Professional Documents
Culture Documents
SAJEMS NS 14 (2011) No 3
1
Introduction
The value of the Islamic banking and finance
market was estimated to be between US$200
billion to US$500 billion worldwide in 2006
(Ibrahim & Seoweng, 2006). Islamic banking
is growing at an average rate of 15 per cent a
year, which makes it the fastest-growing sector
in the financial markets of the contemporary
world (Saidi, 2007; Chong & Liu, 2008).
According to banking statistics, the growth rate
of Islamic banking has outpaced traditional
banking during the past decade (Ghannadian &
Goswam, 2004). Islamic banks have grown in
size and number around the world and are
generally the product of private initiatives
(Aggarwal & Yof, 2000).
Researchers are seeking to assess both the
extent to which customers use Islamic banking
products and services (Naser & Al-Khatib,
1999) and the behaviour, attitudes and
perceptions of the target markets (Metawa,
1998). This paper attempts to estimate
consumer awareness and use of Islamic
banking products in South Africa. If Islamic
SAJEMS NS 14 (2011) No 3
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2
Literature review
It is estimated that there are about 1.8 billion
Muslims in the world and, after Christianity,
Islam is the next largest religion. Islam is the
predominant religion in the Middle East and
parts of Asia, Africa and in countries such as
Turkey, Iran, Iraq, Egypt, Nigeria, Indonesia,
India, Pakistan and Bangladesh. In Iran,
Pakistan and Sudan, only Islamic banking is
allowed (Chong & Liu, 2008). Apart from
these areas, there are migrant Muslims all over
the world, including South Africa and the
United States of America. Owing to the
presence of Muslims, international banks such
as Citibank have created wings to cater for
Muslim clients, offering diverse products,
mainly financing businesses (Citibank, 2009).
300
SAJEMS NS 14 (2011) No 3
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301
Table 1
Differences between Islamic banking and conventional banks
Conventional banking system
Charge interest on loans.
The principal stakeholder is God. The aim is to serve God, while the
stakeholders are the clients and the general public. Clients are partners
and the decisions are in the interest of society.
Gives loans to those who need loans. Do not need collateral to get a loan.
Islamic banks have an interest in how the money borrowed is used. The
Islamic banks have a stake in the financal activities so that money is not
used for economic activities that are injurious to society.
Those who lend to the Islamic banks expect the banks not to invest their
money in business activities that are not Shariah-compliant.
Islamic banks invest only in business activities that are Shariah-compliant.
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303
Table 2
Some factors influencing consumers in the choice of banks
Personal/ psychological/internal factors
Convenience
Safety of funds
Fast and efficient services (quick loan approval)
Pleasant banking experience
Easy deposit and withdrawal at different branch locations
ATM available at shopping centres
Financial strength of bank
Safety of ones funds
Accuracy of monthly statements for personal accounts
Full range of banking facilities
Bank located near place of work, home and access to public transport
Social/external Factors
Bank reputation
Electronic services; internet banking & ATMs
Location
Paying high interest on savings account
Hours of operation
Friendliness of bank personnel
Advice of friends, family and relatives
Product selection (breadth and depth; full service bank; availability of credit; loans and mortgages)
Service charges
Available parking facilities
Ambience (customers experience)
Size of waiting line
Efficient personnel
Speed of processing items
Location of vault
Source: Srivatsa & Srinivasan (2008); Amin, (2008); Blackson et al. (2007); Saunders et al. (2007); Tank & Tyler (2005); Bick et
al. (2004); Wel & Nor (2003); Gerrard & Cunningham (1997); Almossawi (2001); Har & Ta (2000); Haron et al. (1994).
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3
Methodology
Descriptive research design was used, as it is
appropriate for answering questions on who,
what, where, when, and how, and it was also
desirable because the findings could be
inferred to a larger population (Malhotra &
Birks, 2007). This type of research provides
information on understanding consumers as
well as insights into factors that influence
purchase decisions.
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4
Findings
The majority of the respondents were men
aged between 18 and 35. In terms of education,
75 per cent of the respondents had had tertiary
education; 90 per cent were employed, 36 per
cent considered themselves to be very religious
and 54 per cent somewhat religious. The
description of the sample base is given below
in Table 3:
Table 3
Demographics of respondents
%
Gender
Female:
Male:
30
70
Age
18-35
36-50
51-65
65+
70
25
3
2
Education
Tertiary:
Matric:
High School (incomplete):
75
21
4
Employment
Employed
Self-employed
Student
Retired
Unemployed
90
6
2
1
1
Religious level
Very religious
Completely religious
Somewhat religious
Not religious
36
8
54
2
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SAJEMS NS 14 (2011) No 3
Table 4
Comparison of Islamic banking awareness and usage
Study/country
Usage
investments
Awareness
Usage - finance
Usage - transaction
type products
High: 96.6%
Low: 20%
Low: 4-8%
Low: 2-6%
High*
High: 41.7%
Low: 13.1%
High: 68.4%
High*
High: 86.7%
Low:34.8%
High: 55.6%
Low
Low
Low
High: 96.7%
Low:31%
n/a
n/a
n/a
n/a: Islamic banking not yet offered in Singapore at the time of the study.
*: these studies did not state the overall level of awareness
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Table 5
Usage levels of Interest free banking products
Rank
Bank product/service
Interest free
Islamic banks
%
Interest based
banks
%
Do not
%
Savings/investment accounts
20
42
38
20
21
59
House/property finance
32
59
Current/Transaction accounts
81
13
Vehicle finance
33
61
Cheque book
66
29
ATM card
74
22
Business/trade finance
88
Credit card
76
21
10
Internet banking
65
32
11
Overdraft
30
67
12
Telephone banking
18
80
Table 6
Reasons for using more than one bank
Rank
Percentage
responses
A conventional bank for transaction purposes and an Islamic bank for Shariahcompliant savings/investment purposes
A conventional bank for transaction purposes and another conventional bank for
lower interest rates on finance
16.8%
12%
A conventional bank for transaction purposes and another conventional bank for
savings/investment purposes
12%
A conventional bank for transaction purpose and another conventional bank for
more or better credit-card facilities
29.6%
9.6%
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SAJEMS NS 14 (2011) No 3
A conventional bank for transaction purposes and an Islamic bank for Shariahcompliant finance
Convenience
8.8%
Other (unclassified)
2.4%
8.8%
Table 7
Importance of bank attributes
Rank
Bank attribute
5
Very important
%
4
Important
%
3
Neither
important nor
un-important
%
2
Unimportant
%
1
Very unimportant
%
Do not
know
%
0.0
86.4
13.6
0.0
0.0
0.0
78.8
18.8
1.2
0.4
0.4
0.4
69.6
22
5.6
2.0
0.8
0.0
64.4
22.8
4.8
3.6
1.6
2.8
56.0
29.2
9.2
3.6
2.0
0.0
Internet banking
51.6
24.4
16.0
6.0
1.6
0.4
47.2
20.4
8.8
6.0
15.2
2.4
Higher profits on
investments
44.8
30.8
10.0
6.0
5.6
2.8
Financial planning
assistance
34.4
39.2
17.6
4.4
3.6
0.8
10
Recommendation
13.2
36.0
35.2
9.6
4.8
1.2
11
Telephone banking
9..2
26.8
34.0
21.6
7.6
0.8
12
7.2
8.8
20.0
22.0
38.4
3.2
Source: Survey
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Table 8
Importance of bank attributes using distribution fitting algorithm approach
Average
importance
Degree of
consensus
0.699
0.725
15.23
0.548
0.817
10.60
0.0000
0.360
0.212
26.84
0.0000
Attributes
t-value
p-value
0.0000
0.254
0.807
4.97
0.0000
Internet banking
0.137
0.854
2.52
0.0122
0.077
1.472
0.81
0.4161
0.048
0.913
0.82
0.4104
-0.135
0.691
-3.09
0.0023
Recommendation
-0.517
0.560
-14.50
0.0000
Telephone banking
-0.708
0.587
-19.02
0.0000
-1.264
0.88
-22.29
0.0000
4.4 Discussion
The main characteristics of Islamic banking
are Shariah-compliance and profit/loss risk
sharing between borrower and lender. It was
found that 96.6 per cent of the respondents
knew of the four major attributes of Islamic
banking. The results indicate that only about
20 per cent of the respondents used interest-
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SAJEMS NS 14 (2011) No 3
Table 9
Comparison of key bank selection criteria
Highly-ranked attributes
Low-ranked attributes
Reputation of bank
Low interest rates on finance
Superior service
Reputation of bank
Confidentiality of bank
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5
Conclusion
5.3 Recommendations
With the increasing levels of competition in
the banking sector, it is important for bank
managers to understand the needs and
expectations of the market segments served in
order to attract, acquire and retain customers.
The important attributes identified by this
study ought to be addressed if the performance
by the banks is to meet customer expectations.
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