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People Perception Toward Islamic Banking: A Fieldwork Study on Bank

Account Holders’ Behavior in Afghanistan

Sediqullah Sherzad
Master’s in Business Administration (MBA-Finance)
Lecturer, Department of Business Administration,
Khana-e- Noor University
Kabul, Afghanistan.
Sadiq Khan
Master’s in Business Administration (MBA-Finance)
Lecturer, Department of Business Administration,
Khana-e- Noor University
Kabul, Afghanistan.

The main purpose of this paper is to find viewpoints of the people of Kabul city to review their
perceptions towards Islamic Banking. The work is divided into four sections, introduction,
literature review, analysis of data and conclusion of work, the paper presents primary data collected
by means of structured questionnaire involving a sample of 200 respondents. The concept of
Islamic banking is not new, Islamic banking is recognized in the financial market since 1975. The
well-established competitor of Islamic banking system is conventional banking system; Islamic
banking system was established in Afghanistan since 2007 and 2008. Now, the Islamic banking is
available to serve the customers but these products are not fully accepted by the customers due to
the lack of marketing efforts by the providers.

Financial intermediaries are insidious characteristic of all the world’s economies. It is the process
of channeling funds or financial resources from surplus units of the economy to deficit units of the
economy. Islamic banks, just like conventional banking are in the business of financial
intermediation for the purpose of profit. But Islamic banks based on Islamic sharia law in which
prohibits receiving and payment of interest but somewhat promoters banking on profit and loss
sharing. Also known as interest-free banking, Islamic Banking is not the only type of banking that
is based on profit and loss sharing or one that operates on interest free basis but it is the only one
that is most developed and has internationally accepted. Islamic Banking, which was started in
1975, is now having a significant share in the global financial market. At present there are more
than 250 financial institution operating in over 75 countries and the total worth of their assets is
more than US$ 3.2 trillion by 2020). The principal reason behind this success is stimulation of
fundamental Islamic values in all over the world during the past two decades. Muslims of the world
are estimated as much as 1.2 billion people, which are nearly 25% of the world’s total population.
The significance of this Muslim population as the target market of Islamic banks in Muslim
countries cannot be underestimated. Their continuous support is prelude to ensure the success of
this banking system. ( Mehboob ul Hassan,2007)

Literature Review:
The concept of Islamic banking has been defined quite clearly by very many scholars. However,
there seem to be no difference in overall meaning of the concept as portrayed by each one of them.
Rammal and Zurbruegg (2007) see Islamic Banking as a banking that is based on Islamic sharia
law. This explanation did not vary differently from that of Bello (2007) who convened that Islamic
banking is a system of banking activity which is consistent with the practices and principles of
Islamic sharia law and its application to the development of Islamic economics. Ahmed (2008)
posited that Islamic banks are financial institutions whose rules and procedures clearly state
commitment to principles governing Islamic sharia law which bans payment or receipt of interest
on its operations.
perception towards Islamic banking. For instance, Hassan (2007) studied customers’ perception
towards Islamic banking in Pakistan. His study examined several important dimensions including
knowledge, socio-religious context, Shari’ah compliances, willingness to deal with Islamic banks,
and quality and attractiveness of offerings. This study found a positive perception of all dimensions
investigated with customers indicating overall high satisfaction towards products and services of
Islamic banks as compared to conventional banks. Rashid, Hassan and Ahmad (2010) conducted
a study on perception of customers towards domestic Islamic banks in Bangladesh. They examined
six critical elements, namely corporate efficiency, compliance with Islamic rules, convenience,
core banking, confidence, and cost benefit. This study found that customers are highly satisfied
with corporate efficiency and compliance with Islamic rules as substantial factors for them to
choose their intended service. In the case of Malaysia, Dusuki and Abdullah (2006) studied several
critical reasons why Malaysian customers patronize Islamic banks and measured the elements of
reputation, service delivery, product price, and social responsibility of Islamic banks. The study
found that a combination of Islamic and financial reputation and service quality are the main
patronage factors. Specifically, among corporate customers, Ahmad and Harun (2002) conducted
a study to examine their perception towards Islamic banking in Malaysia. They examined factors
such as the usage of banking facilities, respondents’ understanding of Islamic banking concept and
practices, and personal opinions towards Islamic banking. They found that cost of the products
and services is the most important factor perceived by corporate customers in selecting their banks.
Similarly, Rustam et al. (2011) discussed three main parameters to determine the perception of
corporate customers towards Islamic banking in Pakistan. They examined factors such as the usage
of conventional and Islamic banking facilities, respondents’ understanding of Islamic banking
system, and their personal opinion on various aspects of Islamic banking products like economic
and religious view. They found that the Islamic banking industry has good potential within the
Pakistani corporate sector. Instead of the Islamic banks’ customers, few studies conducted to
determine perception of bankers and students towards Islamic banking. For example, a research
conducted by Zainol and Shaari (2008) on bankers’ perception towards Islamic banking in both
Islamic and conventional banks. In their study, they have included several critical factors, namely
Islamic products and services, the training and experience, and the potential of Islamic banking in
Malaysia. The result revealed that bankers in Islamic banks have more positive perceptions
towards Islamic banking as compared to bankers in conventional banks. Bley and Kuehn (2004)
focused on students’ knowledge and perception towards conventional and Islamic finance in
United Arab Emirates (UAE). This study investigated the elements of financial knowledge,
religion and language on self-reported attitudes and preferences for financial services and found
that students’ knowledge on conventional banking terms and concepts was higher than Islamic
banking terminology. However, students with higher academic achievement showed a better
response towards understanding Islamic banking concepts and practices.

Islamic Banking in Afghanistan

Islamic banking was introduced in Afghanistan between 2008 and 2009. The first draft banking
law was prepared by Da Afghanistan Bank (Central Bank of Afghanistan), Da Afghanistan Bank
established the Islamic banking section that operates under the technical support of the Shariah
Council consisted up of famous religious scholars from Afghanistan as well from some other
countries. The following list are banks that they are offering an Islamic banking though Islamic
 Bank Alfalah Limited
 Ghazanfa Bank
 Maiwand bank
 Afghan United Bank
 New Kabul Bank
 Bank e Millie
 Azizi Bank
 Afghanistan International Bank
Islamic banking has been offered in Afghanistan by a conventional bank through so-called
Islamic windows, but there have been no full-fledged Islamic banks, but now Afghanistan’s
central bank has granted a license to the Islamic Bank of Afghanistan (IBA), the first lender in
the country to apply the interest-free principles of Islamic finance in all its operations,
The IBA was previously known as Bakhtar Bank and operated under a conventional banking
license since it was acquired by Azizi Bank in 2009.

Objectives of the Study

The objectives of this study were as followings:
 To examine that how successfully the Islamic banking has developed in Afghanistan
 To evaluate the knowledge of peoples about Islamic Banking
 To know whether Islamic banking are working according to Sharia law.
 To analyze the decision making strategy of peoples for their financial matters
 To know the differences of customer dealings between Islamic Banks and conventional
Banks at different branches.
Research Methodology
This data was collected direct from the customer of the both kinds of banks. The primary data
collection applied obtaining the information from peoples through filling of questionnaires,
observation, and interview methods in Kabul province through direct proceedings and also Khana-
e- Noor University students and friends of researcher have also helped for this work.

Limitations of the Study

There were several following limitations of the application of this study;
 Limited time period and small sample size.
 Some respondents, who have limited knowledge of Islamic banking or no knowledge about
the financial modes of conventional and Islamic banking, also answered the questions;
hence the replies of some questions may be based on their own imagination or thoughts.

Analysis of the Responses

The data collected is summarized according to the numerical order of the questionnaire and
analyzed according to the importance and need of the study. Some of the questions are analyzed in
details and some of are not due to the requirement of the study.

1) Age
I. B. responses % C. B. responses %
A.18-30 Years 85 42.5 40 20
B.31-40 Years 55 27.5 50 25
C.41-50 Years 35 17.5 70 35
D.51-60 Years 25 12.5 40 20

The above table show the age difference between Islamic banking and conventional banking.
The table shows that Islamic banking is more popular in young generation and middle age
peoples while the conventional banks are popular in old age people of Afghanistan.
2) Genders
I. B. responses % C. B. responses %
A. Male 190 95 200 100
B. Female 10
10 55

The above table represent that in 95% respondent were male in Islamic banks while in case of
conventional banks 100% were male, during our visits to different banks only 5% were female
in Islamic banks. The study shows that Islamic banks are getting popular in female as compare
to conventional banks.

3) Educational Qualifications.
I. B responses % C. B responses %

A. High School 30 15 65 32.5

B. Intermediate 60 30 75 37.5

C. Graduate 110 55 60 30

55 is more popular in highly educated

The analysis of the above table shows that Islamic banking
people as compared to conventional banks. During the analysis 55% respondents are university
graduate in case of Islamic banking while 30% respondents in case of conventional banks, while
32.5% are high school graduate respondents at conventional banks as compare to 15% in Islamic

4) Professions
I. B. responses % C B. responses %
A. Student 30 15 15 7.5
B .Govt. employee 10 5 80 40
C. Private employee 70 35 55 27.5
D. Business 90 45 50 25

The above table shows that the employees of private sectors and business man prefer Islamic
banking system while government employees prefer conventional banking system.

5) Monthly Incomes
I. B. responses % C. B. responses %

A.10000-20000 AFS 19 9.5 67 33.5

B.20000-30000 AFS 23 11.5 52 26

C.30000-40000 AFS 33 16.5 46 23
D.40000-50000 AFS 57 28.5 25 12.5
E.More than 50000 AFS 68 34 10 5

From the results of above table Islamic banks are more popular in high monthly income, the
analysis shows that 68 respondents having more than 50000 AFS monthly prefer islamic banks,
while the conventional banks are more popular in low income categories, 33.5% respondents
having 10000-20000 AFS per month prefer conventional banks.

6) For what purposes do you use this Bank?

I. B. responses % C. B. responses %
Investment/Savings 78 39 113 56.5
Borrowings 34 17 41 20.5
Others 88 44 46 23

Table 6 shows the distinction between the use of Islamic banking and conventional banking. In
case of Islamic banking 39% of account holders use it for savings purpose, 17% for Borrowings
and 44% use it for other purposes. While in conventional banking 56.5% for savings 20.5 for
Borrowings and 23% of the accounts holder use it for other purposes.
7) Having Account with this Bank.
I. B. responses % C. B. responses %

Yes 186 93 153 76.5

No 14 7 47 23.5

The above table shows that Islamic banking is used by more people as compare to conventional

8) Type of Account.
I. B. responses % C. B. responses %
Short-term 117 58.5 91 45.5

Medium-term 62 31 69 34.5
Long-term 21 10.5 40 20

This table shows that more people use Islamic banking for short term and medium term
purposes as compare to conventional banking. However, more people use conventional banks
for long term as compare to Islamic banking.

9) Do you understand the key concepts of Islamic banking?

I. B. responses % C. B. responses %

Yes 187 93.5 177 88.5

No 13 6.5 23 11.5

From the analysis of above table 93.5% respondents know about concept of Islamic banking
system in case of Islamic banks while an interesting point was that high percentage of
respondents whom were holding conventional bank accounts also know about Islamic banking
concept, only 13 respondents had no knowledge about concept of Islamic banking, that was a
weak point and the Islamic banks must aware their customers regarding this issue.
10) Do you agree that Islamic Bank operates under the Sharia Law?
I. B. responses % C. B. responses %
Yes 159 79.5 45 22.5
No 16 8 23 11.5
Don’t know 25 12.5 132 66

The results from the above analysis shows that more people at Islamic banks are agree that
Islamic banks are working under Islamic Sharia Law, almost 79.5% were agree and 8% were
not agree while 12.5% response was that they don`t know about this question,
In case of conventional banks 66% respondents were disagree that Islamic banks are not working
under Islamic Sharia and 22.5% were agree that Islamic banks works under the Sharia Law.

11) Do you know the term “RIBA”?

I. B. responses % C. B. responses %
Yes 197 98.5 171 85.5

No 3 1.5 29 14.5

The people were aware about RIBA that we have asked in both banks, however there were high
number people that know about this questions and most of the respondents in case of
conventional banks also know about RIBA.

12) Would you continue to deal with this Bank even if this bank does not distribute any profit on
your deposits or investments
I. B. responses % C. B. responses %
Yes 183 91.5 109 54.5
No 17 8.5 91 45.5

For the above question majority of our respondents were willing to continue dealing with Islamic
banks even if Islamic banks are not distributing profit on their deposits or investments because
the people of Afghanistan have attachment with religion, and in case of conventional banks less
people will prefer to continue dealing with banks that are not providing profit on their deposit or

13) Would you continue to deal with Islamic bank even the risk on investment is higher than the
conventional bank?
I. B. responses % C. B. responses %
Yes 177 88.5 161 80.5
No 23 11.5 39 19.5

The results show that majority of investors in Afghanistan prefer risk in case of investment with
Islamic banks, almost 88.5% investors are risk taker with Islamic banks. On the other hand, some
respondents who are not willing to continue investment with Islamic banks in case of risk.

14) In your opinion how much are the services charges of Islamic banks as compare to conventional
I. B. responses % C. B. responses %

High 13 6.5 27 13.5

Same 168 84 138 69

Low 19 9.5 35 17.5

The above table shows that the 168 out of 200 respondents in case of Islamic banks says that are
services charges are same and only 13 respondents says that services charges of Islamic banks
are high, while in case of conventional banks 138 out of 200 respondents said that service
charges are same and only 35 respondents said that services charges are low in conventional
15) Would you continue to deal with Islamic bank even if its services charges are higher than the
conventional banks?
I. B responses % C. B. responses %
Yes 161 80.5 137 68.5
No 39 19.5 63 31.5

This question shows that even in case of higher Islamic banks charges the people are willing to
continue their dealing with Islamic banks.

16) How would you rate your level of satisfaction with this bank during your transactions?
I. B. responses % C. B. responses %
Satisfy 156 78 98 49
Not satisfy 24 12 77 38.5
Don’t know 20 10 25 12.5

From the analysis of above table high percentage of respondents said that they are satisfied
with Islamic banks during their transactions and dealing with Islamic banks, only 12%
respondents are not satisfying during dealing with Islamic banking, while in case of
conventional banks 49% respondents are satisfy and 38.5% respondents are not satisfying from
dealing with conventional banks.

17) How to you evaluate the devolvement level of Islamic banking system in Afghanistan?
I. B. responses % C. B. responses %
Good 146 73 N/A N/A
Bad 19 9.5 N/A N/A
Don’t know 35 17.5 N/A N/A

During this study over 73% respondents evaluate that Islamic banking has good achievement in
the past few years in Afghanistan, although there were many challenges for Islamic banks but
due to the religious society and environment the people of Afghanistan prefer Islamic banking
system as compare to conventional banks.
This study examines the people perception toward Islamic banking and conventional banking
system in Afghanistan, Islamic banking are getting popular among the people due to interest free
products and almost 99% people of Afghanistan are Muslims in religion. That is also a factor for
selecting Islamic banks instead of conventional banks. Data was collect from 200 respondents
through structures questionnaires in capital of Afghanistan Kabul city,
 Young generation and highly educated and highly monthly income people prefer Islamic
banking as compare to conventional banks.
 People use Islamic banks for investment purpose as compare to borrowing or other
secondary function of Islamic banks, on the other hand people use conventional banks for
other banks services.
 People prefer short term investment instead of long term or medium term investment in
case of Islamic banks, that’s means still the investors in Islamic banks have low confidents
level for long term investments.
 Although some people have accounts with Islamic banks but still they are not aware about
the concept of RIBA.
 The above analysis shows that still many account holders in Islamic banks have low
confident about the operation of Islamic banking are not according to Islamic Sharia.
 During the analysis of data, the service charges of both banks Islamic banks and
conventional banks are same, and there is minor difference in conventional and Islamic
banks reading services charges.
 Due to Islamic society people will prefer to continues dealing with Islamic banks even if
there is higher risk on investment, the respondents were agreeing to continue the
transactions with Islamic Banks.
 Total 156 respondents that is 78% are satisfied with Islamic banks, and to compare with
conventional banks that are 98 respondents that is 49% means that more people are satisfy
dealing with Islamic banks as compare to conventional banks.
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