An Empirical Survey On Potential Customers' Perception Towards Islamic Bank.

An Empirical Survey of Potential Customers Perception towards Islamic Bank
By
Areeb Saleem 1524

Danial Maroof Shaikh 1475
Danish Mansoor 1355
Maheen Siddiqui 1487
Research paper submitted in partial

fulfillment of the requirements for the
degree of Bachelors in Business
Administration at Research Centre in Iqra
University North Nazimabad, Karachi.
Iqra University
8th January, 2015
ACKNOWLEDGEMENTS
Foremost, we are grateful to thank the Almighty Allah that due to His kindness and
benevolence, we accomplished our academics final project before deadline.
Then, we owe our sincere gratitude to our subject teacher Dr. Najmunnisa Siddiqui.
Without her continual support, guidance and best wishes throughout the semester we
wouldnt be able to accomplish our final project. As it was a group project, so we are
thankful to the team members who stood firm and worked enthusiastically and least,
those respondents who participated willingly.
ii
ABSTRACT:
The research emphasizing major factors of bank selection criteria has been the hot topic for
many bank marketing managers, but this type of research is hardly available for an Islamic
banking system. The main aim of the study is to investigate the major factors which
influence perception of potential customers towards Islamic bank. To achieve this goal, The
Iqra University NC was selected for the investigation. A structured questionnaire was
designed to know the perception of customers which are currently not engaged with an
Islamic bank. A questionnaire was distributed among 120 students including teachers. The
Spearman Correlation technique was used to identify the relationship among major
influencing factors. The results revealed that bank image is the top influencing factor while
choosing an Islamic bank rated by respondents. The other factors include awareness,
religious-orientation and, perceived services & product quality also have an impact on an
individual's decision to select an Islamic bank. Based on the results, mostly respondents are
not willing to deal with an Islamic bank due to the lack of awareness. The study offers
researchers with insight of major factors who directly affect customers' selection criteria.
iii
CONTENTS
ACKNOWLEDGEMENT.............................................................................................. ii
ABSTRACT................................................................................................................. iii
LIST
OF
TABLES
..............................................................................................v
CHAPTER 1: INTRODUCTION ............................................................................... 6

1.1
Background of the Study............................................................................ 6
1.2
1.3
Statement of the Problem ........................................................................... 7

Research Objectives and/or Questions ....................................................... 8
1.4
Structure of the Study.................................................................................. 9
1.5
Definition of Terms (If required) ................................................................9

1.5.1 Perception of Potential Customers (DV)...9
1.5.2 Awareness (IV).....10
1.5.3 Religious Orientation (IV)....10
1.5.4 Perceived Services & Product Quality (IV)........10
1.5.5 Bank Image (IV)...11
CHAPTER 2: LITERATURE REVIEW ................................................................. 12

2.1 INTRODUCTION OF ISLAMIC BANKING...12
2.2 AWARENESS OF PRODUCTS/SERVICES....14
2.3 RELIGIOUS ORIENTATION...15
2.4 PERCEIVED SERVICE/PRODUCT QUALITY..17
2.5 BANK IMAGE...19
CHAPTER 3: RESEARCH METHOD.................................................................... .20
3.1
Theoretical Framework ............................................................................20

3.1.1 Type and Nature of Research.20
3.1.2 Instrument..............................20
3.1.3 Validity and Reliability....20
3.1.3.1 Validity.........20
3.1.3.2 Reliability.........................................................................20
3.1.4 Procedure of Data Collection..20
3.1.5 Statistical Technique....21
3.1.6 Ethical Consideration...21
3.2 Theoretical Framework..................................................................................22

3.3
3.4
Research Hypothesis.................................................................................23
Sampling Design.......................................................................................24
3.4.1
Sampling Technique....... ...................................................................24
3.4.2
Sampling size...... ...............................................................................24
CHAPTER 4: RESULTS ............................................................................................. 25

4.1 Frequency of Demographic Factors................................................................ 25
4.2
Hypotheses Testing ....................................................................................27
4.3
Hypotheses Assessment Summary.............................................................31
CHAPTER 5: CONCLUSION ....................................................................................32
5.1
Conclusion.................................................................................................32
5.2
Discussions................................................................................................33
5.3
Limitations ................................................................................................35
5.4
Future Research Recommendations ...........................................................35
REFERENCES ............................................................................................................ 36
iv
LIST OF TABLES
S. No.
Table
Page Number
1.
Table 4.1.1: Age
25
2.
Table 4.1.2: Gender
25
3.
Table 4.1.3: Qualification
26
4.
Table 4.2.1: Awareness
27
5.
Table 4.2.2: Religious Orientation
28
6.
Table 4.2.3: Perceived Services & Product Quality
29
7.
Table 4.2.4: Bank Image
30
8.
Table 4.3: Hypothesis Assessment Summary
31
An Empirical Survey of Potential Customers Perception

towards Islamic Bank
CHAPTER 1: INTRODUCTION
1.1
Background of the Study:

Banking is an important part of any economic system. They provide
various products and services to different segments. Islamic banking is getting common now
days. It is based on Islamic laws known as Shariah and guided by Islamic principles. It is
based on TWO principles including Profit and Loss Sharing principle and Prohibition of
collection on payment of Interest (Kadubo, 2010). Meezan Bank was the first Islamic bank
in Pakistan incorporated in 2002. Now this banking sector has become the reality which
cannot be ignored because society is now embracing Islam as the way to lead its life
(Ahmed, Rehman, & Saif, 2010)
It has been explored that the most important factor which directs customers towards Islamic
Banking in Shariah compliance (Khan & Asghar, 2012) The Relegious oriented people are
mostly attracted towards Islamic Banking system nevertheless; it is also providing services
for non-Muslims as well (Kishada & Wahab, 2013, p. 264). This system provides Muslims
with lot of investment opportunities complined with religious faith and non-Muslims are
free to choose between Islamic and conventional banks for investment.
As Islamic banking is newly introduced in Pakistan so the advertising campaign has a
positive impact on the perception of potential customers. According to the literature review,
religious orientation also has a significant impact on the perception of potential customers as
they are aware of risk sharing principle in Islamic economic system. Appropriate awareness
regarding Islamic products and services i.e. Musharaka, Mudarabah, Murabaha, Ijara
financing etc. also directs potential customers toward Islamic Banking (Khattak & Rehman,
2010) In a short period, Islamic banks in Pakistan have shown remarkable performance
capturing the market and getting to the bars set by conventional banks.
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The main objective of this research is to explore the factors that pursue and influence
potential customers towards Islamic banking. The factors mainly include awareness,
religious orientation, perceived product and service quality and banki image/reputation.
Further in this chapter, the problem statement, research objectives and questions and
structure of the study will be discussed.
1.2
Statement of the Problem:

Islamic banking is newly introduced in Pakistan but has shown
commendable performance giving tough competition to conventional banks operating

already. As the name shows, this banking system follows Islamic laws strictly which is
mainly based on TWO principles i.e. Profit and Loss Sharing Priciple being one and the
other being Prohibition of collection on payment of Interest (Gait & Worthington, 2007)
In accordance to the literature reviewed, the ideal situation of perception of customers
towards Islamic banking is noted positive due to Islamic banking being interest free banking
where there is no fixed rate of return (Ashraf, 2013) People also trust that Islamic banking
does not invest in illegal/sin sectors i.e. alcohol, pornography and gambling (Iqbal,
1997)The main cause of Islamic banks restriction on interest is to eliminate the source of
unjust income and to earn with assuming risk factor (Siddiqui, 2001, p. 71) As Pakistan is a
Muslim majority country, so people here abide by Shariah and prefer Islamic banking so it
has grown in Pakistan in recent years (Economic Survey of Pakistan 2007-2008)
However, there is no research carried out regarding the perception of potential customers
towards Islamic Banking. This system has shown an increasing trend in recent years but
still, it lacks behind conventional banks due to unawareness among people about the Islamic
banks (Gerrard & Cunningham, 1997)
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Looking at the scenario, the aim to this study is to explore the impact of core factors i.e.
awareness, relegious orientation, perceived product and service quality and bank
image/reputation on the perception of potential customers towars Islamic banking in
Pakistan.
1.3
Research Objectives and/or Questions:
Research Objectives:
RO1: To analyse the relationship between awareness and potential customers perception
towards Islamic bank.
RO2:To analyse the relationship between religious orientation and potential customers
perception towards Islamic bank.
RO3:To analyse the relationship between perceived services & product quality and potential
customers perception towards Islamic bank.
RO4:To analyse the relationship between bank image and potential customers perception
towards Islamic bank.
Research Questions:
Q1.What is the impact of awareness on the potential customers perception towards Islamic
bank?
Q2.What is the impact of religious orientation on the potential customers perception
towards Islamic bank?
Q3. What is the impact of perceived product and service quality on the potential customers
perception towards Islamic bank?
Q4. What is the impact of bank image and reputation on potential customers perception
towards Islamic bank?
Page 8 of 37
1.4

Structure of the Study
This dissertation is arranged in different sections and each section covers some areas
ofresearch. Before proceeding any further it is necessary to understand these sections

andstructure of the report.
Chapter 1 is an introductory chapter which inculdes the Background of the Study,
Statement of the Problem, Research Objectives / Questions and Operational Definations.
Chapter 2 contains Literature Review over the perception of potential customers towards
Islamic Banks which is collected from many sources(mentioned in Literature Review).
In Chapter 3 we list down the Research Methodology which is further divided into
Theoratical Framework, Hypothesis and Research Design.
Then in Chapter 4 we give all the results of the study such as Descriptive Profile of the
data, Hypothesis Testing and Hypothesis Assesment Summary.
In the last Chapter 5 we conclude our Research by showing Conclusion of study,
Discussion on study, Limitations we found and Future Research Recommendations.
At the end, we show the references from where we collect our data
Then the research is finished with Appendix.
1.5
Operational Definitions:
Following are the terms defined operationally regarding the entire research.
1.5.1 Perception of Potential Customers (DV):
By the term potential customers researchers meant those customers who are not engaged
with Islamic banks or who are willing to open their accounts in future or not willing to deal
with Islamic banks due to some reasons discussed below. The perception of potential
customers can be measured by comprising of different demographics i.e. gender, age,
Page 9 of 37

qualification, the level of awareness, religious orientation, the perceived services and
product quality offered by an Islamic bank and, the bank image/reputation.
1.5.2 Awareness (IV):
By the term awareness researchers meant those customers who have complete knowledge
regarding the concept of Islamic banking system and the products/services provided by the
Islamic banks. The awareness can be measured by the extent of knowledge of Islamic
banks Shariah compliance, the level of knowledge of Islamic banks products & services,
advertising through television or print media and, the information gained through relatives
and colleagues.
1.5.3 Religious Orientation:
By the tern religious orientation researchers meant an individuals attitude towards religion
and religious beliefs and practices. The level of religious orientation in this study is
measured by the religious knowledge, the deep concerned with religion and, the impact of
surroundings.
1.5.4 Perceived Services & Product Quality (IV):
In the research context, the term perceived services and product quality is defined as the
level of insight\knowledge of potential customers regarding the quality of products and
services. Perceived service quality can easily be measured by the friendliness of employees,
efficiency of transactions, consultancy and coaching and, online banking opportunity.
Perceived product quality can easily be measured by risk of return and variety of investment
opportunities.
1.5.5 Bank Image (IV):
In the research context, the term bank image is defined as the reputation of Islamic banks
in the eyes of potential customers. Generally, if the goodwill of an Islamic bank in the eyes
of future customers is good or respectable, then there are more chances of customers opt for
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Islamic banks and vice versa. The term bank image is measured by the pure Shariah
compliance, the time period of a particular bank, and the recommendation to other relatives
or peers.
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CHAPTER 2: LITERATURE REVIEW
2.1 INTRODUCTION OF ISLAMIC BANKING:

The purpose of making Islamic laws is to encourage welfare of mankind, promote
justice, and to safeguard religion and wealth. To protect above mentioned objective, an
Islamic legal system plays a vital role which smoothest the progress of Islamic finance and
to assist the other financial markets, (Ahmed H. , 2006). Considering the previous
researches, no matter all the Muslims incorporate religion in all their life dealings but they
are willing to lead their lives as according to the Islamic Shariah and laws., which states
that all sort of interest are totally forbidden in Islam because not only it pushes the economy
into crises but also affect the entire society, (Ahmad, 2008).
As Islamic Banks are newly introduced system, they are struggling to acquire abundant
number of customers just to give tough competition to conventional banks who already have
perfect brand imaging in customers mind. As conventional banks provide interest based
products which means they give surety to their customers regarding the return on
investment, On the contrary, Islamic banks have found a way to attract more of the potential
customers by providing interest free products/services therefore; they started progressing by
leaps and bounds. Strictly speaking, since the payment on fixed dividends is prohibited in
Islamic law (Shariah) therefore, no preferred shares will be issued by Islamic banks,
(Kadubo, 2010).
An Islamic bank is considered as a mediator and trustee of the customers money but it
shares profit and loss with the depositors. Mainly, both conventional and Islamic banks have
the same working structure and functions, (Dar & Presley, 2000). Islamic banking is
incredibly profitable because, although its underlying funding mechanism is the same
as conventional banking, its default experience is better, and its charges higher and less
crystal clear (Cook, 2006, p. 16).
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It is proved from the above statement that Islamic banking is not purely different from that
of conventional banking. They are doing almost same practices i.e. saving deposits and
consumer finances, but there exist some major differences in the objectives that Islamic
banking is not based on interest and mainly emphasis on equal distribution of wealth which
directly decreases the poverty and enhances more investment opportunities.
Clearly, the main aim of Islamic banks is not purely profit maximization but instead they
strive hard to promote Islamic values, (Farook, Hassan, & Lanis, 2011). In several countries,
it has been discovered through researches that the customer satisfaction level is more
towards the Islamic banks as compared to the conventional banks, (Nadia Asghar cited
Ahmed et al. (2010)).
To be more specific, Islamic banking that is operated on Shariah laws while conventional
banking focuses on profit maximization, lending and borrowing, many researchers have
revealed that when considering cost efficiency Islamic banks perform more better than the
other conventional banks, and on the other hand when considering technical efficiency
conventional banks give tough competition to Islamic banks, (Nadia Asghar cited Shahid et
al. (2010)). In Pakistan, the comparison between Islamic banking and conventional banking
system indicated the declining stage of conventional banks because of the financial crises at
global level, while Islamic banking moving ahead and making a strong financial position on
the basis of assets, financing, efficiency and profitability etc., (Awan, 2009).
Muslims who seek assistance in all of their financial matters as according to the religion
should opt for Islamic banks. According to the surveys, it has been revealed that there are
numerous Islamic and some high street commercial banks offer products and services which
are based on Shariah laws. (www.standardcharterd.com).
Page 13 of 37

DETERMINANT FACTORS OF A CUSTOMERS SELECTION OF AN
ISLAMICBANK:
Following are the main factors which act positively while selecting an Islamic bank:
Awareness of Islamic banking products and services.
Compliance with religion.
Positive perception of products and services offered by Islamic banks.
Good image and reputation of a bank.
2.2 AWARENESS OF PRODUCTS/SERVICES:
As Islamic banks and conventional banks offer different products/services, so awareness
related to provision of services is a key element to attract potential customers. Many
researches up till now have been conducted to find out a relationship between customers
awareness and the bank selection. To begin with, a famous research (Gerrard &
Cunningham, 1997) and (Ellahi, Khattak, Rehman, & Jamil, 2010) conducted in Singapore
and Pakistan which revealed that religious factor is not the most essential key element to
drive customers towards Islamic banks but knowledge of products is very important. They
discovered that there is a general lack of awareness among people which hinders them to
choose Islamic banks. To support the argument i.e. awareness has an impact on the selection
of an Islamic bank; a study has been conducted by (Ahmad & Haron, 2000) which states
that degree of knowledge of Islamic bank products/services, marketing strategies and service
quality have contributed to increase the market share. A research conducted in UK by
(Ahmad W. , 2008) gave more importance on awareness as he stated that it is most essential
for growth and progress of Islamic banking system to increase the number of its users. But
in due course proper awareness is a source to increase account holders. To clearly
understand the variable awareness, a research was conducted by (Ahmad, 2010) who stated
the importance of service quality in terms of awareness. His study revealed that the
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provision of improved service quality would only satisfy those customers who are wellaware of the products and services.
On the contrary, findings havent been the same always. (Naseer, Jamal, & Al-Khatib, 1999)
conducted an empirical research in Jordan to find out a relationship between customer
awareness and satisfaction, the results showed the other side of an attraction that people do
have awareness of specific products of Islamic banks but due to dissatisfaction towards
some services they refused to choose Islamic banks. By the above statement, it can be stated
that awareness is less important than the service quality.
Similarly, another study was conducted by (Naser, Jamal, & Khatib, 1999) in which they
came out with the idea that most of the customers do have a little bit knowledge about
particular products i.e. Mudarabah and Murabaha but, most of them are not willing to use
these products. Thus, we can say there is a balance between awareness of products/service
and service quality as some people weigh awareness as a priority to select an Islamic bank
while other researches proved that service quality is a key element to select any bank.
2.3 RELIGIOUS ORIENTATION:
In simple words religious orientation can be defined as a person's strong association with his
religion and religious beliefs. Through various researches it has been proved that religious
orientation has been one of the most essential elements of selecting an Islamic banking
system. A famous study conducted by (Omer, 1992) in which he revealed that majority of
Muslims selected Islamic banking system due to religious factor and found that mostly
Muslims were enrolled to Islamic banks and the conventional banks who have Islamic
windows. He further elaborated that majority of customers were ignorant of the
products/services offered by the Islamic banks but the only reason of choosing an Islamic
bank is the religious factor and the strong belief that it is an interest-free banking system.
This research cannot be generalized as the research was conducted in Malaysia, if it was
conducted in an Un-Islamic state the results would be absolutely different, as they would
have considered service quality and the wide range of services as the major factors to deal
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with an Islamic bank. One more research conducted by famous researchers (Metawa &
Almossawi, 1998) who also supported the idea that the religious orientation is primarily the
essential element of selecting an Islamic bank. For further validity one more remarkable
study conducted by (Bashir, 1999) in Kuwait and (Naseer, Jamal, & Al-Khatib, 1999) in
Jordan who mainly focused the Islamic banking selection criteria and found out that
religious belief served as a major motivational element of selecting an Islamic bank which
was rated by the 70% of the respondents. Additional researches conducted by (Ahmad &
Haron, 2000), (Bley & Kuehn, 2004) and (Worthington, 2005) supported the idea that
people's strong religious association has been considered the most essential factor of
choosing an Islamic banking system as Muslims consider Islamic banking as an ethical
banking system that is operated as Riba-free banking which is strongly prohibited in Islamic
Shari'ah. (Dusuki & Abdullah, 2007)Also found out by their research that most of the
customers regarded religious orientation as the most essential element while dealing with
Islamic banking system.
A remarkable study conducted by (Gerrard & Cunningham, 1997) in which he revealed that
62.1% Muslims are willing to keep their deposits in Islamic banks no matter if they get
sufficient returns because of the strong religious association that Riba-free banking will
direct to wellbeing of the society.
Previous were the favorable researches but contradiction always exists. A research
conducted by (El-Bdour, 1989) and (Al-Ajmi, 2009) revealed that religious factor is not
considered as the major factor but still through various evidences it has been proved that
Shari'ah compliance is must for customers. Further they described in their research that
religious motives are not only the key element but people also consider various investment
opportunities provided by an Islamic banking system is simple words, they stated that
majority of bank customers are profit motivated. One more research conducted by (Al-Ajmi,
Al-Saleh, & Hussain, 2009) in which they described various other motivational factors other
than religion like friendly and well-informed bank staff, and considered service quality as a
Page 16 of 37

key element to attract and retain customers. From which we can easily come to the
conclusion that mostly Muslims give importance to religious beliefs if the study is
conducted in an Un-Islamic state the results would vary as not only few Muslims but
majority of non-Muslims consider other factors i.e. bank image, service quality and
investment opportunities.
2.4 PERCEIVED SERVICE/PRODUCT QUALITY:
To conduct a research related to banks, different aspects are to be studied e.g. employee and
customer satisfaction, product and service quality, banking efficiency, financial performance
etc. as the main elements of research. All the banks are operating in an extremely
competitive environment thus they have realized that to survive successfully in todays
global environment; they must offer the best quality oriented products/services, (Wang,
2003). A word Service is defined as a set of benefits which are delivered from the service
provider to the service consumer. These include intangible products such as teaching,
coaching, consultancy and other ways to assist the customers. To begin with the concept,
(Lehtimen, 1982) and (Gronroos, 1984) gave first thought to the importance of service
quality. Perceived service quality signifies the customers feelings or thoughts over service
providers efficiency and its notably linked with customer satisfaction. (Shin & Kim, 2008).
Banks provides number of services e.g. acts as a financial intermediation, gives consultancy
and provides agency services that are widespread with the passage of time. It has four main
key features: intangibility, inseparability, perishability and heterogeneity, (Hoffman &
Bateson, 2002). It has been discovered that customer selection criteria comprises of a variety
of features of item. Research showed that there are mainly two characteristics; product
quality and its features, and eminence or differentiation of service, (Awan & Bukhari,
2011).Moreover, service quality is divided into several sub parts. To clearly understand the
impact of service quality on customers a research conducted by (Ringim, 2013) explored
that customers who value time and expects that transactions should be completed before
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time always regard effectiveness and efficiency of services as a high-quality services
provided by banks. Furthermore, improved quality services also represent personnels
friendliness, communication methods, dress code and customer relations. (Haron, 1994).
Service quality standards are very essential to maintain in the banking industry. Previous
researchers highlighted its importance (Berry & Thompson, 1982) recommended that strong
relationship between customers and financial organizations gives customers a reason to stay
loyal and therefore provides competitive advantage to financial institutions. Likewise, (Teas,
1993) revealed that the most essential feature of a customers dealing with a bank indicates
the long-term relationship that buildup with the bank.
(Al-Ajmi, Al-Saleh, & Hussain, 2009) emphasized mainly on service quality provided by
banks. They argued that not only religious orientation attracts customers but the quality of
customer services plays vital role while selecting an Islamic bank. They furthermore divided
this factor into friendly bank staff, well-educated, experienced and competent staff.
If we talk about perceived service quality it has been explored from previous research
conducted by (Othman, 2001) that the scope of service quality can be evaluated by
measuring a difference between customers expectations and perception of a service. The
lesser the difference between customers expectations and perception, the more high quality
of service is noted. Modern researchers gave attention to achieve service quality standards
importantly, which directly encourages sales and profits as well, (Kassim & Abdullah,
2010).
(Jones, 2002)Highlighted that there is a pure positive relationship between service quality
and consumers repurchase intention, recommendation to others, and refusing to opt for
better alternatives. All of the above elements ensure customer loyalty and alter behavioral
intentions rapidly in a positive way. One more research conducted by (Levesque &
McDougall, 1996) argued that the service quality and customer satisfaction have a strong
impact on each other as poor service quality will dissatisfy existing customers thus, they
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would prefer switching the bank and might possible the poor quality service would restrict
them to join Islamic banks as well.
It is a misconception that Islamic banks are only for Muslims; instead they facilitate nonMuslims as well. To check the perception of non-Muslims towards Islamic banks; a research
has been conducted by (Hidayat & Al-Bawardi, 2012) assessed the perception related to
products and services of non-Muslims expatriates in Saudi. The study revealed that cheaper
transaction cost and better quality services are the main reasons to attract them.
2.5 BANK IMAGE:
Bank image can be defined as the perceived reputation about a particular bank or banking
system. The attraction of customers depends on this factor as it plays vital role. The stronger
the bank image in mind of customers, the more new customers it will attract and vice versa.
The customers choose Islamic banks in both aspects, that is, Islamic and economic aspects.
To support this idea, study regarding this was conducted by (Kazeh, 1993) and (El-Bdour,
1989) surveyed 209 university students in Maryland, USA, their main focus was to obtain
information related to major determinants which attract customers towards Islamic banking
system. Study outlined the major factors but the dominant attributes were bank image,
service charges, friendly staff and service quality. They explored that people get attracted by
the bank's image or reputation very likely. Some other important factors that customers
keep in mind while choosing Islamic bank for financial services are name and image
(Ahmad & Haroon, 2002), and other equally important factor is condentiality as discussed
by the author.(Abbas, 2003) Another is the influence of friends and family. (Metawa &
Almossawi, 1998)Also the perceived quality of service(Owen, 2002).
Concluding, not only spiritual factors attract and retain customers, but non-spiritual factors
also play vital role while choosing an Islamic bank.
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CHAPTER 3: RESEARCH METHOD

3.1 Research Design
3.1.1 Type and Nature of Research
The research approach selected by researchers is quantitative approach. The purpose of this
research is descriptive.
3.1.2 Instrument
The instrument is the self made structured questionnaire by the researchers.
3.1.3 Validity and Reliability
3.1.3.1 Validity
Content Validity
Content validity of the tool was ensured by reviewing literature. Item was developed
with the understanding of literature review.
Face Validity
Face validity is ensured by expert's opinion and tool was reviewed by teacher and
experts from the field.
3.1.3.2 Reliability
The reliability of the data collection tool was ensured by conducting a pilot study of
small sample size (10 respondents).
3.1.4 Procedure of Data Collection

The researchers conducted face to face survey with the help of structured questionnaire. The
questionnaire was distributed among the professionals and students of Iqra University to
collect data. The researchers collected data with the consent of respondents without any
influence and administered the research personally.
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3.1.5 Statistical Technique
The statistical technique used is spearman correlation because the data of dependent variable
is categorical.
3.1.6 Ethical Consideration
The personal information of the respondents is kept confidential and identity has remained
anonymous. Moreover, the physical, emotional and social harm has not been encouraged.
The gender biasness also was not encouraged.
Page 21 of 37

3.2 Theoretical Framework
Awareness
Religious Oriented
Perception of Potential
Customers towards Islamic
Banks
Perceived Services
& Product Quality
Bank Image
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3.3 Research Hypothesis
Ho1: There is no significant relationship between awareness and the potential customers
perception towards Islamic banking.
Ho2: There is no significant relationship between religious orientation and the potential
customers perception towards Islamic banking.
Ho3: There is no significant relationship between perceived service & product quality and
the potential customers perception towards Islamic banking.
Ho4: There is no significant relationship between bank image and the potential customers
Ha1: There is a significant relationship between awareness and the potential customers
Ha2: There is a significant relationship between religious orientation and the potential
customers perception towards Islamic banking.
Ha3: There is a significant relationship between perceived service & product quality and the
potential customers perception towards Islamic banking.
Ha4: There is a significant relationship between bank image and the potential customers
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3.4 Sampling Design

The population of the study consists of the potential customers of Islamic Banks operating in
Pakistan and the sample of the study is the professionals and students of Iqra University,
Karachi.
3.4.1 Sampling Technique:
The researchers have chosen simple, random and convenient sampling technique.
3.4.2 Sample Size:
The sample size chosen for the study is 100 - 120 samples and is heterogeneous.
Page 24 of 37

CHAPTER 4: RESULTS
4.1 Frequency of Demographic Factors
Table 4.1.1: Gender
Frequency
Percent
Valid Percent
Cumulative Percent
47
47.0
47.0
47.0
Female
53
53.0
53.0
100.0
Total
100
100.0
100.0
Male
Valid
Interpretation: The researchers conducted this study in a regional university of Karachi

where the sample of students and teachers were asked to give their perception about Islamic
banking system. To accomplish our investigation, 120 questionnaires were distributed out of
which 100 were returned. Females were more willing to participate therefore 53% were
females and 47% of males responded.
Table 4.1.2: Age
Frequency
Percent
Valid Percent
Cumulative Percent
39
39.0
39.0
39.0
21-30
53
53.0
53.0
92.0
31-40
7.0
7.0
99.0
40 Above
1.0
1.0
100.0
Total
100
100.0
100.0
20 or Less
Valid
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Interpretation: In this study, the highest frequency of participants participated are of
between the age of 21-30. The second highest frequency is of the participants who were less
than 20 years or equal to. Only 7 respondents were of the age 32 - 40 and only one
respondent was above 40.
Table 4.1.3: Academic Qualification
Frequency
Percent
Valid Percent
Cumulative
Percent
74
74.0
74.0
74.0
Masters
20
20.0
20.0
94.0
Professional
4.0
4.0
98.0
Any Other
2.0
2.0
100.0
Total
100
100.0
100.0
Bachelor
Valid
Interpretation: To accomplish the investigation, it was important to know the educational

level of the participants. In this study, 74% of the respondents were at the bachelors level
therefore labeled as the highest frequency participated in the study. Questionnaire was also
distributed among the respondents who had done or currently doing masters. 20% of the
respondents were doing masters and remaining respondents were professionals or holding
any other degree.
Page 26 of 37

4.2 Hypothesis Testing
The condition of accepting hypothesis that:
If,
Sig value 0.05, Reject H0
Sig value> 0.05, Accept H0
H01: There is no significant relationship between awareness and perception of potential
customers towards Islamic bank.
Table 4.2.1: Correlations

Will you open
your account
Awareness
in Islamic Bank
in future?
Spearman's rho
Correlation Coefficient
Will you open your
account in Islamic Bank in
Sig. (2-tailed)
future?
N
1.000
.149
.140
100
100
.149
1.000
Sig. (2-tailed)
.140
100
100
Awareness
Interpretation: The significance value is 0.140 which is greater than 0.05 showing that
there is no significant relationship between awareness and perception of potential customers
towards Islamic bank so we accept the H0.
There is a positive relationship between awareness and the perception of potential customers
as the value 0.149 contains a positive sign. Furthermore, there is a weak relationship
between awareness and the perception of potential customers because the value .149 lies in
between -1 to +1.
Page 27 of 37

H02: There is no significant relationship between orientation and perception of potential
Religious Orientation
Spearman's rho
Will you open your

account in Islamic Bank
in future?
Religious
Orientation
Will you open

your account
in Islamic
Bank in
future?
Correlation
Coefficient
1.000
.278**
Sig. (2-tailed)
.005
100
100
Correlation
Coefficient
.278**
1.000
Sig. (2-tailed)
.005
100
100
**. Correlation is significant at the 0.01 level (2-tailed).
Interpretation: The sig value in the above table is equal to 0.05 which means that there is a
significant relationship between religious orientation and perception of potential customers
towards Islamic bank. In the above analysis, H0 is rejected.
The correlation coefficient that is 0.278 shows a weak positive relationship between the two
variables analyzed in the table. The direction is positive because the coefficient has a
positive sign and the strength is weak because of the value being closed to 0.
Page 28 of 37

H03: There is no significant relationship between perceived services and product quality and
perception of potential customers towards Islamic bank.
Will you open your

account in Islamic Bank
in future?
Spearman's rho
Perceived Services and
Product Quality
Will you open

your account
in Islamic
Bank in
future?
Perceived
Services and
Product
Quality
Correlation
Coefficient
1.000
.252*
Sig. (2-tailed)
.011
100
100
Correlation
Coefficient
.252*
1.000
Sig. (2-tailed)
.011
100
100
*. Correlation is significant at the 0.05 level (2-tailed).
Interpretation: The significance value is 0.011 which is less than 0.05 indicated that there
is a significant relationship between perceived product and service quality and perception of
potential customers towards Islamic bank. In this analysis, we reject the H0.
The value of correlation coefficient is 0.252. The direction is positive because the value has
a positive sign. The value is close to 0 showing the strength of relationship that this is a
weak positive relationship.
Page 29 of 37

H04: There is no significant relationship between bank image and perception of potential
Will you open your

account in Islamic Bank in
future?
Will you open

your account
in Islamic
Bank in
future?
Bank Image
1.000
.550**
Sig. (2-tailed)
.000
100
Spearman's rho
Bank Image
100
**
.550
1.000
Sig. (2-tailed)
.000
100
100
**. Correlation is significant at the 0.01 level (2-tailed).
Interpretation: The significance value is 0.000 which is less than 0.05 indicating that there
is a significant relationship between bank image and perception of potential customers
towards Islamic bank so we reject the H0.
The coefficient of correlation has a value of 0.550 with a positive sign indicating the
direction that there is a positive relation between the variables. Also, the strength of the
relation is moderate as the value is between 0 and 1.
Page 30 of 37

Table 4.3: Hypothesis Assessment Summary:
Hypothesis
H01: Relationship between
awareness and perception of
potential customers towards
Islamic Banks.
religious orientation and
perception of potential
customers towards Islamic
Banks.
perceived service & product
quality and perception of
Islamic Banks.
H0.4: Relationship between bank
image and perception of
Islamic Banks.
Direction
Correlation
coefficient (r)
Spearman
correlation (pvalue)
Decision
0.149
0.140
H01 Accepted.
0.278
0.005
H02 Rejected.
0.252
0.011
H03 Rejected.
0.550
0.000
H04 Rejected.
Page 31 of 37

CHAPTER 5: CONCLUSION
5.1 Conclusion
The core objective of this research was to find out that whether there is any significant
impact of the Awareness, Religious Orientation, Perceived Product and Service Quality and
Bank Image on the perception of potential customers towards Islamic banks.
Through the in-depth research on An Empirical Survey of Potential Customers Perception
Towards Islamic Bank the researchers had concluded that the impact of awareness on
potential customers was against the thoughts, not indeed very affective.
However, Religious Orientation does made a good impact on the perception of potential
customers towards Islamic Banks. The reason behind this healthy impact could be that
Pakistan is an Islamic state and the majority of its nation is Muslim, so people are leaner
towards Islamic Shariah than conventional rules.
Feedback researchers received for perception of potential customers towards Islamic Banks
by their Perceived Product and Service Quality was meeting the expectations as it showed
significant relationship. In general, potential customers have a positive sight for Islamic
Banks service and product quality; here, the concept of Riba free banking could have made
a good impact on their thoughts.
Bank Image is something which is not often known to general public but the researchers
were intended to know how much people are influenced by the image of bank and how? So
the conclusion came as a significant relationship of Bank Image with the perception of
potential customers towards Islamic Banks. And that is because greater number of people
were agreed to follow the Shariah compliance and was likely to recommend such services
to others. All the research conclusions were tested by spearmans correlation and results
were developed by the appropriate testing.
Page 32 of 37
5.2 Discussions

Earlier, several researches have been conducted to know the perception of the customers of
Islamic banks, but no researches carried out to know the perception of potential customers
of Islamic banks in Pakistan. The proposed research discussed the perception of future
customers and researches have tried their very best to measure the accurate data with the
help of independent variables. In this study, it has been revealed that the first proposed
hypothesis has been accepted, it contains a value 0.149 which means even if people have
awareness regarding the Islamic banking concept and, the products/services offered by an
Islamic bank, it would not affect peoples decision to opt for Islamic banking system.
Though it is not common but this hypothesis has been proved by previous research
conducted by (Naseer, Jamal, & Al-Khatib, 1999) and (Saduman & Okumus, 2005) state
that people do possess knowledge regarding the specific products/services provided by the
Islamic banks but still they are not eager to use Islamic banking system and willingly stick
to the conventional banks. Most of the researches reviewed by the researchers of this study
found out that the improved level of awareness of products/services directs potential
customers towards Islamic banks, but only the research conducted by the above mentioned
authors support the idea that awareness does not have a greater impact on the potential
customers perception towards Islamic banks.
In this study, the second proposed hypothesis has been rejected as it contains the significant
value 0.005 and coefficient 0.278 which states there is a weak positive relationship. As this
research has been conducted in an Islamic state so according to the expectations the
religious orientation i.e. deep concerened with relation has greater impact on the perception
of potential customers towards Islamic banks.More specifically, the deeper and stronger the
religious beliefs, the more adoption of Islamic banking system in a society. Many
researchers have agreed with this point that religious orientation has an impact on the
selection of a particular Islamic bank. A research conducted by (Metawa & Almossawi,
1998) reveals that religious factor is the most influential factor which directs customers
Page 33 of 37

towards Islamic banks moreover, they argued that people do not have sufficient knowledge
regarding the Islamic banking products/services but they have a firm belief that Islamic
banks do not invest in sinful projects and are strictly against giving interest.
The third proposed hypothesis has been rejected which states that there is no significant
relationship between perceived services & product quality on the perception of potential
customers towards Islamic banks. The correlation coefficient 0.252 states that there is a
weak but positive relationship between both variables. Specifically, the more good
perception of products/services offered by Islamic banks the more chances of future
customers directing towards Islamic banking system. According to several researches,
service quality has the greatest impact among all supporting factors. The research conducted
by (Ringim, 2013) and (Haron, 1994) agrees with the proposed hypothesis that quality of
service, efficiency of transactions and friendliness of employees have an utmost impact on
the perception of future customers towards Islamic banks. Thus, the rejection of null
hypothesis fully supported the previous researches conducted in an Islamic states.
The last null hypothesis has also been rejected which states that bank image does not have
an impact on the potential customers perception towards Islamic banks. The 0.550
coefficient correlation indicates the moderate but postive relationship between two
variables. In particular it reveals that; the higher the goodwill in the eyes of future
customers, the more they will attract towards Islamic banks i.e. increase in variable X, in
result variable Y also tends to increase. To support the hypothesis, a remarkable research
conducted by (Ahmad & Haroon, 2002) reveals that customers mainly focus on name and
reputation of a particular bank specially when choosing an Islamic bank. Overall, the result
obtained in this study is completely supporting the previous researches but the results are not
accurate due to some restrictions highlighted below.
Page 34 of 37

5.3 Limitations
The researchers confronted with several limitations while conducting this study. Firstly, the
main purpose is to identify the perception of potential customers towards Islamic banks in
Pakistan. Therefore, the result obtained by the respondents couldn't be generalized as the
sample chosen was too small to predict the same results existing in the remaining
population. The second limitation throughout the study was the time constraint. Each
respondent has different class schedule so it was hard to get accurate data moreover,
researchers had limited time to complete the research within 3 months as this type of
research requires lots of articles, journals and other better quality information and were
unable to compile relevant information. Mainly there was limitation that the research was at
Academic level so it shrinks the scope of researchers. The last limitation which sustained
throughout the research was the lack of interest towards the selected topic. Respondents
were found with very limited or no knowledge towards Islamic banking so it was hard to
analyze the accurate results as expected. Future researches can eliminate these limitations by
switching to multiple relevant resources.
5.4 Future Research Recommendations:
The research conducted is very limited to regional university students only, so it is
recommended that further research should be conducted at a broader level to find out more
accurate perceptions of potential customers towards Islamic banks. Moreover, the
respondents were mostly females; it is recommended that more accurate data can be
gathered by taking responses from males as males are more directed towards any banking
system instead of females. In addition, the study revealed that there is a lack of awareness
among the general public regarding Islamic banking products and services, so in order to
increase the level of understanding it is recommended that more publications on newly
introduced Islamic banking system should be made publicly available.
Page 35 of 37

REFERENCES
Ahmed, A.; Rehman, K.; Saif, M. I. (2010). Islamic Banking Experience of Pakistan: Comaprison
between Islamic and Conventional Banks. 2.
Ashraf, M. (2013). Development and Growth of Islamic Banking in Pakistan , 3145.
Awan, H. M., Bukhari, K. S., & Iqbal, A. (2011). Service Quality and Customer Satisfaction in the
Banking Sector. A Comparitive Study of Conventional and Islamic Banks in Pakistan. Journal of
Islamic Marketing , 12-20.
Bashir, M. S. (2013). Analysis of Customer Satisfaction with the Islamic Banking Sector: Case of
Brunei Darussalam. Asian Journal of Business and Management Sciences , 38-50.
Butt, I., Saleem, N., Ahmed, H., Altaf, M., Jaffer, K., & Mahmood, J. (2011). Barriers to adoption of
Islamic Banking in Pakistan. Journal of Islamic Marketing , 259-273.
Gait, A.H; Worthington A.C. (2007). A Primer on Islamic Finance: Definitions, Sources, Principles
and Methods. School of Accounting and Finance Working Paper Series , 05-07.
Imran, M., Samad, S. A., & Masood, R. (2010). Awareness Level of Islamic Banking in Pakistan's
Two Largest Cities. Journal of Managerial Sciences , 1-20.
Kadubo, A. (2010). Factors Influencing Development of Islamaic Banking in Kenya , 14.
Khan, H. N., & Asghar, N. (2012). Customer Awareness and Adoption of Islamic Banking in
Pakistan. 360.
Khan, N. & Ahmed, Z. (2014). Perception of potential customers about islamic banking. Banking
Journal , 18-20.
Khattak, N., & Rehman, K. (2010). Customer Satisfaction and Awareness of Islamic banking .
African Journal of Business Management Vol. 4(5) , 662-671.
Kishada, Z. M., & Wahab, N. A. (2013). Factors Affecting Customers' Loyalty in Islamic Banking:
Evidence from Malaysian Banks. , 1.
Kishada, Z., & Wahab, N. (2013). Factors Affecting Customers' Loyalty in Islamic Banking:
Evidence from Malaysian Banks. 265.
Zainol, Z., & Shaari, R. (2008). A Comparative Analysis of Bankers' Perceptions on Islamic
Banking. International Journal of Business and Management , 157-1
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An Empirical Survey of Potential Customers Perception towards Islamic Bank

Areeb Saleem 1524

Research paper submitted in partial

CHAPTER 1: INTRODUCTION ............................................................................... 6

Background of the Study............................................................................ 6

Statement of the Problem ........................................................................... 7

Structure of the Study.................................................................................. 9

Definition of Terms (If required) ................................................................9

CHAPTER 2: LITERATURE REVIEW ................................................................. 12

Theoretical Framework ............................................................................20

3.2 Theoretical Framework..................................................................................22

Sampling Technique....... ...................................................................24

Sampling size...... ...............................................................................24

CHAPTER 4: RESULTS ............................................................................................. 25

Hypotheses Testing ....................................................................................27

Hypotheses Assessment Summary.............................................................31

CHAPTER 5: CONCLUSION ....................................................................................32

Future Research Recommendations ...........................................................35

Table 4.1.1: Age

Table 4.1.2: Gender

Table 4.1.3: Qualification

Table 4.2.1: Awareness

Table 4.2.2: Religious Orientation

Table 4.2.3: Perceived Services & Product Quality

Table 4.2.4: Bank Image

Table 4.3: Hypothesis Assessment Summary

An Empirical Survey of Potential Customers Perception

Background of the Study:

An Empirical Survey of Potential Customers Perception

Statement of the Problem:

commendable performance giving tough competition to conventional banks operating

An Empirical Survey of Potential Customers Perception

Research Objectives and/or Questions:

An Empirical Survey of Potential Customers Perception

ofresearch. Before proceeding any further it is necessary to understand these sections

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION OF ISLAMIC BANKING:

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

CHAPTER 3: RESEARCH METHOD

3.1.4 Procedure of Data Collection

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

An Empirical Survey of Potential Customers Perception

3.4 Sampling Design

An Empirical Survey of Potential Customers Perception

Table 4.1.1: Gender

Interpretation: The researchers conducted this study in a regional university of Karachi

An Empirical Survey of Potential Customers Perception

Table 4.1.3: Academic Qualification

Interpretation: To accomplish the investigation, it was important to know the educational

An Empirical Survey of Potential Customers Perception

Table 4.2.1: Correlations