefore the establishment of more Islamic banks took place in the Middle East. For
example, Dubai Islamic Bank was introduced in 1975, followed by Faisal Islamic Bank of
Sudan and Faisal Islamic Bank of Egypt, both in 1977, then Bahrain Islamic Bank in 1979
and many more to note but a few until it made its way to Malaysia in 1983. The Middle
East countries played a very crucial role in trade which intensified the need for Islamic
banking and finance, hence their establishment.
The establishment of Islamic banks grew tremendously in the past four decades and has
spread all over the whole universe receiving a wide acceptance by both Muslims and non-
Muslims (Iqbal and Molyneux, 2005). This is because Islamic banks play their role similar
to conventional banks except that they have to conform to Islamic principles and
regulations (Henry & Wilson, 2004). The popularity of the Islamic banking system is not
only limited to Islamic countries but also in non-Muslim countries, which intensifies
competition in the banking system. Record has it that approximately; there are 180 Islamic
banks and institutions running in Asia, Africa, Europe, and the US with over 8000 outlets
winning US$250 billion worth of assets worldwide.

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1.2 Islamic Banking in Malaysia
Malaysia is records as the first country to run a dual system of banking successfully, where
the Islamic banking system operates alongside the conventional banking system. This has
encouraged and motivated both Islamic and non-Islamic countries to adopt the system and
now delegates from different countries especially the Muslim nations come to Malaysia to
learn how it works so they can make changes or improvements where necessary in their
banking system.

1.2.1 The Background study
In Malaysia, the establishment of the Pilgrims Fund Board, also referred to as
LembagaTabung Haji (LTH) by the Malaysian government in 1963, marks the origin of
Islamic banking. LTH was a technical aspect under which, deeply religious Muslims saved
on a regular basis to cover the annual pilgrimage performances (Haji) and the savings later
invested in projects or productive economy sectors to yield profits that are free of interest
or Riba.
With Muslims mostly dominating Malaysia, parties like Bumiputera Economic Congress
called upon her in 1980 to establish an Islamic bank since she did not escape the revival
that occurred in the Middle East. More exertion/effort was put into the idea of Malaysia
setting up an Islamic bank. The National Steering Committee was set up in 1981 to take an
analytical study and make ad-vocations or recommendations to the Malaysian Government
on all the aspects to consider for the establishment and operation of an Islamic bank in the
country. These included religious, political, and legal aspects. After a thorough analysis, it
brought into conclusion that an Islamic bank would be a successful project. This marked
the foundation of Bank Islam Malaysia Berhad (BIMB) the number one Islamic bank in
Malaysia in 1983.

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1.2.2 Steps Taken Towards Islamic Banking
Bank Islam Malaysia Berhad (BIMB), being the first Islamic bank to be established
marked the beginning of an Islamic financial system in Malaysia. It practices the banking
just like any other commercial bank only that it conveys the Islamic law or syri‟ah
principles that prohibit taking of interest (riba). BIMB extends to its customers deposit
taking products like current and savings deposits under the principle of Al-
Wadiah(guaranteed custody) and investment deposits under the principle of Al-
Mudharabah (profit-sharing). Financial services such as working capital financing under
the concept of Al-Murabahah (cost-plus), house financing under Bai‟BithamanAjil
(deferred payment sale), leasing under Al-Ijarah (leasing) principle, and project financing
under Al-Musyarakah (profit and loss sharing).
The operation of banking under the above-mentioned principles, has earned BIMB an
enormous maturity since its commencement in 1983 until 1992, when BNM listed it under
Kuala Lumpur Stock Exchange (KLSE) main board. In addition, by the end of 2003, the
bank had a web of branches all over the country.
1.2.3 Development
To establish an Islamic financial system performing alongside the convectional banking
system has been the long-term objective/goal of Bank Negara Malaysia and an inspiration
to the government of Malaysia. To attain this, an individual bank (BIMB) needed
expansion in order to form a system. Formation of an Islamic banking system commands,
(1) a large number of active and effective players, (2) a chain of products, and innovative
instruments and (3) a vivacious Islamic money market. On recognizing this situation, the
central bank of Malaysia disseminated Islamic banking countrywide with many players as
fast as possible within the shortest period. To accomplish this, Skim Perbankan Islam
(SPI), also known as Islamic banking scheme (IBS), was introduced in 1993. The scheme
allows conventional banks to provide Islamic banking products and services to the public
through the existing branches and infrastructure.
15

Complying with the fortunate implementation, BNM allowed other commercial banks,
financial institutions, and merchant banks to operate the scheme under the guidelines
published by the central bank only. Ever since then, the number of banking institutions
operating under the scheme increased from three banks that initially offered Islamic
banking to 36 institutions in total inclusive of foreign banks offering Islamic banking by
the end of 2003.
Islamic banking plays a significant role in the mobilization of deposits and financial
provision towards economic development and growth. The system offers a range of
Islamic banking/financial products and services which include savings, current and
investment deposits for property, working capital, project and plant and machinery
financing products to mention but a few. Doing this at competitive prices with
conventional banking products and services has attracted a number of both Muslim and
non-Muslim clients which shows that the Islamic banking system is an effective
intermediation in the Malaysian financial system. It has also caused effect to non-bank
financial intermediaries like the development financial institutions, savings institutions and
housing credit institutions, to set up Islamic schemes and instruments to fit the demands of
their customers.
In 1996, the Central Bank of Malaysia published a financial statement model for banks and
institutions involved with the IBS. It required them to expose their Islamic banking
operations that is to say, balance sheet, and profit and loss account, as an additional item
under Notes to the Accounts. In 1997, the National the highest Syari‟ah authority on
Islamic banking and Takaful businesses organizations in Malaysia and the second Islamic
bank (Bank Muamalat Malaysia Berhad) was licensed in 1999.Not to forget the
introduction of Islamic debt securities in 1990 and Islamic inter-bank money market in
1994 relate institutions with Islamic investment instruments.

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1.2.4 Present Scenario
Currently, Malaysia has credit as the most successful country in enforcing a dual banking
system and the first to have a fully matured Islamic banking system operating parallel to
the conventional banking system. The system is currently composed of fifteen banking
institutions of which nine are domestic commercial banks, four are foreign commercial
banks, and the two are Islamic banks under IBS.
Islamic banking has progressively gained momentum in growth and development over
years. In terms of products and services, it offers over forty Islamic financial products in
all its branches all over the country. Since 2000, the industry has recorded a firm expansion
in terms of assets at a 19 per cent rate annually. There was an increase in market share of
Islamic deposits, and financing to 11.2 per cent and 11.3 per cent of the total deposits and
financing respectively in the banking sector and a 94.6 billion ringgit Malaysia increase in
total assets by the end of 2004. Domestic Islamic banking emphasized by substantial
development, growth, and expansion of Islamic finance and banking has turned to be more
crucial than ever in meeting the ever-varying necessities of the novel economy.
Bank Negara Malaysia liberalized Islamic banking in 2003 to grant the establishment of
three fully-fledged foreign Islamic banks in Malaysia. It is now focusing on fortifying the
institutional and legal infrastructure, intensifying the regulatory framework, strengthening
the Syari‟ah as well as enhancing rational capital growth and consumer education as the
2004 Islamic financial policy continues to the direction towards strengthening the
fundamental requirements for a more progressive Islamic banking industry.

1.3 Characteristics of Islamic banking and its products and services
Islamic banking unlike conventional banking is operating according to the Quran and the
Syari‟ah law of Islam. One of the uncluttered deviations between the two banking systems
is that transactions in Islamic banking is mostly established on the exchange or buying and
selling of contracts as expressed in verse 2:275 of the Quran. (“Trade is like usury.” but
God hath permitted trade and forbidden usury).This saying has resulted to asset backed
17

financing, which is one of the very significant features in Islamic finance. It directs the
importance of fundamental assets in the contract.
Financing underlying or fundamental assets in Islamic banking ensures that the customer
purchases only commodities permitted under the Syari‟ah law. However, if at the time of
contract there are no underlying assets, financing is under the forward sale (Salam) and
manufacture (Istisna) contracts. Underlying assets in Islamic banking contracts like Ijarah
(leasing), and Murabahah (mark-up sale) must have value at the time of lease or sale and
the vender must have the goods at his physical possession.
In contrast with conventional banking, bankers in Islamic banking have more engagement
with the clients in the risk and trading activities affiliated with the clients‟ trade. They act
indirectly and directly as traders, contractors, producers, suppliers and sellers of real or
literal goods and services. They do this by going deep into risk factors like commodity
supply and producer performance risks under the Salam contract, risk of financing a
project under Istisna contract and risks under Murabahah and Ijarah contracts.
Islamic banking encourages the trade, exchange, and sale of real goods, commodities, and
assets hence enabling Islamic banks to infer profit from it and on the other hand, they
obtain forbidden interest, through lending money to conventional banks. It restricts
financing to useful/utile goods and services and constrain from financing morally
unacceptable products and services like casinos and pornography, tobacco and alcoholic
beverages regardless of whether the goods and services in a given country are legal or not.

1.4 Problem Statement
Islamic banking is among the most significant participants in Malaysia‟s service industry.
It is no longer an entity striving to fulfill religious Muslim community obligations only, but
more of a business entity aiming at gaining more customers while retaining the former
clients (Wilson, 1995).
18

A large percentage of non-Muslims do not understand or have knowledge about Islamic
banking and the products and services its avails to the public irrespective of religion. This
makes Islamic banking lack enough support from the non-Muslims in the country
regardless of the nationality of individuals living in Malaysia.
Previous studies on Islamic banking mostly focused service quality and customer
satisfaction ruling out the possible reasons or measures consumers consider satisfactory
when selecting which banking to deal with. Therefore, it is necessary for Islamic banks to
be aware of the factors their customers consider when selecting Islamic banking if they are
to secure the loyalty of their clients and acquire more clients.
There is not much research on the factors that influence the selection of Islamic banking
not only among to Muslims but also to non-Muslim living in Malaysia at the time and yet
involved in banking.
General knowledge about Islamic banking is not widely known as conventional banking
not only among the non-Muslims but also, a certain percentage among the Muslims, are
not well aware of Islamic banking, and what it offers in contrast to the other financial
system in the country.

1.5 Research Questions
1. What factors do customers consider when selecting Islamic banking over
conventional banking in Malaysia?
2. What ranking criterion influences the customers‟ decision on selection of Islamic
banking in Malaysia‟s dual-banking environment?
3. How much does the public know about Islamic banking?


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1.6 Research objectives
Past year studies have it that Islamic economics specifically (banking) has a renewed
interest over the past decades and is currently under strong competition. Nevertheless, it is
still satisfying its customers with interest free products and services. Therefore, the hope of
this study is;
1. To analyze what factors influence the selection of Islamic banking.
2. To find out how available or accessible Islamic banking are to its clients.
3. To find out the criteria for selecting Islamic banking.

1.7 Scope of Study
The study focuses on those in Malaysia who perform banking irrespective of their religion.
The study is to get views, perception, and opinions on people‟s preferences when it comes
to Islamic banking. This encompasses nationals and non-nationals, Muslims and non-
Muslims, students, employees, employers, and the retired aged between the age of <20 to
50+ years living in Malaysian community. Participants will fill up survey questionnaires to
collect data for the study, and then a data analysis will be conducted for research results.

1.8 Significance of study
Islamic banking products are facing a lot of competition from conventional banking
products and other financial institutions servicing the country financially in different ways.
However, for Islamic banking to stand out of all the competition it requires strong support
from the public, which is attainable if; customers are satisfied with the products and
services it provides and not to forget good and sufficient customer care services.
The research creates more awareness to the public especially to the non-Muslims about
Islamic banking and its products and services. Because according to past research studies,
small percentage of non-Muslims is aware of Islamic banking and its products and
20

services. In other words, it will create a clear vision of what Islamic banking is and how it
is beneficial to the public.
This study brings about an understanding to why customers select Islamic banking over
conventional banking leading to Islamic banking tremendous development in Malaysia. It
creates awareness to Islamic banks and bankers what factors to be conscious about to
elevate their performance leading to customer full satisfaction. In addition, banks would
get to know what criteria customers use when assessing which bank system to deal with.

1.9 Justification of study
Malaysia has the highest number of Islamic banks with many branches countrywide
compared to Islamic countries worldwide and successfully in running a dual banking
system. To achieve this success, timely improvements, and provision of more financial
products and services based on the shari‟ah law are exercised. Islamic banking is worth a
study because it has a high significant contribution towards the economic development of
the country.
This research is also a necessity because many banks not only Islamic banks are offering
Islamic banking products and services aside other banking products and services. I like to
create more awareness to the Islamic banks and know what influences customers to choose
one banking system over the other; in other words the criteria they use when selecting
products and services to deal with irrespective of religion. I would also like to know how
much the public knows about and perceives Islamic banking and its products and services.

1.10 Definition of Terms
a. Islamic banking (or participant banking): Is banking that is consistent with the
Shari‟ah law (principles of Islam) and practical application through the
development of Islamic Economics. Sharia prohibits the payment or taking of
interests or fees referred to as Riba or usury for money loans.
21

b. Factor influences: A factor is anything that contributes to an outcome or result of
action.
c. Customer preference: This is an individual‟s attitude towards a product or options
available noticeable when he or she grants favor or advantage to only one product
or option over the other after an evaluative thinking and judgment.


1.11 Organization of research
Chapter 1
This is the introduction part of the research study; it describes and outlines the project. It
gives a description of what the study is all about and puts the study in perspective. It
contains a general description of Islamic banking in the world and in Malaysia. It also
depicts the characteristics of Islamic banking and states the research problem, research
question and objectives, its significance, and the scope of the study. It includes the research
term definitions and research structure.
Chapter 2
This is the critical part of research. The chapter is about the literature of study, which
includes study review (prior research on Islamic banking products); it gives a greater and
broader view of what other researchers have found out about the Islamic banking. It is
about the previous research and investigations on the Islamic banking products and
services and their own views. It talks about a critical evaluation and discussion or Islamic
banking related research.
Chapter 3
This chapter talks about the research methodology. It demonstrates the conceptual
framework, hypothesis development, research approach and design, measurement, and data
collection method and techniques employed to acquire results to the research study.
22

Chapter 4
This is the research findings and discussion chapter, which comprises of descriptive
analysis, reliability analysis, hypothesis testing, and then the general discussion of the
research findings.
Chapter 5
Chapter 5 contains the conclusion of research. The conclusion includes the research
findings, knowledge implications, managerial implications, and discussion of research
objectives. It also comprises of the limitations of the research and recommendation for
future research studies.

1.12 Conclusion
In conclusion, therefore, this chapter introduces the research topic in sub sections stating
the objectives, research questions, the scope, significance, justification, and problem
statement of the study, which tell the reader the about research. However, before that, it
gives a historical background about the theme, there by rendering a clear understanding to
the reader. This chapter in summary contains primary information to the general research
study.





23

CHAPTER 2: LITERATURE REVIEW


2.1 Introduction
There is number of studies that have been taken under Islamic banking like customer
satisfaction towards Islamic banking, customer behavioral study by Chiang Lin Pin (2009),
customer attitude towards Islamic banking and many others. This chapter reveals what
other researchers found out when conducting related research. In this case, prior research
on Islamic banking principles, Islamic banking products and services and the banking
selection criteria are discussed.

2.2 Principles of Islamic banking
As mentioned earlier, Islamic banking is a form of modern banking established on the
syari‟ahconcepts with risk-sharing as its primary method, and excluding financing based
on a fixed, pre-determined return (Schaik, 2001). It aims atcreating a literally moral and
justpartitioning in resources and social comeliness among all Muslim communities
compared to the western conventional/financial banking system based capitalistic
characteristics of the economic and financial processes (Iqbal, 1997). The principles
governing the Islamic banks operations come from sources of the Holy Quran, Sunna,
Hadith, Ijtihad, Ijma, andQiyas(Worthington &Gait, 2007).The principles that must be
followed in Islamic banking are as discussed below in the following paragraphs. All
activities in Islamic banking should in accordance to the Islamic principles as explained
below:

1) Prohibition of Riba;Riba, is an Arabic word used to mean increase, addition,
growth or expansion. It is any predetermined payment or interestabove the actual
principle amount strongly forbidden by the Sunnah and the Quran. Karsten (1982)
justifies that Riba is prohibited because it encouragesaccumulation of wealth
among few hands or people, which lowers theconcern of human beings towards
fellow men. In addition to that, Islam proscribes gain from financial activities
24

unless the beneficiary stands the risk of possible loss. Islam appreciateshard work
and physical activities for wealth gains but regards richesthrough usuryor interest
as selfish.

2) Prohibition of Gharar;Gharar is an Islamic financial term whichrefers to risky,
hazardous sale with or uncertain details. It is seen as a misleading actdue to lack of
knowledge or unlikelihood of delivery with a prospective of causing damage or
harm. Metwally (2006) supports it that Gharar are speculative transactions which
are harmful to society.In Islamic banking contracts, all participating parties must
have perfect and complete knowledge about values meant to be exchanged in the
transaction. In addition, contract terms should be clearly defined, and
understandable. The principle is mainly safeguarding the weak from exploitation by
the superiors through derivatives and gambling.

3) Prohibition of Maysir;Maysir (gambling) and Gharar are reciprocally connected
as stated by Islamic scholars. Reason being that where the elements of Gharar are,
Maysirelements normally present. Maysir is seen in an insurance contract where
the policy bearer contributes a small premium amount expecting a larger
gain.Ebrahim& Tan (2001) argue that Maysir implicates speculative elements in a
contract if the expected gains are unclearly/poorly stated at the initiation or start of
the contract. Maysir is forbidden because gambling and game of change can lead to
greater social and financial problems as stated by Iqbaland Molyneux (2005) and
additionally, they do not add any surplus or contribute to the social wealth.

4) The principle of profit and loss sharing (PLS);PLS is an Islamic finance method
used to abide with the forbiddanceRiba. It is a contractual arrangement between
two or more transacting parties which allows them to pool their resources to invest
in a project (Schaik, 2001). The principle suggests equal sharing of profits, risks,
and lossesamong the parties involved in the contract.Furthermore,it involves three
parties that is to say; - the entrepreneur (the actual capital user), the bank (the
25

financial inter-mediator), and the depositors (capital suppliers).PLS results to a
more efficient and better distribution of capital since capital return and allocation
are based more on project growth, development and productivity according to Khan
(1986).In addition,all kinds of transactions under Islamic banks should be
performed on the basis of Halal; that is to say legalactivities only.

2.3 Products and services under Islamic banking
In general, products offered by Islamic banks are constituted throughthe application of the
Muamalat principles, like Istisna, Mudarabah, Murabaha, Musyraka among others.Islamic
banks in Malaysia offer over 40 financial products. A bank will offer Islamic financial
products and services only if it has been granted license by Bank Negara Malaysia (BNM).
As stated by Zakaria bin Baharin her article “The Changes of Product Structure in Islamic
Banking”financial products in Malaysia were introduced in phases. The earliest phase was
in1983, where Wadiah saving account, Wadiah current account, Mudharabah investment
account andBai‟ BathaminAjil housing financing where implemented. Thesecond phase
happened in 1993, where Murabahah working capital finance, interbank Islamic Money
Market, andsecuritization of assets were added. In 1999,more products likecredit card,
Islamic high-purchase (al-IjarahThumma al-Bai), and Ijarah fixed financing were
introduced and in phase four ,which is the current one,Musyarakah&Musyarakah
financing, Mudharabahfinancing, structured deposit and derivatives and hedging products
are the recent products. Some of these products are explained in the following paragraphs.

2.3.1 Musharakah
Musharakah is an Arabic word which linguistically means to share or to merge. In respect
to Islamic finance, it represents the comingling of money, work efforts or obligations of
two or more parties in order to earn yield, or profit and more importantly sharing losses
that are incurred proportionately according to their ownership (Rosly, 2005). This is how it
works.
26

When two investors decide/agree to enter a Musharakah business venture, both parties
agree to contribute a specified amount of capital or other assets in kind towards the
venture. Subsequently, if the venture is successful and generates profits, these will be
shared amongst the two investors according to the pre-agreed ratio.

Fig.1: Illustration of how Musharakah works



















Adapted from;Concepts of MusharakahMudarabah in Banking



It is important to note that there are specific rules govern Musharakah agreement that must
be adhered to if the agreement is to be considered valid. These can be classified under
capital, management, profit and loss, settlement, and security.
The capital that can be used to invest in a Musharakah must be in liquid form or goods in
kind like providing inventory to a venture. The capital must be specified and quantified
regardless of the form(Obaidullah, 2005). In case of cash or receivables, these should
naturally be straight forward. If fixed assets are involved, they should mutually be agreed
upon by all the parties prior to commencing the venture.
PROVIDE CAPITALPROVIDECAPITAL

ISLAMIC BANKKING
INSTITUTIONS
PARTNERS/CUSTOMERS
SPECIFIC INVESTMENT/PROJECT
FINANCING AGREEMENT
27

With management, every partner is entitled to take part. However, the partners can agree
that the management can be carried out by only one or more of them in their capacities as
managing partners. In this case, those who decide not to work for the management are
silent partners(Iqbal, 2005).
When it comes to profit and loss sharing, partners agree amongst each other the precise
sharing ration before agreement commences(Obaidullah, 2005). The ratio is depends on
the actual profit accrued to the venture and not the actual amount invested but those remain
silent partners cannot receive a share of profit more than their ratio of their investment.
Profit shares can be fixed or variable.
In summary, loss is distributed according to the ratio of investment while profits are shared
according to the agreement between partners. When it comes to settlement, all partners are
entitled to terminate the contract only with prior notice and when the conditions are met.


2.3.2 Mudarabah
Mudarabah is a partnership agreement where one or more parties invest all the capital
while the other is responsible for management of the business on a day to day basis.
The one who provides the capital is referred to as “Rabb-ul-Maal” which literally means
owner of capital while the recipient of the funds is called “Mudarib” or entrepreneur.
Mudarabah is of two types according to (Siddiqi, 1983). Restricted Mudarabah where the
Rabb-ul-Maal may specify a particular business to invest or place for the business to take
place and Unrestricted Mudarabah where the Rabb-ul-Maal gives the Mudarib full freedom
to undertake any business they deem appropriate in order to maximize profits. This is how
it works.
When the Rabb-ul-Maal (investor) and the Mudarib (entrepreneur) agree to enter into a
Mudarabah business venture, the investor will inject all the capital investment required
while the entrepreneur is responsible for providing management and expertise
28

(NikNorzulet al, 2003). Subsequently if the venture is successful, and generates profits,
these will then be shared as agreed at the outset of the business.
Fig.2: Illustration of how Mudarabah works



Adapted from; e-financial portal




Many of the rules associated with Mudarabah are similar to those of the Musyarakah
as mentioned. However,Mudarabah has specific rules relating to how the parties can
be remunerated and how any subsequent profits can be shared(Rosly, 2005). Firstly
all the parties must have a mutual agreement on the proportion of the actual profit to
which each one of them is entitled to on the outset of the venture. Secondly, bonus
inform of incentives may be given to the Mudarib to encourage positive behavior like
achieving targets or meeting predefined performance criteria. Most importantly, the
Mudarib cannot claim any periodic salary, fee, or payment for the workdone for the
Mudarabah apart from the agreed profit gains agreed. Although there are many
similarities between Mudarabah and Musharakah, the following table outlines the
some of the fundamental differences between the two.
29

Table 2.1: Differences between Musharakah and Mudarabah financial products
Musharakah Mudarabah
Investment All partners are required to
invest
Investment is a sole responsibility of
the Rabb-ul-Maal
Management All partners can participate
in the management of the
business
The Rabb-ul-Maal has no right to
participate in the management which
is the sole responsibility of the
Mudarib
Liability The liability of all partners
is normally unlimited. If
the liabilities of a business
venture exceed its assets
and the business goes into
liquidation, the difference
will be borne by all the
partners.
The Rbb-ul-Maal is liable to the
extent of their investment unless
they have permitted the Mudarib to
incur debt on their behalf. Generally,
the Rabb-ul-Maalincurs all financial
losses associated with the venture
while the Mudarib losses all the
invested effort.
Capital
appreciation
As soon as the agreement
is entered into all assets of
the venture become jointly
owned. As a result, all
partners can benefit from
the appreciation of the
value of the investment
even if no profits have yet
been generated.
The capital earned goods purchased
by the Mudarib are exclusively
owned by the Rabb-ul-Maal.
Therefore, any appreciation from the
value of these assets will be a tribute
to the Rabb-ulMaal.



2.3.3 Murabaha
Murabaha is a particular kind of sale where the seller expressly discloses their own cost in
acquiring the goods being sold when selling to another person. An agreed profit cost mark-
up is added to this cost by the seller. The subject for the sale must be available at the time
of sale and in addition it must have some intrinsic value, Munawar. (2007). Transparency
30

is vital and so not only should the price be certain, but goods purchased by the seller must
be acquired by valid contract with the dealer disclosing any defects or faults of the goods.
Any sale must be instant and absolute and involve the full transfer of all legal rights and
responsibilities associated with the subject matter of the sale (Haron and Hock 2007). If
any of the above options are not met, the buyer has the option to proceed, cancel the
contract, or take legal records against the seller for any discrepancy. This is how it works.
The Islamic bank purchases the commodity from a supplier in return for an agreed price
(the purchase price). Once the bank is in possession of the commodity, the bank will
proceed to sell the commodity to the customer for a pre-determined price (the sell price),
comprising of the original purchase price and an agreed profit mark-up (Khan, 1995). The
bank and the customer will often agree to defer the payment of the sale price either to be
paid in installments or at a fixed point in future. When the sale is concluded, the ownership
as well as the risk transfers to the customer even if the sale is transacted on the installment
basis.























31

Fig.3: Illustration of how Murabaha works



Adopted from;Status and implications of promise (wa'd) in contemporary Islamic banking

A purchase order Murabaha is a sale where one party will request another to buy an asset
or some goods on their behalf and then sell it to them directly. Almost all Murabaha‟s by
Islamic banks are conducted in this way to lessen the banks liability to commercial risks in
buying and selling goods. This is done through three stages as stated by(Ahmed, 1989;
Khan, 1992). (1) An Islamic ban will consider a customer request for purchase a
product/asset from a customer who is seeking finance. (2) The bank then purchases the
asset from a vendor via a sell contract. (3) The bank then offers to sell the product to the
customer. If the bank is comfortable with the contract, a will agreement then be signed
where by the customer promises to buy that asset from the bank. If the customer is unable
to purchase the product, this can be settled through Hamish -Jiddiyyah used to pay for
actual damage of the agreement and Urboun which is a non-recourse deposit paid after sale
prior to consideration payment and it is taken in full whether less or more damages are
made before the contract is concluded. However, it should be noted that both the payments
are part of the purchase price if the contract is concluded.

32

2.3.4 Ijarah
Ijarah is an Islamic leasing contract representing one of the Islamic commonly practiced
financing. It is popular and an easily understood concept relatively straight forward to
implement. It is a legal binding contract where the owner of a product or asset with
intrinsic value transfers its legal rights to a third party for a predefined period in exchange
for an agreed consideration. Essentially, there are two kinds of Ijarah, mentioned by
(Ismail et al,1998). (1) Ijarahtul-amal- contracts related to how an individual will provide
their skills and services and its equivalent to employment contracts and (2) Ijarahtul-ain-
contracts which relate to the transfer of usufruct of an asset in exchange for an agreed
rental. This is how it works.
An Islamic bank enters into an agreement with a supplier to purchase a good that its
customer requires finance for. In return the bank will pay the supplier the purchase price.
The bank will consequently enter into an Ijarah agreement with its customer who is in need
of the asset ant then transfers its usufruct to him. In return the customer will agree to pay
the bank periodic rental payments.
According to (Gambling et al, 1991), in Islamic law, there are conditions that should be
considered if the sale is to be valid. Firstly, the item to be purchased should be available at
the time of sale. Secondly, the seller should have owner ship of the commodity at the time
of sale meaning that forward sales are not accepted. Thirdly, the item to be purchased
should be either under either physical or constructive possession of the seller, prior to the
sale taking place. These are general rules, but there are two exceptions; Salam and Istisna.

2.3.5 Bai’salam
Salam is an Islamic mode of financing used by Islamic banks to finance forward sales and
is particularly relevant for the agricultural sector. It is where the seller supplies specific
goods to the buyer to be delivered at a specific date in exchange for immediate payment.
33

Bai‟salam is permitted in order to fulfill the basic need of the seller for financing. For
example meeting the needs of farmers who require funds to cover their crops and cover
their living costs until the time of harvest and also the needs of the importers and exporters.
According to (Nasir, M. et al, 2008), the seller receives the payment in advance thereby
meeting the need for finance and also the buyer may enjoy a lower purchase price since
payment is made in advance. Therefore it is beneficial to both the seller and the buyer.
However, Salam is subject to restrictions under payment, subject matter, delivery and
guarantee.
Under payment, the buyer has to pay full payment to the seller at the time of effecting the
contract but the payment may be delayed for a maximum of three days and the payment
method must be defined (cash or fungible assets). Under subject matter, only goods with
quality and quantity that is specifiable can be sold (Rosley, 2005). Besides that details
related to the goods must be expressly specified and the quantity of the commodity to be
supplied must be agreed upon in absolute terms and freely available on the date of
delivery. The exact date of delivery must be specified and at the time of delivery, the seller
must deliver the predefined commodities to the buyer who must be able to take delivery
(Obaidullah, 2005). Furthermore, a security in form of mortgage or guarantee may be
requested to ensure that the seller makes delivery.

2.3.6 Istisna
Istisna, is a sale transaction where the commodity is transacted before it comes into
existence. In other words, it is an order to a manufacturer to manufacture a certain specific
asset or product for the purchaser or buyer (Wardi, 2000). For example a contract to build a
specific building. In Istisna, the price must be fixed with the mutual concept of all parties
involved and in addition all specifications to the asset to be delivered must be fully defined
to avoid ambiguity (Wardi, 2000). Istina may be deployed in house financing, government
projects, and build-operate transfer agreement.
34

Given the nature of both the Istisna and salam contracts, there are similarities between the
two. However, the table below will help demonstrate some of the differences that exist.

Table 2.2: Differences between Istisna and Salam financial products
Istisna Salam
Subject Always based on something
that is to be manufactured.
Based on anything but must
meet the specific
requirements of Salam and
need not to be manufactured.
Price Similar to Salam, the price need
to be fixed but need not to be
paid in advance. payment can
be made in installments with a
mutual agreement of all parties
Price must be paid in full in
advance.
Delivery The time of delivery does not
have to be fixed. However the
purchaser may fix a maximum
time for delivery.
The time of delivery is a
crucial part in the contract.
Cancellati
on
The contract can be unilaterally
cancelled before the
manufacturer commences work.
The contract cannot be
unilaterally cancelled.



2.3.7 Sukuk
Sukuk is an Arabic term for financial certificates and can be regarded Islamic equivalent to
conventional bonds as it seeks to generate predictable return to the certificate holder.
Sukuk is the issuance of papers representing commodities in lure of salary payments
presenting undivided shares in ownership of tangible assets, usufruct of an asset and
35

particular projects or special investment activities.(Ahmad et al,1987), mentioned that
Sukuk is beneficial to Islamic financial institutions as it is used for liquidity management,
fundraising, securitization and balance sheet management and to investors as well because
it awards them the ability to invest in shariah compliant asset class which lowers the level
of risk and a higher rate of return, tradability since they can easily be liquidated. The tables
below show a few of Islamic product products and services and performance respectively.
Table 2.3 shows the type of financing, products and services offered and the concept
applied when providing the products and services though not all the products and services
are exhausted.
Table 2.3: Range of Islamic Banking Products and Services
category Product/services Concept
Deposit
Savings account-i and current
account-i
Wadiah/mudarabah
general, special and specific
investment account-i
mudarabah
Retail
financing
House, project and land
financing
Bai' BithamanAjil
Personal financing
Bai' BithamanAjil/Bai' al-
Inah/Murabahah
Unit trust financing Mudharabah / Musyarakah
Card services
Charge cards-I QardulHasan
Credit cards-i Bai' al-Inah
Trade finance
Accepted bills-i Murabahah
Bank guarantee Kefalah
Letter of credit
Wakalah/murabahah/musharaka
h
Money
market
Bank nagara negotiable notes Bai' al-Inah
Commercial papers Murabahah
36

Bai' al-Inah

Stock broking , transfer funds,
travelers cheque, demand
drafts, ATM services, cahiers
order and tele banking

Banking
services
Ujr



Table 2.4 show the performance of Islamic banking products and services between the
years 2006-2009.

Table 2.4: Performance of Islamic financial products and services between
2006 – 2009
Finance/year 2006 2007 2008 2009
BaiBithaminAjil 29,845.00 31,630.30 34,533.00 35,738.10
Ijarah 762.9 1,153.50 2,774.10 2,973.10
IjarahThumma al-Bai 21,470.00 25,806.10 31,847.20 33.697.1
Murabahah 5,300.00 9,691.70 15,854.80 18,583.50
Mudharabah 156.8 374.4 1,137.10 1,333.20
Musyarakah 147.9 105.8 314 389.3
Istis'na 509 804.1 1384.2 1,477.30
Other financing 15,958 15,818.00 16,802.40 13,836.70
Total 73,368.10 85,957.80 104,647.60 108,030.30

Source; Bank Negara Malaysia Monthly Statistics


From the table above, we can see that the total use of Islamic banking products by
customers keeps raising from78.2% to 84.2% in 2006 and 2009 respectively with total debt
financing like Mudarabah and Bai‟BithaminAjil contributing a highly to the total growth
of the products.

37

2.4 Variables

Consumer Awareness
Consumer Convenience
Consumer Attitude consumer selection
Social and Religious perspective and preference
Consumer Confidence


In this research, the independent variables that lead to the selection and preference of
Islamic banking are; consumer awareness, consumer convenience, consumer attitude,
consumer confidence in the bank and the social and religious perspective that the
consumers have to wards Islamic banking.

Awareness is a motivator to the selection of anything in that unless someone is aware of its
existence he/ she will not have any idea about it. Awareness among consumers has been
conducted by many researchers like (Sathye, 1999; Suganthi et al., 1999; Yusof, 1999; and
Gerad et al., 2003), especially in the fields of on-line banking, and internet-banking and
was found to be key variable. However, few studies are about awareness in Islamic
banking. In addition, a study by Haron (1994), on awareness of Islamic banking found that
100 percent of Muslims aware of the Islamic banking but very few now about the products
and services offered. Nevertheless, Rogers (2003), also confirms that awareness is a key
variable when he said that consumers go through a process of knowledge, persuasion,
decision and confirmation before they are ready to adopt a product or service.


When customers get aware of Islamic banking, they are curious of the how much
satisfaction they can gain from adopting their decision. Customer satisfaction is frequently
contingent upon the quality of product or service offered said Osman, 2009. He added that
even if service quality and satisfaction are not equivalent, customer satisfaction is
described as an antecedent of service quality. A number of initial studies described thefive
dimensions of service quality, namely; reliability, tangibles, responsiveness, assurance and
38

empathy. It was found that reliability is primarily concerned with the result of service
while tangibles, responsiveness, assurance and empathy are pertained with the service
availability and the delivery process. Delivering quality service means adhering or
adjusting to customers‟ prospects and expectations consistently.


Culture is a very strong force which determines personality, and successfully a key
determinant in directing the behavior of the consumer (Mooji, 2004). Social and religious
perspectives of consumers towards Islamic banking to a certain percentage, is due to the
culture of islam. Mooji and Hofstede (2002), Bristow and Asquitch (1999), Chudry and
Pallister (2002), Gurhan-Canli and Maheshwaran (2000), in their studies prove that
consumers from different cultural and religious backgrounds show substantial differences
in the selection and use of Islamic banking and its related products. In addition to that, it
also helps create confidence among the consumers, when for trying out the product and
making the decision to adopt and use Islamic banking. (Siguaw and Simpson 1997) also
state that religion serves as a frame of reference in making choices of personal
consumption.

2.5 Factors and selection criteria of Islamic banking

Typically, customers or clients use not only one process of evaluating products or services
which contribute to their final choices of selection and preferences of a specific product
and service and preferred supplier or provider.Zeithalm et al. (1993) grouped them
intothree classes of quality features. Firstly,features that customers can see and touch,
secondly, thoseduring or after consumption (experience qualities) and features that users
find hard to measure after purchasing and consuming (credence qualities) like educational,
medical and financial services. Owusu-Frimpong et al. (1999) argues that medical services
are highly experiential and credential and therefore customers will tangible cues like
people, place, and symbols for quality evidence to reduce risk and uncertainty (Morley,
2004).Kotler and Keller (2006) found that customers are not getting any easier to please
39

andthey pose more challenge when it comes to their demands because they are smarter,
demand more and conscious to price.Therefore, to retain customers and win their
loyaltymeans that those customers should have a continuous purchase pattern and a
proportional attitude (Griffin and Johnson, 2000). In addition, Reichheld and Sasser,(1990)
confirmed that customer loyalty is the principal objective or concern for most
organizationsin the world today.

Recently, a number of financial institutions are raising their chances to satisfy and retain
their customers by improving the quality of products and services they provide to their
clients. Liang and Wang, (2004) in their study revealed that long term customers are more
profiting compared to short term clients because they become established and of more
account to the bank the fact that the customers are able to retain their accounts with the
bank for more than two years.

In spite of the fact that Islamic banks are a true reflection of Islamic-
compatibleconceptualization, that the customers themselves respect and believe in, past
empirical reports discovered that religion is not the sole factor for choosing Islamic
banking institutions, products or services. Many of the studies Islamic banking identify
different factors like cost and benefits, service delivery, size and reputation, convenience,
and friendliness of bank personnel and many others as more important factors for
customers in selecting Islamic banking. Eroletal‟sresearch studyin 1990 also reveals that
religion isnot the main factor motivating Muslims to selectIslamic banks for securing their
funds. His findings also show that bank customers did not find anydifference between the
services provided by Islamic and conventional banks,because they see one(Islamic
banking) being a duplication of the other(conventional banking).

Kaynak and Whiteley, (1999) Convenience was foundas the principal motivation for
customers in selecting a specific institution. This meant a larger branch network, closer
bank branch location for easy and quicker access, and convenient ATM operation hours as
confirmed by Haron(1994). These contributed highly to a customer‟s choice of preference
40

and definitely selection. A study by Riggall (1980) found that convenience of location is
the most influential factor for bank selection or switching of banks.(Mokhlis,
Hazimah.,&Salleh, 2008).

Customer satisfaction begins with clear, operational definitions from both the customer
and the organization. (Haque.K, Zaki, & Osman, 2009). Therefore, realizing the needs,
anticipations, and hopes both sides creates a basis on how to offer the best services to
customers thereby creating opportunities for betterment. Osman et.al. 2009 stated that in
order to know about customer satisfaction, one needs to know what to look for.By this he
meant that institutions need to look both within and without for information. A study
conducted in Jordan on Islamic banking to analyze customer satisfaction & perception
found that a number of respondents were unsatisfied with a few Islamic banking services.
The research also showed that many of them were aware of the products and services
provided like Mudarabah and Musyarakah by Islamic banks but barely had anything to do
with them.Naser, Jamal and Al-Khatib (1999) in their study suggested that Islamic banks
should not ignore cultural differences. These should be at the forefront in adopting service
quality and also recommended CARTER as a measurement model for SQ as it is based on
34items.

A study byGerrard and Cunningham (1997) conducted in Singapore attempted to establish
a ranking for bank selection between Muslims and non-muslims.22 selection criteria‟s
were stated in the questionnaire. At the end of the study, the researchersfound that
provision of fast and efficient services, confidentiality in the bank and confidence its
management were the most important and valued features towards the selection of banking
services for the Muslims yet the non-Muslims mostly considered fast and efficient
services, and higher interest payment on savings also supported byKhazeh and Decker
(1992). This revealed that Muslims places relatively low interest toward interest payment
for savings which the non-Muslims had more importance. The study also showed that most
Muslims in banking were influenced by the third parties.
41

That are to say; family friends and relatives which is another factor which also lead to the
choice that a customer makes in banking. (Wangenheim and Bayon, 2004); Grace and
O‟Cass, (2003), and (Razzouk et al., 2004; Ettenson and Turner, 1997) also made
investigations on the influence by friends and family. They confirmed that it contributes to
the attitude consumers have towards the selecting certain products and services. In
addition, convenience and parental influence were found the most important factors
molding the selection behavior of British students in a dissertation by Gray (1977).

Nor AzurahMd.Kmadari, Remali Yusuf andShaherah Abdul Malik (2007) examined the
Islamic banking criteria between Bank Islam Malaysia Berhard and conventional bank
customers in Melaka town. The study composed of 300 respondents. In their selection
criteria they included; service quality, location of the banks, their image and reputation,
convenience and finally, confidentiality. They found that Islamic bank users have a
positive attitude towards the factors of selection but showed more importance to towards
reputation and image.

A study in Malaysia, conducted by Dusuki and Abdullah (2007) on why Malaysian
customers patronize Islamic banks, disclosed that customers highly consider
knowledgeable and competent personnel together with friendly and courteous values to be
the most important factors for patronizing Islamic banks. On the other hand, factors like
price of the product are considered less crucial for the selection. This is similar to the study
conducted by Abbas, Hamid, Joher, and Ismail (2003). The four researchers found that
staff factor is one of the most significant factors when in the bank selection criteria.
According to them, shortage of courtesy in the banks personnel and their incompetence
discourages customers from Islamic banking and therefore their diversion to conventional
banking. The table below shows banking selection criteria factors by a number of different
researchers who conducted similar studies on Islamic banking.





42

Table 2.5: Banking Selection Criteria

Literature A B C D E F G H I J
Naser, Jamal et al (1976) + + + + + + + + n/a n/a
Aven (1979) n/a n/a n/a n/a n/a + n/a n/a n/a +
Ringgal (1980) n/a n/a n/a n/a n/a n/a n/a n/a n/a +
Tan & Chua (1986) n/a n/a n/a n/a n/a n/a + n/a n/a n/a
Laroche et al (1986) n/a + n/a n/a + + n/a + n/a +
Kaynak (1986) n/a n/a + n/a n/a n/a n/a n/a n/a n/a
javalgi et al (1989) n/a + + + n/a n/a n/a n/a n/a +
Erol& El Bdour (1989) _ + + + + + + + - n/a
Haron, Ahmad et al (1994) _ + + + + + + + + n/a
Gerrard&
Cunningham(1997)
+ + + + + + + + + n/a
Metawa&Almossawi
(1998)
+ _ n/a n/a n/a + n/a + n/a n/a
Othman (2001) _ n/a n/a n/a n/a n/a n/a n/a _ n/a
Othman & Owen (2002) + + + + n/a + + n/a + n/a
Ahmad &Haron (2002) _ + + + + + n/a n/a n/a n/a
Abbas, Hamid et al (2007) + + + + + + + + n/a n/a
Nor Azurah et al (2007) n/a n/a + + n/a + + n/a n/a +

Source: Islamic banking users are hungry for service quality Nuradli Bin Mohd
(2003)
Notes: + indicates positive results; n/a indicates variables were not investigated and
– indicates negative result.
A: Religious factor D: Size and reputation G: Confidentiality
B: Cost and benefit E: Staff factorsI: Mass media advertising
C: Service quality F: Convenience J: Location
H: Friends and relative influence
43

CHAPTER 3: METHODOLOGY


3.1 Introduction
As mentioned earlier in this research, Malaysia records as a successful country in running a
dual banking system that is to say Islamic banking and conventional banking side by side.
It is also known that it has the highest number of Islamic banking institutions running
among all the countries offering Islamic banking. Dusuki and Abdullah (2007) stated that
Islamic finance is an important contributor to Malaysia‟s financial system and
development. However, many potential consumers are not aware or clear about Islamic
banking and its products and services and its difference from conventional banking
(Schmith, 2005) thus the objectives of this study.This chapter tends to cover the conceptual
framework, hypothesis of study, definition of variables, research approach, data source,
questionnaire design, the sampling method of used, data collection method and the tools
used or data collection techniques.

3.2 Conceptual Framework
A conceptual or theoretical framework is the research projects foundation (Sekaran,
2003).There are several reasons that influence the selection and preference of Islamic
banking. However this study will focus on examining the level of awareness towards
Islamic banking, consumer convenience towards Islamic banks, consumers attitude
towards Islamic banking, their religious perspective and the confidence
consumers/customers have towards the adoption and use if Islamic banking among
Malaysian people.
The figure below shows the research framework indicating the relationship between the
independent and dependent variables. Independent variables are those that stand on their
own and influence or are motivators towards ones decision like consumer awareness,
consumer convenience, consumer attitude,social and religious perspective and consumer
confidence for the case of this study. While dependent variables are those that depend on
44

different factors in order to exist. For this study, the dependent variable is Consumer
selection and preference of Islamic banking.



Fig.4: conceptual framework

Independent variables dependent variable






















3.3 Hypothesis of the study
Hypothesis development is necessary because it enables the researcher to know whether
the independent variables truly have a significant influence towards the dependent
variables and whether they are positively or negatively related. Furthermore, (Easton &
McColl, 1997) stated that hypothesis development is significant because establishes truth
to the already identified variables in the theoretical framework. (Trochim, 2006) adds that
it is a precise proclamation of prediction. Null hypothesis and Alternate hypothesis are
used in the development of hypotheses of study. In this study Null hypothesis represents a
Consumer Awareness
Consumer Convenience
Consumer Attitude
Social and Religious
perspective
Consumer Confidence
Consumer preference
And selection
45

positive relationship and the alternative represents a negative relationship between the
dependent and independent variables. The null hypotheses developed for this study are as
listed below.
H1;There is a significant relationship between consumer awareness and consumer
selection and preference of Islamic banking.
H2;There is a significant relationship between consumer convenience and
consumer selection and preference of Islamic banking.
H3;There is a significant relationship between consumer attitude and consumer
selection and preference of Islamic banking.
H4;There is a significant relationship between social and religious perspective and
consumer selection and preference of Islamic banking.
H5;There is a significant relationship between consumer confidence and consumer
selection and preference of Islamic banking.

3.4 Research approach
In order to establish and explain the nature of certain relationships or in order to investigate
the differences among groups or the independence of two or more factors in a situation,
hypothesis testing is used. Engagement in hypothesis testing was undertaken in order to
describe the variance in the dependent variable or to forecast outcomes. Hypothesis is used
because it allows the testing of the significance of a sample (Voelz, 2006).
For the purpose of the research, hypothesis testing was applied in order to determine
whether there is a relationship between the identified independent variables against the
dependent variable. The influence of the identified independent variables can be shown by
the use of hypothesis testing and the variations or the degree of influence may also be
found by using hypothesis testing. In respect to these qualities being satisfied, it is justified
46

to approach the research with this method to facilitate more analysis on the variables at
hand.

3.5 Sources of data
Sources of data for this research contain both primary and secondary data. Primary data is
where by data is collected to address the problem under study using surveys, observations,
experiments and simulation. It is a source for obtaining firsthand data in order to conduct
the research.For the case of this study, the primary data was collected from individual‟s
responses by randomly distributing questionnaires to different individuals. This data was
both qualitative and quantitative usually in nature.
Secondary information was obtained from preexisting sources. Like the internet, websites,
e-journals, books and published media even past research studies gathered. The benefits of
using secondary data are that background work has been already carried out, secondary
data have pre-established degree of validity and reliability which does not need to be re-
examined by researcher who is re-using previous data, the last benefits is that it can be
helpful in research design of subsequent primary research and provide baseline that can be
compared with primary data.


3.6 Data collection
The data required to carry out this study was collected using self-administered
questionnaires designed to achieve the objectives clearly outlined in chapter one. Survey
forms weredeveloped and distributed to random individuals aged <20-50+ irrespective of
status, religion and origin living in Malaysia. A total of 200 questionnaires were randomly
willing participants distributed to but 166 were valid for analysis. A few of survey forms
were posted online and some sent through mail to individuals especially those who were
not physically reachable to me.
47

3.7 Measurement
In carrying out this research, need to understand two methods in analyze the research,
quantitative research and qualitative research. Quantitative researchgenerates statistics
through the use of large-scale survey research, using methods such as questionnaires or
structured interviews. While qualitative research,itexplores attitudes, behavior and
experiences through such methods as interviews or focus groups.
Likert scale is a psychometric scale commonly used in questionnaires, and is the most
widely used scale in survey research, such that the term is often used interchangeably with
rating scale even though the two are not synonymous.The likert scale was applied to
establish to what degree the respondents agree or disagree in relation to the questions
made. The scale was best suited to determine the degree of knowledge on the subject
matter and to understand their behavior towards the issue outlined. The responses to the
questionnaire questions on the variables were entered on a five point Likert type scale as
follows: 1= strongly disagree, 2= Disagree, 3= Neutral, 4= Agree and 5= Strongly Agree
and to answer yes or no to certain specific questions.Furthermore, the survey questionnaire
included data on participant‟s profiles. This includes their gender, religion, age group,
income earned andeducation level.

3.8 Sampling method
The unrestricted (simple) random sampling will be used whereby each member of the
population has a known chance of being chosen as the units of study and this will be used
because it has the least form of bias while offering the greatest general ability (Trochim,
2006).

3.9 Unit of Analysis
Units of analysis may be described as the smallest units that are independent of each other
or it may be explained as the smallest units in which all the possible sets stand an equal
48

chance to be in the sample (Dallal, 2004). For this research, the participants are those who
are using and not using Islamic banking. The units were selected from different races in
order to provide more detail on the topic of research.

3.10 Data analysis
Data analysis is the approach to de-synthesize data, informational, and/or factual elements
in order to answer the research questions.(Mar Iman, 2009 viewed it as a method of putting
facts and figures together to solve the research question or breaking down the research
issues by utilizing controlled data and factual information. The basic objectives of data
analysis are to get are feel for the data, to test the goodness of the data, as well as testing
the developed hypothesis. To get the feel for the data, the central tendency and dispersion
were be measured through the mean, range, standard deviation, and the variance. These
measurements give an overview of how individuals responded to individual items in the
questionnaire and if the line items in a scale do not exhibit a good spread or range then it
would imply that there is low variability (Sekaran, 2003).
After checking the central tendencies and dispersion, frequency distributions are obtained
and were displayed in the form of histograms through the use of SPSS (Statistical Package
for Social Science). The reliability and validity of the measures were also conducted.
Reliability was explained as the consistency of measurement or the repeatability of one‟s
measurement. This measure is not measured but rather estimated and therefore reliability
measurements was undertaken to establish the consistency and stability of instruments and
units of measurement. On the other hand, validity was explained as “best available
approximation to the truth or falsity of a given inference, proposition or conclusion" (et al.
Cook and Campbell, 1979). The validity is necessary to highlight the different aspects of
the proposed treatment (solution) to the observed outcome of the study (Colosi, 1997). In
order to approach all the data analysis measures, Microsoft Excel, SPSS and other
analytical tools were used for analysis.
49

3.11 Summary
Researcher will use to take primary data and also secondary data for completed this
research. Researcher will spread around 150 questioners to public to get the result about
the selection and preferences of Islamic banking among people in Malaysia. The data will
be processed with SPSS program then laterit will be critically analyzed, described and
explained for easy understanding of research result by the readers.

3.12 Conclusion
In conclusion, this chapter talks about the research methodology. It demonstrates the
conceptual framework, hypothesis development, research approach and design,
measurement, and data collection method and techniques employed to acquire results to
the research study.










50

CHAPTER 4:RESULTS AND DISCUSSIONS

4.1 Introduction

This chapter focuses on the data analysis and the results that were obtained from the study.
It mainly revolves around the relationship between the dependable and independent
variables. The analysis was done using the Statistical Package for Social Science (SPSS)
data analysis software version 19.0 Questionnaires were distributed randomly individuals
to get their responses for further understanding of the factors that influence the selection
Islamic banking in Malaysia various methods analysis are were used such as the
descriptive for the demographic factors, reliability, normality, multiple regression,
correlation and the hypothesis to find out the relationship between variables.

4.2 Descriptive analysis on demographic profile

Customers profile was one of the sections that were included in the questionnaire and a
number of demographic factors like age, race, income, educational level, and occupation,
that were included the section in order to know some information about the respondents.
Descriptive analysis has been employed to carry out the data analysis on the respondent‟s
profile. The analysis includes descriptive frequencies and descriptive statistics which will
be show on bar graphs and tables.

4.2.1 Gender
The table (Table 4.1) below shows the frequency distribution of the males and females that
participated in the survey. We can see that there was not much difference between the
respondents meaning they were aware the existence of Islamic banking in Malaysia
thought there were more male than female respondents. These responses mean that, the
male and female respondent percentages were 57.2% and 42.8% respectively making a
difference 14.4% only. This distribution is also seen in a bar graph (Fig.5).
51

Table 4.1: Gender frequency distribution table

Frequency Percent Valid Percent Cumulative Percent
Valid male 95 57.2 57.2 57.2
female 71 42.8 42.8 100.0
Total 166 100.0 100.0

Fig.5: A bar graph showing the percentage distribution of respondent‟s Gender


4.2.2 Age
The respondents were asked to record their age groups and as a result, according to the
frequency distribution table two (Table 4.2), the highest number of respondents belonged
to the 20-29 age group making a 53.6%, followed by the 30-39 age group making 24.1%
and the least responses were from the 50+ making 4.2%. This is represented in a graph
form in Fig.2.

52

Table 4.2: Age frequency distribution table

Frequency Percent Valid Percent Cumulative Percent
Valid <20 10 6.0 6.0 6.0
20-29 89 53.6 53.6 59.6
30-39 40 24.1 24.1 83.7
40-49 20 12.0 12.0 95.8
50+ 7 4.2 4.2 100.0
Total 166 100.0 100.0

Fig.6 A bar graph showing the percentage distribution of respondent‟s Age


4.2.3 Race
Race included both the locals (Malay, Chinese and Indians) who made a total of 117
respondents and the internationals (other) who made a total of 49 respondents. The
Chinese emerged the highest respondents followed by the Malays while the Indians
53

emerged the least respondents. The percentages on the local respondents were 28.3%,
25.3% and 16.9% respectively, totaling to70.50%, while the others made 29.5% of the total
respondents as recorded in the frequency distribution table below and shown also in a
graph.
Table 4.3:Race frequency distribution table


Frequency Percent Valid Percent
Cumulative
Percent
Valid Malay 42 25.3 25.3 25.3
Chinese 47 28.3 28.3 53.6
Indian 28 16.9 16.9 70.5
Other 49 29.5 29.5 100.0
Total 166 100.0 100.0


Fig.7 A bar graph showing the percentage distribution of respondent‟s Race

54

4.2.4 Educational Level
A number of respondents reported to have completed or acquiring a degree level of
education. They made 61.4% of total respondents followed by 21.7% from Masters/PHD
level while high school level participants reported the least percentage (2.4%). Table 4.4
represents the respondent‟s frequency distribution while Fig.4 represents a graphic
percentage distribution.
Table 4.4: Educational level frequency distribution table
Educational level
Frequency Percent Valid Percent Cumulative Percent
Valid High school 4 2.4 2.4 2.4
Diploma 24 14.5 14.5 16.9
Degree 102 61.4 61.4 78.3
Masters/PHD 36 21.7 21.7 100.0
Total 166 100.0 100.0

Fig.8 A bar graph showing the percentage distribution of respondent‟s Educ. Level

55

4.2.5 Occupation
While 41.6% of the respondents were students, also reported the most respondents to the
survey, 14.5% were lecturers, 11.4% were businessmen whereas the rest (32.5%) belonged
to others who also emerged second in rank in response to the survey. This group (others)
included the self-employed, employed in either private/government sectors, working at
home or even retired individuals. The table below (Table 4.5) represents a frequency
distribution of the respondent‟s occupation and Fig.5 shows this distribution in a graphic
form.

Table 4.5:Occupation frequency distribution table

Frequency Percent Valid Percent Cumulative Percent
Valid Student 69 41.6 41.6 41.6
Lecturer 24 14.5 14.5 56.0
Businessman 19 11.4 11.4 67.5
Others 54 32.5 32.5 100.0
Total 166 100.0 100.0












56

Fig.9 A bar graph showing the percentage distribution of respondent‟s Occupation


4.2.6 Monthly Income
In relation the monthly income, the 30.7% of the respondents earned more than just 3000
Ringgit Malaysian and were also reported the highest number of respondents, followed by
those earning within 1000-2000 Ringgit Malaysian and 2000-3000 Ringgit Malaysian,
where by both groups had equal respondents making 22.3% while the least earners
(<RM1000) made 24.7%. Below is a frequency distribution table and graph of the
respondent‟s monthly income
Table 4.6 Monthly income frequency distribution table

Frequency Percent Valid Percent Cumulative Percent
Valid <RM1000 41 24.7 24.7 24.7
RM1000-2000 37 22.3 22.3 47.0
RM2000-3000 37 22.3 22.3 69.3
RM3000+ 51 30.7 30.7 100.0
Total 166 100.0 100.0
57

Fig.10 A bar graph showing the percentage distribution of respondent‟s Monthly Income


4.3 Reliability analysis
Reliability is important in any data analysis because in its absence, it‟s impossible to have
any validity associated with the scores of the scale (Hatcher, 1994). In this case, reliability
was measured using Cronbach‟s alpha because it is widely known and used in measuring
of internal consistency of scales. It is therefore defined as the estimate of the internal
consistence associated with the scores that can be derived from a scale. Below is a
reliability statistics of the study.

Table 4.7: Reliability Statistics
Cronbach's Alpha N of Items
.706 26

58

According to the above reliability statistics cronbach‟s alpha of all the 26 items is 0.706.
This indicates high acceptable level of internal consistency because a standard cronbach‟s
alpha measurement of 0.700 is considered least acceptable (Nunnally, 1978) and therefore
any lower than that is unreliable. This case, the analysis is proceeded because alpha is
>.700.

4.4 Normality test
A normality test is done in order to know if the data was normally distributed or not.
Normally distributed data is said to have a skewness and kurtosis value of less than +-1
(Dover, 1979). Table 4.8 shows normality test result of independent variables namely
Awareness (AW), Convenience (CV), Attitude (ATT), Social and religious perspective
(SR), and Confidence (CF).

Table 4.8: Normality Test

AW CV ATT SR CF
N Valid 166 166 166 166 166
Missing 0 0 0 0 0
Skewness -.173 -.469 -.085 .063 .149
Kurtosis -.016 .554 .910 .349 -.377

Skewness refers to where data lies that is, it is heavily weighted towards the right or the
left (high end of the scale or the low end of the scale) while kurtosis is the measure of how
flat of picked the distribution is. Looking at the results from the table we conclude that the
data is normally distributed because the skewness and kurtosis results are within +-1 and
therefore parametric measures will be employed in the measurement of hypothesis.

59

4.5 Correlation
Table 4.9 shows correlation results between the dependent variables and the independent
variables. The results show that all the correlation coefficients are very strong and
statistically significant between all the independent variables and the dependent variable.

Table 4.9: Correlations
PSF AW CV ATT SR CF
PSF Pearson Correlation 1 .742
**
.764
**
.772
**
.638
**
.793
**

Sig. (2-tailed) .000 .000 .000 .000 .000
N 166 166 166 166 166 166
AW Pearson Correlation .742
**
1 .493
**
.469
**
.362
**
.438
**

Sig. (2-tailed) .000 .000 .000 .000 .000
N 166 166 166 166 166 166
CV Pearson Correlation .764
**
.493
**
1 .598
**
.233
**
.534
**

Sig. (2-tailed) .000 .000 .000 .003 .000
N 166 166 166 166 166 166
ATT Pearson Correlation .772
**
.469
**
.598
**
1 .279
**
.549
**

Sig. (2-tailed) .000 .000 .000 .000 .000
N 166 166 166 166 166 166
SR Pearson Correlation .638
**
.362
**
.233
**
.279
**
1 .429
**

Sig. (2-tailed) .000 .000 .003 .000 .000
N 166 166 166 166 166 166
CF Pearson Correlation .793
**
.438
**
.534
**
.549
**
.429
**
1
Sig. (2-tailed) .000 .000 .000 .000 .000
N 166 166 166 166 166 166
**. Correlation is significant at the 0.01 level (2-tailed).


60

From the correlation table, the amount of confidence (CF) that the customers have towards
the bank is very strongly correlated with the preference and selection of Islamic banking
(PSF), followed by customers attitude (ATT) while social and religious perspective has the
lest correlation. The correlations are, 0.793,0.772 and 0.638 respectively.

4.6 Hypothesis testing
The hypotheses that were developed in chapter 3 were null hypotheses between the
variables which in this chapter are proven right or wrong. These hypotheses are as listed
below.
H1; There is a significant relationship between consumer awareness and consumer
selection and preference of Islamic banking.
H2; There is a significant relationship between consumer convenience and consumer
selection and preference of Islamic banking.
H3; There is a significant relationship between consumer attitude and consumer selection
and preference of Islamic banking.
H4; There is a significant relationship between social and religious perspective and
consumer selection and preference of Islamic banking.
H5; There is a significant relationship between consumer confidence and consumer
selection and preference of Islamic banking.

4.7 Multiple regressions
Multiple regression analysis is a statistical tool for understanding the relationship between
two or more variables (Daniel L. R, 2011). He further added that it typically uses a single
dependent variable and several explanatory variables to assess the statistical data pertinent
to these theories.

61

4.7.1 Model Summary
The model summary table assesses which of the independent variables predict the
occurrence of the dependent variables. In this case, Awareness (AW), Confidence (CV),
Attitude (ATT), Social and religious perspective (SR), Confidence (CF) and preference
and selection (PSF) respectively.


Table 4.10: Model Summary

Model R R Square
Adjusted R
Square
Std. Error of
the Estimate

1 .805
a
.649 .644 .453
a. Predictors: (Constant), ATT, AW

From table 4.10, R represents the multiple correlation coefficients and shows how two
variables move in relation to each other. We can see that the best predictors for the
preference and selection of Islamic banking are consumer Awareness (AW) and consumer
Attitude (ATT) with a value of 0.805. R square represents the coefficient of determination,
shows the proportion of variability that is explained by the independent variables and to
interpret the result obtained in the table, we say that 64.9% of the preference and selection
of Islamic banking is due to consumer awareness (AW) and consumer attitude (ATT). The
Adjusted R Square is a more reliable statistics because it takes into account the sample size
which gave 64.4%, not much a difference from R square.



62

4.7.2 ANOVA
Analysis of variance (ANOVA) is used to assess the overall statistical significance of the
model. Table 4.11 shows the ANOVA test results

Table 4.11: ANOVA
Model
Sum of
Squares df Mean Square F Sig.
1 Regression 61.818 2 30.909 150.410 .000
**

Residual 33.496 163 .205
Total 95.315 165
**. Correlation is significant at the 0.01 level (2-tailed).

a. Predictors: (Constant), ATT, AW
b. Dependent Variable: PSF

To interpret the ANOVA table, we say that R2= the R square value in the previous table
(Model Summary), F (the Regression degrees of freedom, the Residual degrees of
freedom) = the F value, p = the significance value (significant/Not significant). Therefore,
R2 = .649, F (2,163) =150.410, p = .000 (significant). In other words, p <0.05 meaning it is
statistically significant.

4.7.3 Analysis of Coefficients
The coefficients table assesses which predictor contributes greatest to the criteria (look for
the greatest beta value). Table 4.12 shows the analysis of Coefficients test results.





63

Table 4.12: Coefficients

Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig. B Std. Error Beta
1 (Constant) 1.047 .176 5.956 .000
ATT .556 .037 .720 15.133 .000
AW .196 .040 .236 4.956 .000
a. Dependent Variable: PSF

Looking at the beta column on the standardized Coefficients, Beta = beta value, t = t value,
p = (significant/ Not significant). Therefore, beta = .720, t = 15.133, p = .000 (significant).
This is similarly reported as p<0.05, meaning that it is statistically significant.


4.7.4 Hypothesis results
According to the correlation matrix that were conducted, we find the there is a strong
correlation between all the variable but after taking into account the multiple regression
tests, we found that only two variables greatly predicated the why customers chose Islamic
banking. These are awareness and attitude. Therefore in relation to the predicated null
hypothesis;

 We fail to reject H1, in agreement that there is a significant relationship between
consumer awareness (AW) and preference and selection of Islamic banking (PSF)
 We reject H2, in disagreement saying that there is no relationship between
consumer convenience (CV) and consumer selection and preference of Islamic
banking (PSF).
 We fail to reject H3, in agreement that there is a significant relationship between
consumer attitude (ATT) and consumer selection and preference of Islamic banking
(PSF).
64

 We reject H4, in disagreement saying that there is no relationship between social
and religious perspective (SR) and consumer selection and preference of Islamic
banking (PSF).
 We reject H5, in disagreement saying that there is no relationship between
consumer confidence (CF) and consumer selection and preference of Islamic
banking (PSF).
4.8 Selection criteria ranking
Table 4.13 is a statistical table showing the banking selection criteria factors, where
respondents were asked to rate which of them they consider more important and influential
towards decision their banking decision.




















65

Table 4.13 Ranking Statistics

N Minimum Maximum Mean Std. Deviation
Religious factor 166 1 5 3.07 1.194
Size and reputation/image
of the bank
166 1 5 3.75 1.105
Confidentiality of the bank 166 1 5 3.86 1.002
Cost and benefit 166 1 5 3.81 1.131
Staff factors like
friendliness of the
personnel
166 1 5 3.70 1.093
Mass media advertising 166 1 5 3.61 1.026
Quality of Services
provided
166 1 5 3.99 1.070
Convenient location 165 1 5 3.85 1.074
Sufficient branching
network
166 1 5 4.01 1.009
Friends and relative
influence or
recommendation
166 1 5 3.38 1.071
Valid N (listwise) 165

Looking at the mean section, the highest mean is 4.01 allocated to sufficient branching
network. This means that most of the respondent‟s prefer dealing with banks that have got
many branches and outlets for easy access at any time. This was followed by the quality of
service the banks provide (3.99) while the least factor was the religious factor (3.07). This
indicates that the majority respondents do not mind about what their religious beliefs when
it comes to where to bank. This also provides more proof that there is no relationship
between preference and selection of Islamic banking.
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4.9 Conclusion
The earlier chapters stated what I hoped to achieve and wanted to provide proof or
evidence to the relationship the selection and preference of Islamic banking and factors
that affect the process. This chapter analyzed the data that was collected for the study and
the results were interpreted in fulfillment what was written in these chapters like the
hypothesis, research questions and objectives. The next chapter will provide explain
further the impact of these results






















67

CHAPTER 5: CONCLUSION AND RECOMMENDATION

5.1 Introduction
This is the final phase of this research study and it includes the limitations to the stud y
and implications of the study. Then the conclusion to the study is made in conjunction with
the objectives, research questions and problem statement that were stated at the beginning
of the study in chapter.

5.2 Limitations to the study
This research was highly limited by the time frame of data collection. There was limited
time allocated to the collection of the study since some questionnaires were sent by email
and the responses were later after the analysis commenced.

To be highly considered also is the bias respondents had towards the topic. Some
respondent did not answer the questionnaire saying that they are not Muslims and besides
some complained that they the questions were many and therefore could not answer all the
required fields which made a few survey responses invalid for study. This could have
caused invalid results to the study.

In relation the number of respondents, most of the information (56.3%) came from students
who allegedly might not have sufficient information about Islamic banking but have may
be hard of it but may not knowledge of its operations. This limited more accurate
information that could have been obtained if the highest percentage of respondents was
from the working class individuals who may be having more knowledge about Islamic
banking.

Finally, this study was mainly investigate the relationship between the awareness, attitude,
confidence, social and religious, and convenience towards the preference and selection of
Islamic banking specifically in Malaysia. However, this study may have ruled out the
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relationship of certain very important factors like trust, quality of goods and service to
mention but a few. Nonetheless, this widely suggests additional studies to be carried out in
order to find other their impact on the selection and preference of Islamic banking.

5.3 implications of the study
Results obtained from the study have a practical implication the banks that are practicing
or carrying out Islamic banking. Since it was found that there is a relationship between
awareness and the preference and selection of Islamic banking, is it important that these
banking employ methods that will create significant awareness of Islamic banking in the
community. These may include road shows, promotions, career talk shows, providing
internships to students and other forms of advertising to create awareness especially among
the students because they are the future of the nation and therefore future to the better and
further development of Islamic banking. In the process, this will change the negative kind
of attitude that people have towards Islamic banking which the study also found to be
important towards the selection and preference of Islamic banking.

Furthermore, Islamic banks should increase the number of branches they have because the
respondents found a high branching network very important when choosing which bank to
deal with. They prefer a bank that has many branches which will be convenient for them to
perform transactions easily where they are without hustling around looking for the only
one branch existing in their area of residence. This will encourage and increase the number
of clients Islamic banks have there by leading to the more awareness, selection and
preference, growth and development of Islamic banking in Malaysia.

Now that we have awareness and the attitude, are the key factors to the selection of
isIslamic banking, it is important that Islamic banks consider how to retain their clients
while acquiring more and more clients this can be done creating confidence and making
sure that their customers find it very convenient being part of Islamic banking.


69

5.4 Recommendation for future research studies.
A research similar to this study should be carried out in order to assess further what factors
are contribute highly towards the preference and selection, growth and development of
Islamic banking in Malaysia and also to find out effective measures of creating awareness
and changing the negative attitude that some individual have towards Islamic banking.
However, time allocated to the collection of data should not be very limited in order to get
responses from a wider range of participants and if sent by mail, reminders should always
be sent to these individuals reminding them that their responses are very valuable to the
research study.

5.5 Conclusion

In relation to the research of objectives that were stated in chapter one, which included
analyzing what factors influence the selection of Islamic banking, finding out how
available or accessible Islamic banking is to its clients, and the criterion for selecting
Islamic banking, the analysis of collected data found that a number of people select Islamic
banking because of the level of awareness they have towards Islamic banking. So Islamic
banks should create more awareness towards the public letting them know what it is about,
what it provides, and how it operates compared to conventional banks.

In terms of banking selection criteria, most respondents preferred or rated sufficient
branching network as the most important to them. This means that if a bank has many
branches, there is a high possibility that this bank has many clients compared to a bank that
has very few outlets. Respondents rated the quality of services provided by the bank after
sufficient branching network.
From these results we can tell that the first thing that come to an individual‟s mind when
deciding which banking to deal with the bank network then he/she can consider the quality
of services the bank provides. In other words, a bank that is fully established and operating
efficiently has more advantage compare to one which is not. Therefore, in order to gain a
highly competitive advantage over conventional banks, Islamic banks have to put more
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emphasis on these two factors the confidentiality making sure that their clients information
is protected and free from hackers or public reach by unauthorized individuals which may
cause banking issues like hacking, identity theft cases among others.

In relation to the previous studies, my findings disagree with the findings by Ahasanul H,
Jamil O, and Ahmad Z. (2009), whereby they concluded that there is a relationship between
customers social and religious perspective and their perception about Islamic banking. Another
study by five authors,(Maran M, Chan W, Lim P.G, Low P.M, and Tan Y.P. 2010)
confirmed that there is a significant relationship between convenience and the selection of
banking which also seem s to be on the contrary to my results. Therefore I strongly urge
that more studies be conducted on the factors that influence the selection of Islamic
banking in order to overcome contradictory results or findings on the same research
studies.

In conclusion,according to my research findings, awareness towards Islamic banking in the
community has led to the selection of Islamic banking. Therefore, it is very important that
Islamic banks spend on research and development in order to further increase the level of
awareness. In addition, Islamic banking institutions should also put into consideration the
creation of more branches to eliminate shortage of branches so that their clients find it
convenient banking anywhere at any time thereby creating a greater competitive
advantage.








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