Islamic Banking Experience of Pakistan - Book Report/Review Example

Ahmad, A., Rehman, K. & Saif, M.I. Islamic Banking Experience of Pakistan: Comparison Between Islamic and Conventional Banks. International Journal of Business and Management 5 (2), 137-143. This paper is a comparative study of service quality and customer satisfaction in Islamic and conventional Pakistani banks. The authors explain that the background to banking in this country has been rather turbulent in recent years due to “unstable policies and uncertainty.” What is clear is that Islamic banking has begun to emerge as a key feature of the banking sector in Pakistan since the creation of the first Islamic bank in 2002. The experience of Islamic banking in surrounding countries has been mixed and so this article seeks to investigate the performance of Islamic banks in Pakistan, with an emphasis on customer service. Since the 96% of the total population is Muslim in Pakistan there are opportunities for Islamic banking services to take business from conventional banks. The conventional bank in Pakistan is characterised as state or privately owned with inadequate products and poor service. The approach used to gather data in this study is a structured questionnaire on a seven point Likert type scale following SERVQUAL. 720 customers in total were selected randomly and a 7 point Likert scale was used to analyze the responses. The results showed higher customer satisfaction in the Islamic banks than. There were also some gender differences due to the demographics of the different customer bases. This paper has a thorough view of the current literature, covering 39 academic books and articles. It addresses an up to date issue in contemporary Pakistan. One weakness of this article is the fact that authors state that they use stratified random sampling but in fact the stratification is limited to the distinction between Islamic and conventional banks, and the actual sample was put together using personal contacts. It was therefore not a truly random sample and the demographics are therefore likely to be biased. This bias is compounded by the fact that they issued the questionnaires in English, which will favor the upper classes of society. Customers with lower educational attainment or less international experience may have difficulty with English, and therefore conducting the survey in English favours the upper echelons of society. Cui, C.C., Lewis, B, R. & Park, W. Service quality measures in the banking sector in South Korea. International Journal of Bank Marketing 21 (4), 191-201. This study critically reviewed SERVQUAL instruments, as they are applied in organisations outside the Western part of the world and has in the past produced variable results. A key aim of the study was therefore to test the appropriateness of the SERVQUAL and related measures such as weighted SERVQUAL and SERVPERF for the South Korean banking sector. The authors theorize that customer-supplier loyalty is a stronger factor in Asian markets because of the collective culture that prevails in these countries. After first trying a convenience sample method, and finding it unsatisfactory, the authors used personal contacts and a snowball sampling technique to survey customers of the three major banks in the city of Seoul. A sample of 153 respondents was used, of which 73.2 per cent were educated to at least university level. The authors conclude that the original SERVQUAL and weighted SERVQUAL cannot be used directly in South Korea because they produce misleading results due to cultural differences between South Korean and European or American consumers. SERVPERF proved marginally more useful because there was more overlap in the categories measured between Eastern and Western contexts, but there are still question marks about its appropriateness for an Asian context. The authors concede that the sample size is too small to be generalized outside this specific context. Another limitation is that the sample was too small to be suitable for split-sample methods. More research is needed into the cultural dimension of different survey methods and especially into the defining of the dimensions which are used to inform such methods. Cronin, J.J. Jr. & Taylor, S.A. SERVPERF versus SERVQUAL: Reconciling Performance-Based and Perceptions-Minus-Expectations Measurement of Service Quality. Journal of Marketing 58 (1),125-131. This study re-examines SERVPERF and SERVQUAL, starting out from the hypothesis that criticisms which have been leveled against the SERVPERF are not supported by empirical evidence. The authors support the need to measure performance and the need to be aware of customer expectations. They disagree, however, with “Perceptions-Minus-Expectations” as an approach because they believe that it is one dimensional and cannot fully represent the links that exist between perceptions, expectations and customer buying behavior. A number of conceptual issues are explored, including the ambiguity which exists in the use of terms like customer service and service quality. The authors maintain that these terms are often poorly defined, and they are used almost interchangeably, even though they are based on different premises. Both SERVQUAL and SERVPERF scales are defined as tools for measuring a specific long term attitude at a single point in time. The authors revisit different ways of using and interpreting SERVQUAL and SERVPERF and conclude that it is not appropriate to include customer expectations in measures of service quality. The authors are keen to make a distinction between measuring long term attitudes and short term opinions. There is qualified support for the use of performance-importance maps, but this is not exactly the same as customer expectation. A strength of this paper is that it reflects deeply on the methods commonly used to measure customer satisfaction and service quality. It breaks down the concepts and examines each one separately, and looks for ways to put them together appropriately. There is a possible weakness in that the paper appears to defending the previous work of the authors, rather than truly looking for new solutions with an open mind. On the other hand, the authors have devised a new method and a new scale based on work conducted in a previous study and this is a significant contribution to the field. Othman, A. and Owen, L. Adopting and Measuring Customer Service Quality (SQ) in Islamic Banks: A Case Study in Kuwait Finance House. International Journal of Islamic Financial Services 3 (1). This is an interesting article which makes the assumption that Islamic banks are culturally different from conventional banks, and that this necessarily implies that this difference should be a major factor in devising systems to measure customer service quality and customer service. It therefore rejects standards which were developed for Western banks and proposes a new measurement tool called CARTER which is based on 34 items. The authors highlight the difficulties caused by vague definitions of quality and controversies that surround the school of thought which posits that quality perception should be on a supposed gap between customer perceptions and customer expectations. The paper argued that personal contact is more highly valued than hi-tech facilities such as cash machines in many Islamic banking contexts. If this is the unique selling point of Islamic banks, then the hi-tech focus of Western quality measures will be inappropriate. A survey was conducted using random sampling and it achieved 360 responses out of 500, which is a very high rate of 72 per cent. A five point Likert type scale was used and questions among others included direct enquiry about the importance that customers place on the bank that uses Islamic principles. The paper concludes that Islamic banks need to adopt more service quality measures, but that they need to adapt them also, with a conscious effort to tailor them to the local context. The strengths of the study are that it used Arabic language for the survey, which is accessible to a wider range of customers than English, and questions were devised which address perceptions of Islamic products and services. A weakness was that 82 per cent of respondents were male, and incomes were very high, which was to be expected because it reflects the Kuwaiti culture, but this result leaves female and lower income customers who may provide the future growth for the bank. The article also made concrete recommendations and stressed staff training needs. Newman, K. and Cowling, A. Service quality in retail banking: the experience of two British clearing banks. International Journal of Bank Marketing 14 (6), 3-11. This study observes that customer satisfaction is no longer sufficient for banks, since most customers who defect from a bank say that they were satisfied when they left. The standard that is required for customers to stay loyal is “total satisfaction” which means that they stay loyal, buy more and bring other customers to the bank. The article reported two empirical studies. The studies each looked at a single British high street bank in its effort to improve its service quality. One bank adopted TQM methodology while the other used a SERVQUAL approach. The authors used a case study methodology, involving semi structured interviews, document analysis and observation. This method was chosen because it provides a rich variety of data which in turn gives a full picture of what is happening in the bank. The authors found that both banks experienced improvements in their customer service through these initiatives, and so it was not possible to find in favour of one or other system. It is noted that the positive impact of the SERVQUAL method contributes to the on-going debate about the appropriateness of this method for banking and other service industries. To some extent it shows that SERVQUAL can be a useful aid and it does produce positive results. It is, however, not the only strategy available and so research into this area must continue. A strength of this article was the case study approach, which gives ample opportunity to understand the context of each bank in depth. A weakness of the study is that it was comparing two very different initiatives, and therefore it is not surprising that the authors had difficulty finding a clear indicator of which one was the best. The future gap The studies outlined above all focus on the importance of culture and tradition in measuring quality of service and customer satisfaction. There is general agreement that banks must work on customer loyalty as well as gaining new customers, especially since many markets are maturing and there is not so much potential to find new customers as there once was. These articles each considered banking in one particular country. Together they demonstrate that local culture and context are very important not only in defining criteria for measuring quality, but also in interpreting the results from standard methods and tests. Islamic banks need to do more about these issues, but at the same time there is considerable dissatisfaction with measuring tools which are based on Western concepts and Western psychology. The importance of loyalty in Islamic societies is cited as an indicator that different tools need to be applied to this particular type of banking. The theoretical side of this argument is well founded and clearly articulated. The evidence cited from empirical studies is, however, less than convincing. This is largely due to the use of a questionnaire method, which allows responses framed and codified in a narrow way. There is also a problem of skewed samples, and a failure to gather sufficient numbers of responses to provide reliable results. Future studies in this area must therefore adopt rigorous methods, and aim for large samples if questionnaires are to be used. The case study method may be a more suitable method because it allows a range of different data gathering techniques, and it may produce unexpected results through structured interviews which allow the participants to express their thoughts more freely than is possible in a questionnaire. 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), 135-150. This study examines customer satisfaction with Islamic banking in Jordan. It identifies two different contexts in which Islamic banking services are provided in that country: Islamic banks working in accordance with the Sharia’h principles and international conventional banks which offer a selection of products and services based on Islamic rules. This means that there is growing competition between indigenous Islamic and international conventional banks for Muslim customers. The product offerings of the two kinds of bank are converging and this means that customers are likely to choose on the basis of customer satisfaction. The institution selected for analysis was the Jordan Islamic Bank for Finance and Investment (JIBFI) which is an established institution operating on Islamic principles. The research questions focused on the factors that customers utilize when choosing to bank with an Islamic bank. A distinction was made between customers who bank only with an Islamic bank and customers who bank with both an Islamic bank and a conventional bank. A questionnaire was devised and delivered in Arabic to a random sample of 300 customers visiting the Islamic bank in a single two week period. The results of the questionnaire showed that religious reasons and reputation were the two most important factors which influenced customer choice of where to bank. Use of both banks was caused by a desire to diversify customer holdings, and also by the fact that each bank has few branches, and so it is more convenient to have the option of using more than one bank. Customers were generally satisfied with customer service at the counter, but less satisfied with the way customer complaints were handled on the telephone. Customers were reluctant to give their views on the religious body that oversees the running of the bank on Sharia’h principles. The Kruskall-Wallis Test was used to see whether differences in questionnaire responses were due to demographic variables such as age, gender and level of education. Some variations were found but they were categorised as minimal. Customers expressed high satisfaction with Islamic banking services, and some lower satisfaction with opening hours and availability of branches. Customers were aware of the specific features of Islamic banks, but they did not make very much use of them and appeared not to be familiar with some technical terms relating to Islamic practices. The authors recommend that Islamic banks should do more to educate their customers in the products that are available as a way of retaining Muslim customers. This paper provides some useful data on the performance of Islamic banks in a relatively liberal context. Its findings may, however, be applicable only to Jordan, where the bank in question is the only Islamic bank available, and there is no significant competition between Islamic banks. Abednya, A., Zaeim, M. and Hakimi, B.Y. (2011) Investigating the Relationship between Customers’ Perceived Service Quality and Satisfaction: Islamic Bank in Malaysia. European Journal of Social Sciences 21 (4), 603-624. This study investigates the direct impact of perceived service quality on customer satisfaction in the Islamic banking system in Malaysia. The authors note that the SERCPERF and SERVQUAL instruments do not take account of religious and cultural differences and observe that this renders these tools unsuitable for application in an Islamic country where religion is very definitely a factor in customer perception of banking services. The CARTER service model is used as an instrument in this study. It has 35 items and six dimensions. The study seeks to measure the gap between service performance and customer expectations. It identifies the six main categories as reliability, empathy, tangibility, responsiveness, assurance and compliance and hypothesizes that there is a difference between customer perception and expectation in each of these six areas. The authors examined secondary literature on all Islamic banks in Kuala Lumpur, the capital of Malaysia. Primary data was collected using a variety of channels including paper questionnaires, emails and survey websites. 27 items were selected from the original 35 CARTER items for inclusion in the questionnaire. The sample consists of 34 questionnaires filled in by volunteers in different parts of Kuala Lumpur and 62 questionnaires that were completed via a survey website. The results were analyzed using SPSS software using exploratory factor analysis and Pearson correlation analysis. A multiple regression analysis was used to measure the perceived service quality effect. All of the hypotheses were found to be valid, although there was a slightly lower confidence shown in relation to customer satisfaction in relation to compliance. The authors recommend that future research should concentrate on the development of HR practices which are tailored to the specific needs of Islamic banks, and on branding, in order to capitalize on the satisfaction which customers already have with their Islamic banking experience. The data in the study are presented in tabular form, which is a strength, since it can be clearly seen how the results were obtained. However, the conclusion of the article bears very little relation to the primary data, and concentrates instead on making general comments about the advantages of Muslim banking for Muslims and non-Muslims alike and the strength of the Malaysian economy. Emari, H., Iranzadeh, S. and Bakhshayesh, S. (2011) Determining the Dimensions of Service Quality in Banking Industry: Examining the Gronroos’s Model in Iran. Trends in Applied Sciences Research 6 (1), 57-64. This study examined the service quality of the banking industry of Iran as perceived by customers in the Pasargad Bank of Northwest. It used the European perspective of Gronroos’s model which suggests that service quality has three dimensions, namely technical (or outcomes), functional (or process) and image. The method used was a questionnaire using a 5 point Likert type scale. The sample for the collection of the primary data consisted of 287 customers of the Pasargard Bank of Northwest, all of whom held current accounts at the bank. The sample was chosen by a clustering method. The questionnaire was administered by 19 trained research students. Additional interviews were conducted with managers and staff at the three branches of the bank which were used for the data collection. These interviews provided information on the local context which was used to modify the wording of the questionnaires in such a way that the customers would easily understand them. The authors mention the SERVQUAL instrument but note that it has been criticized because of its focus on the service delivery process, rather than on customer perception. Confirmatory factor analysis was used to verify the construct validity of the scales. Cronbach alpha statistics were used to measure internal consistency of the method. The main finding of the research was that the overall service quality in the Iranian bank was influenced more by the consumers’ perception of technical quality than functional quality. The role of image in influencing consumers’ perception was not confirmed. These results cause the authors to conclude that the European way of measuring service quality is better than American methods because it considers technical as well as functional quality and this is an important element in the banking sector. A strength of this study lies in its relatively large sample, and in its discussion of the differences between different instruments which can be used to measure service quality and customer perceptions. The use of interviews with managers at the questionnaire design stage is also an example of good practice because it ensures that the formulation of the questions is closely aligned with the local context, vocabulary and systems. This ensures that participants understand the questions in relation to their actual experience and is more likely to result in accurate and truthful answers than the application of generic questionnaires which may not reflect the detail of banking practices in the field. Lee, M.C. & Hwan, I.S. (2005) Relationships among Service Quality, Customer Satisfaction and Profitability in the Taiwanese Banking Industry. International Journal of Management 22 (4), 635-648. This study considers the banking sector in Taiwan with a view to exploring whether service quality improvement influences profitability. It hypothesizes that customer perceptions of quality influence attitude, which in turn influences behaviour, with higher satisfaction levels resulting ultimately in better bank performance in the marketplace. Two questionnaires were used: a customer aspect questionnaire using the SERVQUAL and SERVPERF instruments. Branch managers and main office business managers were asked about their level of satisfaction with one year business accomplishments against targets, including market share targets and their view of customer satisfaction. Customers were contacted by mail and 145 usable questionnaires were returned. Managers were also contacted by mail, and 124 usable questionnaires were returned. The results confirmed that the SERVPERF scale adequately represent the Taiwanese banking industry. Service quality was found to influences purchase intentions more than customer satisfaction. This view was not shared by managers, however, who believed that customer satisfaction alone was the key to increasing purchase intentions. This gap in the perceptions of managers and customers was highlighted as a significant finding. Its implication for Malaysian banking is that managers need to focus more on service quality than they have been doing until now if they want to increase the profitability of their banks and branches. A strength of this study lies in its mapping of customer perceptions against manager perceptions and pinpointing areas of difference. There is a weakness, however, in the lack of detail provided on the method used to create both customer and manager samples. Because of this lack of information, it is not possible to identify any potential sources of bias in the final results and this casts some doubt upon the validity of the findings. Carrillat, F.A., Jaramillo, F. & Mulki, J.P. (2006) The validity of the SERVQUAL and SERVPERF scales: A meta-analytic view of 17 years of research across five continents. International Journal of Service Industry Management 18 (5), 472-490. This study investigates the difference between SERVQUAL and SERVPERF in terms of their predictive ability in relation to service quality. The method used is a meta-analysis and comparison of 17 previous studies which use SERVQUAL and SERVPERF instruments. The background to this study is the on-going debate in the scholarly literature on service quality about the relative merits of the two measuring instruments. The authors hope to establish whether one is better than the other. The 17 studies which are included in this meta–analysis were conducted in various industries across the globe. It is noted that the original SERVQUAL instrument has been used in the United States on several occasions and has proved its worth in that context. However all of the studies which were conducted in other countries and used SERVQUAL were found to have modified the original instrument in order to adapt it to local contexts. Cultural differences were an important factor, and it was found that these local adaptations improved its predictive capacity. SERVPERF, on the other hand, was more consistently used across the globe, with few adaptations and variations. The debate in the literature about the relative merits of the two instruments is sketched out with reference to dozens of articles, demonstrating a desire to explore in detail what previous researchers have observed in the application of the two instruments. The actual data used for the comparison consisted of 17 empirical studies dating from between 1988 and May 30, 2005. This timeframe was chosen because SERVQUAL was first published in the year 1988 and the study itself was written in 2005 for publication in early 2006. Electronic searches were carried out as well as manual searches and a call was put out on an electronic network for working papers, forthcoming articles, conference papers and unpublished research. The 17 studies together had gathered information from at total of 9,880 respondents and the range covered all five continents of the globe. The results of the meta-analysis show that both SERVQUAL and SERVPERF are adequate and equally valid predictors of overall service quality. One interesting point of detail was that the predictive value of the two scales was actually higher in countries which were culturally and linguistically different from the United States than in countries which were similar. At first sight this is a surprising result but in fact it may well reflect the modifications that were made to the SERVQUAL scale in order to take account of less individualistic cultures. The authors concede that more comparative research is needed in order to explore differences between the results of modified and non-modified versions of SERVQUAL in various contexts. A strength of this study lies in its accumulation of data from a large body of prior research. This provides an overview which allows the reader to see beyond individual contexts and the arguments between individual researchers defending their own views of the two instruments. The study does support the view that it is futile to make exclusive claims for one or other of the two main service quality measuring instruments and that both have equal validity. A weakness of the study lies in its dependence on the work of other researchers, and the variation that has crept into the SERVQUAL tool through exposure to different cultural contexts. These are however necessary limitations caused by the practical difficulties which are encountered when applying this instrument in the field. The research Gap The studies discussed in this section illustrate very clearly that both SERVQUAL and SERVPERF continue to perform a valuable function in the global assessment of quality in the banking sector. There are clearly differences between the original, American versions of these instruments, the European models which are derived from them, and the international modifications particularly of SERVQUAL which have been made in order to take account of religious and cultural factors. These differences are, however, natural consequences of the variation which occurs in human societies, and they reflect in particular the individualistic style of interaction in Western societies as opposed to a more collective style in Asian societies, for example. A key lesson that can be learned from these studies is that the instrument that is used to measure quality must be carefully chosen in order to match the local context. Some of the studies of Islamic banking demonstrate a firm grasp of current debates about service quality theories but they do not always adopt the best sampling techniques when fieldwork is conducted. Any future research into Islamic banking needs to adopt the most rigorous and unbiased methods possible in order to provide data that can be compared with studies completed in conventional banking. Read More