An Assessment of Service Quality Dimensions of Islamic Banks of Jordan - Thesis Proposal Example

? AN ASSESSMENT OF SERVICE QUALITY DIMENSIONS OF ISLAMIC AND CONVENTIONAL BANKS AND ITS IMPACT ON SATISFACTION: A CASE STUDY OF JORDAN Abstract Islamic finance is a new concept and have experienced global acceptance at a rapid rate since first commercial Islamic bank was established in the year 1975. Islamic banking system is mainly based on the principles of Islam which advocates equality and social justice and within the society. Charging and payment of interests are not allowed in any type of financial transactions. A research proposal has been presented here which has the primary aim and objective to compare and contrast between the service quality aspects of Islamic banks and the conventional banks. Hence the topic of this research proposal is “an assessment of service quality dimensions of Islamic and conventional banks and its impact on customer satisfaction: A case study in Jordan. The SERVQUAL model which addresses five dimensions of service quality would be utilised in the research study to help in assessing the gap between perceptions and expectations of the customers who are offered services by the banks. In order to achieve the aims and objectives of the study, a questionnaire survey would be conducted and the respondents would include customers of five Islamic banks at Jordan and five other conventional banks. Various statistical tools and techniques would be used to analyse the data obtained through the questionnaire surveys to get accurate results. The total budget allocated for conducting this research study has been estimated to be $16,000 and three years’ timeline has been set to successfully complete this research study. The research plan and the timeline associated with various activities that are needed to be done to conduct this study have been presented with the help of Gantt chart. Table of Contents Table of Contents 3 Introduction 4 Literature Review 7 Research Gap and Aim 10 Research Concept 11 Research Method 13 Questionnaire Survey 14 Data Sources and its Analysis 14 Budget and Timeline 15 References 17 Introduction The Islamic finance and banking sector is found to have experienced global acceptance at a rapid rate since 1975, when the first commercial Islamic bank was established (John, 2012). Charging of interest and its payment on financial transactions is prohibited in Islam. Moreover equality and social justice with the help of wealth distribution within the society are advocated by Islam. These Islamic principles are believed to have been institutional to promote Islamic financing worldwide on a large scale. The assets corresponding to the Islamic finance sector is experiencing a growth rate of around 15 to 20 per cent and it is expected that by the end of the year 2015 the assets would increase to around US$2 trillion (John, 2012). The Islamic financial institutions were also observed to have performed strongly during the recent global financial crisis (GFC) and it has further increased the reputation of Islamic finance sector as an alternative to the financing system followed conventionally. However, the Islamic finance sector faces various challenges in its way to global expansion as well. Some of these challenges include the dearth of knowledge about the Islamic financing system amongst the consumers and the regulatory environment that is prevalent in some of the countries of the world which imposes restrictions on Islamic financial institutions to offer certain types financing products. This research proposal will try to present a comparative study about the service quality dimensions related to conventional and Islamic financial institutions and banks with special reference to Jordan. A comparative study of the Islamic and conventional banks in Jordan suggested that the Islamic banks were more stable in their performance than the conventional banks during the recent global financial crisis (GFC) (Al-ali, and Yousfi, 2012). The Islamic banks at Jordan are found to be more profitable than the conventional banks as well. According to Sachdev and Verma (2004), service quality plays an important role in any service organisations like banks and it has a great importance in improving customer satisfaction levels in a significant manner. Customers are central to marketing strategy adopted by most of the service organisations and their satisfaction is important to the success of such companies. The growing impact of Islamic banks worldwide and their increasing profitability can be better understood by addressing the service quality issues related to conventional banks which are overcome through the Islamic banking systems. Customer satisfaction levels can be greatly enhanced through the improvement of quality dimensions related to banks (Radomir, Wilson, and Scridon, 2011). Service quality can be defined as a measure to help in comparison between the expectations from an offered service with that of the actual performance received from it. There are five dimensions of quality which includes tangibility, reliability, responsiveness, assurance and empathy. This research study would try to explore all these five service quality dimensions related to the convention banks and Islamic banks at Jordan to have a better idea about the similarities and differences in characteristics offered by these two types of banking systems. In the process, various service quality dimension models can be utilised that have been developed by different researchers. One prominent service quality model is the SERVQUAL model which relates to the five dimensions of service quality as mentioned previously (Schneider, and White, 2003, p. 31). Apart from this model other service quality models like Gronroos’s service quality model, IPA model, KANO model, CARTER model, SERVPERF model, and GAP model can also be utilised in this research study. Each of these service quality models has its own merits and demerits depending on the type of business organisations they are being used. Gronroos’s service quality model identifies two dimensions related to service quality. They are the technical functional aspects of service quality. Importance-performance analysis (IPA) model helps in measuring the satisfaction and importance of customers and helps in developing certain product relations. It is based on different attributes which are of technological priorities. The Kano model on the other hand helps in measuring the customer preference levels related to a service offered to them. Five of those customer defined attributes related to Kano model are attractive, one-dimensional, must-be, indifferent and reverse. CARTER service model helps in measuring the customer satisfaction levels based on the differences between customer's expectations and their perceptions regarding the quality of service received by them. SERVPERF model is similar to SERVQUAL model which utilizes its five quality dimensions for direct measure of the service performance levels as perceived by the customers and assumes that those perceptions would be automatically compared with the expectation levels of the received service. The GAP model which is also called as 5 GAPS model is a service quality model identifies five major gaps that exist within organizations that can be utilized to achieve and fulfil the customer expectation levels. Since this research study is related to Islamic financial institutions and conventional banks, it is necessary to choose such service quality dimension models for researching on these types of service organisations which can give better and pertinent results required to attain the aims and objectives of this research study. The primary aim or objective of this research study would be to analyse the different service quality aspects of the Islamic banks and conventional banks located at Jordan and then compare and contrast between the two. The study would also try to find out the impact of various service quality dimensions on the satisfaction levels of customers specific to the Islamic and conventional banking institutions. Hence, one of the service quality models that are best suited for this research study is the SERVQUAL model. It is so because SERVQUAL model addresses all the relevant service quality dimensions pertinent to the banking industry. The problem statement of this research study would be the comparative study of Islamic financial institutions and conventional banks located at Jordan, with special reference to the different service quality dimensions and the impact of such service quality dimensions on the satisfaction levels of the customers of Islamic banks. Thus six research questions have been identified for this research study. They are as follows: 1. What are the differences between the perceptions and expectations of the Jordanian Islamic bank customers and conventional bank customers as regards the banking services received by them? 2. Does tangibility has a significant impact on the Jordanian Islamic and conventional bank customers' perceptions of the banking services received by them? 3. Does reliability has a significant impact on the Jordanian Islamic and conventional bank customers' perceptions of the banking services received by them? 4. Does responsiveness has a significant impact on the Jordanian Islamic and conventional bank customers' perceptions of the banking services received by them? 5. Does assurance has a significant impact on the Jordanian Islamic and conventional bank customers' perceptions of the banking services received by them? 6. Does empathy has a significant impact on the Jordanian Islamic and conventional bank customers' perceptions of the banking services received by them? Literature Review The literature review section of this research study would try to take into account most of the pertinent existing literature that addresses the aims and objectives of this study. First of all service quality and its various dimensions as perceived by different researchers would be discussed in this section. Details of various service quality dimension models as developed by different researchers would also be discussed here. Moreover, Islamic finance and the viewpoints of various research scholars related to this concept would also be addressed in this section. The difference between the perceived service and the expected service is generally termed as service quality (Gronroos, 1982; Parasuraman, Zeithaml and Berry, 1988). Expectation disconfirmation theory forms the basis of conceptualising the term “service quality” (Collier, and Bienstock, 2006). Hence the service quality can be evaluated through the comparison of the prior expectation about the service quality with what is actually perceived by the customers. Many research studies have been conducted where the researchers have tried to focus on the relationship that exists between service quality and the satisfaction level of customers. The service quality perceived by customers and their expectation levels are two of the most interesting factors that have researched by many research scholars as presented in their literary works. Previous studies on service quality indicate use of various models developed by different eminent research scholars worldwide. Some of those models include the GAP model, CARTER model, the KANO model, the Gronroo’s perceived service quality model, the SERVQUAL model, etc (Abdelghani, 2012). Another recently developed service quality model is the IPA-KANO model (Kuo, Chen, and Deng, 2012). However, taking into consideration the objectives of this research study and the limitations of obtaining relevant data and information required for the purpose of utilising each of these models, only the SEVQUAL model would be utilised in this research study. Moreover, the SERVQUAL model is found to be more popular service quality model and comprehensive too (Baki, Basririnci, Cilingir, and Murat, 2009). The SEVQUAL model finds its wide use in case of perception of the customers related to the services received by them from different service organisations and the expectation levels of the customers about the use of such services in future. The models has been utilised in various occasions for studying different types of services like public services, hospital outpatient services, library services, private healthcare services, education services, logistic services and so on. However, the SERVQUAL model has not been utilised to investigate upon the perceptions of the customers related to banking services received by them. This model addresses five different dimensions related to service quality. They are: Tangibility, Reliability, Responsiveness, Assurance, and Empathy. Islamic finance has been in existence for many years. However, it became popularly known in the 1980’s. Initially, Islamic finance was practiced informally in amongst Islam entrepreneurs. It arose from the desire of Islamists to balance their religious life with the financial transactions. It implies that the Islam wanted their financial operations such as lending and payment of loans to be reflective of their religious believes. Islamic finance is thus based on Sharia laws, which are used by Islam’s in governance. In the initial stages, Islamic banking was not formal and was only practice by institutions that chose to. However, in the 1960’s, Islamic economy in the middle east started growing rapidly which led to establishment of Islamic philosophy to guide financial institutions. The philosophy was based on even wealth distribution, social justice in addition to a lot of emphasis laid on taking care of the poor in the society. Additionally, the Islamic finance was opposed to capitalism as well as socialism since they are regarded as oppressive by the Sharia laws. Another factor contributing to the rapid expansion of Islamic finance is its introduction in most learning institutions across the globe, which has aided in training of personnel who can practice it. Additionally, Islamic finance aspects can easily be merged with other aspects of conventional financing system like the Ijarah or lease contracts. Earlier studies suggest that the services offered by Islamic banks in Jordan offered satisfaction to the customers to a certain specified levels and dissatisfaction exists with regards to certain Islamic bank’s offerings in Jordan (Naser, Jamal, and Al-Khatib, 1999). The Islamic banks in general were also found to have higher profitability than conventional banks during the recent global financial crisis (GFC). Service quality is one aspect which might be one of the primary reasons behind the emergence and expansion of Islamic banks worldwide as compared to the growth of conventional banks. The concept of Islamic finance is also found to be different from that of the conventional banks. However it has been argued by Chong and Liu (2009) that in practice very little differences exist between Islamic banks and conventional banks. Research Gap and Aim The primary aim and objective of this research study is to compare the different aspects of service quality related to Islamic banks with other conventional banks. This research study would also try to explore the various impacts that each of the service quality dimensions has on the customer satisfaction levels. The previous studies on service quality indicates that various research have been undergone related to the concept of service quality utilising different service quality models in the process, like the SERVQUAL model, CARTER model, SERVPERF model, GAP model, etc. However not many research studies have been performed in relation to the use of service quality dimension model, especially SERVQUAL model in the organisations related to the banking sector. Hence this research study would try to fill in the gap that exists in the existing literature by utilising SERVQUAL model in order to study and compare the various services offered by conventional banking institutions and Islamic financial institutions. Moreover it has been observed that although Islamic banking is a new concept, it has already been implemented in two of the Muslim countries as the only banking system. Islamic banks have been established in many of the Muslim dominant countries and in some of the non-Muslim countries as well (Akhtar, 2012). Apart from this most of the research studies concerned with service quality comparison studies have been confined to mostly to the Gulf countries, Pakistan, Malaysia, etc. Hence not much research studies have been undertaken with respect to the service quality aspects of Islamic and conventional banks founds in Jordan. All these facts suggest that not many research studies have been undergone in the field of Islamic financial system and the reasons behind its growing popularity have not been addressed in details in the previous studies. Hence this research study would try to find out the service quality aspect of Islamic financial system in Jordan and how it has an impact on increasing the satisfaction levels of the customers. The two objectives that have been identified for this research study are as follows: 1. Examining the perceptions and expectations of Jordanian Islamic and conventional banks about the quality of banking services received by them. 2. To have an understanding about the different service dimensions that are considered to be important by the customers of Islamic and conventional banks in Jordan. Research Concept There are two aspects to this research study. One is the service quality aspect and the other is Islamic financial system. As discussed earlier the service quality aspect related to banking sector would be addressed in this study which would help to compare and contrast between the Islamic financial system and the conventional banking system in Jordan. Service quality and the perceived service quality are two concepts that are dealt with in a combined manner in the context of marketing. The perceived service quality by the customers serves for the purpose of a measuring scale for different organizations to assess their service offerings (Sultan, and Wong, 2012). However customer expectations are different from customer perceptions because the customers may not perceive the service performance to be equal or greater than the service expected by them. Hence in a way service quality can be defined as the difference between the perceived and expected service performance. The SERVQUAL model would be used in this research study to assess different aspects of service quality and how it is perceived by the customers of the banks. SERVQUAL model which originated during 1980s helps in measuring the perceptions of customers related to service quality. The SERVQUAL model lays down five quality dimensions which include tangibles, reliability, responsiveness, assurance, and empathy. Tangibles refer to the physical attribute associated with service quality. Reliability is a service quality dimension which refers to the ability through the promised service is performed accurately and dependably. Responsiveness means the willingness to facilitate prompt service to the customers. Assurance refers to courtesy and knowledge of the employees of an organisation and their abilities to help in inspiring confidence and trust in the services being offered to the customers. Empathy relates to the individualized attention and caring provided by the firm to its customers. The concept of Islamic finance is also new and it is found to be based on the basic principle of Islam which states that charging and payment of interests in financial transactions are not allowed. Islam also advocates equality and social justice through the means of wealth distribution within the society. Islamic finance is based on Sharia laws, which are used by Islam in governance. According to Sharia laws, riba or interest as well as inequitably shared risk are not ethical and are thus prohibited. This is contradictory to conventional finance practices since they are characterized by high interest rates on loans and instances of borrower taking all the risk on borrowed loans (Hassan and Mahlknecht, 2011, p. 11-20). Another factor contributing to the rapid expansion of Islamic finance is its introduction in most learning institutions across the globe, which has aided in training of personnel who can practice it. Additionally, Islamic finance aspects can easily be merged with other aspects of conventional finance. A good example is Ijarah, which means Lease and ownership. This aspect of Islamic finance has been adopted in some of the financial institutions within United States since it conforms to the United States’ banking regulations (Hassan and Mahlknecht, 2011, p. 29-41). Islamic banks differ from other conventional banks in some of the products offered by them like Murabaha, Musharaka and Mudaraba which are in accordance with the Shariah laws of Islam. Murabaha is a type of buy and sale agreement or a financing structure where a property is bought by an intermediary free of cost and having a complete title ownership on it. Musharaka on the other hand is a type of partnership agreement between two parties where instead of interest bearing borrowing instruments profit and loss is shared between the partners. Mudaraba is a type of venture capital funding where the banks provide the financing in lieu of the labour service performed by the entrepreneurs. Research Method The research methodology used in this research study would mostly involve quantitative research methodology in the form of questionnaire survey. Subsequently, qualitative research methodology would be used which would facilitate detailed and accurate analysis of the results and findings of this research study. The research methodology would thus be in alignment with achieving the aims and objectives of this study. Questionnaire Survey Questionnaire survey would also be used as a technique to obtain data for analysis in this research study. It can be helpful for understanding the customers’ perception regarding quality of service offered in the banks. The questions included in the questionnaire would be mostly closed ended type because the respondents of the survey would find it easier to answer to the questions and it would take less time for them to answer them as well. This would help in collecting more responses in shorter period of time. The responses would then be analysed to find out consumer preferences and perceptions regarding the services expected and actually being perceived by them. Moreover the questionnaires would also be designed to address all the five quality dimensions as laid down in the SERVQUAL model which would further help in assessing the impact of service quality on the customer satisfaction levels. Data Sources and its Analysis For conducting the questionnaire survey, around 500 respondents would be selected using random sampling technique. In order to achieve the objectives of this study five of the Islamic banks situated at Jordan and five other conventional banks would be chosen. The respondent of the questionnaire survey would mostly be the customers of the banks and some of the management staffs and would be equally distributed amongst all the selected banks. The questionnaire survey would mostly be an online survey where the respondent would be contacted over e-mail or through various social media websites and in some of the cases the respondents would be approached in person at the respective banks. After collecting all the responses from the questionnaire survey, quantitative research methodology involving a mixture of statistical techniques would be used in this research study. First of all descriptive statistics would be utilised in order to analyse the profiles of each of the respondents in the questionnaire survey. It is necessary for the purpose of accurate analysis of the final results. Secondly, paired sample t-test would be used in this research study which would help in examining the gap that exists between the expectations and perceptions. Lastly, factor analysis technique would be used in this study which would serve for the purpose of being an initial stage to logistic regression analysis. Budget and Timeline Successful completion of this research study would require funds to facilitate various activities that are to be undertaken while undergoing this study. The total budget for the purpose of conducting this research study has been estimated to be $16,000. Most of this fund would be utilised to conduct the questionnaire survey and its allied activities like designing of the questionnaires, taking printouts, etc. In order to complete this research study successfully it is necessary to have a proper planning about how to go on with the different tasks related to the project. It can be better understood through the Gantt chart prepared and as shown below:   Year 1 Quarter 1 Year 1 Quarter 2 Year 1 Quarter 3 Year 1 Quarter 4 Year 2 Quarter 1 Year 2 Quarter 2 Year 2 Quarter 3 Year 2 Quarter 4 Year 3 Quarter 1 Year 3 Quarter 2 Year 3 Quarter 3 Year 3 Quarter 4                           Formulation and Revision of Research Questions                         Formulation of Research Aim and Objectives                         Collection of Data from Secondary Sources                         Writing the introduction and literature review chapters                         Collection of primary data using questionnaires                         Writing the research methodology and findings of the study                         Analysis and conclusion                         Complete writing of the thesis                         Review and final submission                         References Abdelghani, E., 2012. Applying SERVQUAL to Banking Services: An Exploratory Study in Morocco. Studies in Business and Economics, 7(1), pp. 62-72. Akhtar, A., 2012. An Assessment of Service Quality Dimensions of Islamic Banks and Its Impact on Customer Satisfaction: A Study in Gulf Countries. National Conference on Emerging Challenges for Sustainable Business, pp. 1598-1601. Al-ali, A. H. O., and Yousfi, I. A., 2012. Investigation of Jordanian Islamic and Conventional Banks’ Stability: Evidence from the Recent Financial Crisis. European Journal of Economics, Finance and Administrative Sciences, 44, pp. 45-65. Al-Hawari, M., 2005. The Effect of Automated Service Quality on Bank Financial Performance and the Mediating Role of Customer Retention. Journal of Financial Services Marketing, 10(3), pp. 228-243. Al-Hawari, M., Hartley, N., and Ward, T., 2005. Measuring Banks’ Automated Service Quality: A Confirmatory Factor Analysis Approach. Marketing Bulletin, pp. 1-19. Al-Hawari, M., and Ward, T., 2006. The Effect of Automated Service Quality on Australian Banks' Financial Performance and the Mediating Role Of Customer Satisfaction. Marketing Intelligence & Planning, 24(2), pp. 127-147. Al-Hawari, M., Ward, T., and Newby, L., 2009. The Relationship between Service Quality and Retention within the Automated and Traditional Contexts of Retail Banking. Journal of Service Management, 20(4), pp. 455-472. Baki, B., Basfirinci, C.S., Cilingir, Z., and Murat, I., 2009. An Application of Integrating SERVQUAL and Kano’s Model into QFD for Logistics Services: A Case Study from Turkey, Asia Pacific Journal of Marketing and Logistics, 21(1), pp. 106-126. Chong, B. S., and Liu, M. H., 2009. Islamic Banking: Interest-free or Interest-based? Pacific-Basin Finance Journal, 17, p. 125-144. Collier, J. E., and Bienstock, C. C., 2006. Measuring Service Quality in E-Retailing. Journal of Service Research, 8(3), pp. 260-275. Ebrahimi, M. R., and Moghadam, A. H., 2012. A Survey to Recognize the Most Important Dimensions of the Service Quality of Iran's Commercial Banks. Journal of Management Research, 4(4), pp. 131-142. Gronroos, C., 1982. An Applied Service Marketing Theory. European Journal of Marketing, 16(7), pp. 30-41. Hassan, K., and Mahlknecht, M., 2011. Islamic Capital Markets: Products and Strategies. New Jersey: John Wiley & Sons. John, I., 2012. Islamic Finance Sector Seen to reach $2 trillion by 2015. Khaleej Times. [online] Available at: [Accessed 24 September 2012]. Kuo, Y. F., Chen, J. Y., and Deng, W. J., 2012. IPA–Kano Model: A New Tool for Categorising and Diagnosing Service Quality Attributes. Total Quality Management & Business Excellence, 23(7), pp. 731-748. Muhamad, R., Malewar, T.C., and Alwi, S. F. S., 2012. 2012),"Segmentation and Brand Positioning for Islamic Financial Services. European Journal of Marketing, 46(7), pp. 900-921. Naser, K., Jamal, A., and Al-Khatib, K., 1999. Islamic Banking: A Study of Customer Satisfaction and Preferences in Jordan. International Journal of Bank Marketing, 17(3), pp. 135-151. Parasuraman, A., Zeithaml, V.A. and Berry, L.L., 1988. SERVQUAL: Multiple-item Scale for Measuring Consumer Perceptions of Service Quality, Journal of Retailing, 64(1), pp. 12-40. Qureshi, M. I., Khan, A., and Zaman, K., 2012. Structural Investigation of Service Quality in Conventional and Islamic Banking in Pakistan. International Review of Management and Marketing, 2(2), pp. 99-105. Radomir, L., Wilson, A., and Scridon, A. M., 2011. Improving Bank Quality Dimensions to Increase Customer Satisfaction. [pdf] Available at: [Accessed 24 September 2012]. Sachdev, S. B., and Verma, H. V., 2004. Relative Importance of Service Quality Dimensions: A Multisectorial Study. Journal of Services Research, 4(1), pp. 93-116. Schneider, B., and White, S. S., 2003. Service Quality: Research Perspectives. California: SAGE Publications, Inc. Sultan, P., and Wong, H. Y., 2012. Service Quality in a Higher Education Context: An Integrated Model. Asia Pacific Journal of Marketing and Logistics, 24(5), pp. 1-31. Zainol, Z., Shaari, R., and Ali, H. M., 2008. A Comparative Analysis of Bankers’ Perceptions on Islamic Banking. International Journal of Business and Management, 3(4), pp. 157-168. Read More