ArticlePDF Available

Abstract

This paper attempts to provide a comprehensive review of the Islamic banking extant literature from a Malaysian perspective. There is no novel theoretical perspective; rather, the contribution that this paper makes is to simply illustrate and summarise the range of research being conducted on Islamic banking in a country known for its 'pioneering' role in growing Islamic banking and financing. Hence, this paper provides a comprehensive review of the Islamic banking literature within the Malaysian context before briefly illustrating perspectives of a number of Islamic banking managers in Malaysia. Three themes emerge from interviews with these managers: 1) factor influencing the choice of Islamic versus conventional banking/products; 2) the influence of the Malaysian context; and 3) the issue of Shariah-compliance.
36 Int. J. Islamic Marketing and Branding, Vol. 1, No. 1, 2015
Copyright © 2015 Inderscience Enterprises Ltd.
Conventional and Islamic banking: perspectives from
Malaysian Islamic bank managers
Michel Rod*
Sprott School of Business,
Carleton University,
1125 Colonel By Drive, Ottawa,
ON, K1S 5B6, Canada
Email: michel.rod@carleton.ca
*Corresponding author
Fawaz Baddar ALHussan
IESEG School of Management (LEM UMR CNRS 8179),
Université Catholique de Lille,
3 Rue de la Digue, Lille 59000, France
Fax: +33 (0)320-57-48-55
Email: f.baddar@ieseg.fr
Tim Beal
School of Marketing and International Business,
Victoria University of Wellington,
P.O. Box 600, Wellington, New Zealand
Email: tim@timbeal.net.nz
Abstract: This paper attempts to provide a comprehensive review of the
Islamic banking extant literature from a Malaysian perspective. There is no
novel theoretical perspective; rather, the contribution that this paper makes is to
simply illustrate and summarise the range of research being conducted on
Islamic banking in a country known for its ‘pioneering’ role in growing Islamic
banking and financing. Hence, this paper provides a comprehensive review of
the Islamic banking literature within the Malaysian context before briefly
illustrating perspectives of a number of Islamic banking managers in Malaysia.
Three themes emerge from interviews with these managers: 1) factor
influencing the choice of Islamic versus conventional banking/products; 2) the
influence of the Malaysian context; and 3) the issue of Shariah-compliance.
Keywords: conventional; Islamic; banking; Shariah; Malaysia.
Reference to this paper should be made as follows: Rod, M., ALHussan, F.B.
and Beal, T. (2015) ‘Conventional and Islamic banking: perspectives from
Malaysian Islamic bank managers’, Int. J. Islamic Marketing and Branding,
Vol. 1, No. 1, pp.36–54.
Conventional and Islamic banking 37
Biographical notes: Michel Rod is an Associate Professor in Marketing at
Carleton University, Canada. His research interests include ‘Doing business in
Asia’, service recovery performance, burnout, wine marketing, and
collaborative relationships amongst university, industry, and government
within the health sciences sector. His work is published in Industrial Marketing
Management, Journal of Business Research, Journal of Services Marketing,
Journal of Strategic Marketing, Journal of Retailing and Consumer Services,
Marketing Intelligence and Planning, Journal of Information and Knowledge
Management, Journal of Transnational Management Development, Managing
Service Quality and Science and Public Policy.
Fawaz Baddar ALHussan is an Assistant Professor in the Marketing
Department at IESEG School of Management, Université Catholique de Lille
in France. His research interests include key account management,
business-to-business marketing, relationship marketing and international
marketing. He has published in Industrial Marketing Management and the
International Journal of Human Resource Management.
Tim Beal is a former Senior Lecturer and Research Fellow in the School of
Marketing and International Business at Victoria University of Wellington, in
New Zealand. He has considerable experience teaching, researching and
advising on subjects ranging from Chinese politics to international marketing at
universities in the UK, Japan, China and New Zealand.
This paper is a revised and expanded version of a paper entitled ‘Conventional
and Islamic banking: perspectives from Malaysian Islamic bank managers’
presented at 5th Global Islamic Marketing Conference, Kuala Lumpur,
22–24 April 2014.
1 Introduction
There has been unprecedented growth of Islamic banking in the contemporary finance
world with Islamic banks holding in excess of US$ 900 billion in assets as of 2011 (Beck
et al., 2013) while operating in approximately 75 countries (Chaker and Jabnoun 2010).
Islamic banking operates on two basic principles under Islamic law (or Shari’ah); those
being the sharing of profit and loss as well as the prohibition of interest collection and
payment (Al Nasser and Muhammed, 2013) so it involves broader ethical and moral
considerations than simply the elimination of interest (Khan, 2010). Unlike conventional
banks whose operations are based on interest, Islamic banks operate an interest-free
system guided by the common principle that depositors, rather than receiving a fixed
return in the form of interest, share the risk of investment and receive part of the resulting
profits or bear part of the losses. However, Islamic banking is largely perceived as being
synonymous with ‘interest-free’ banking and there appears to be a mismatch between the
structural design of Islamic banks and the objectives they are mandated to pursue
(Hasan, 2008; Archer and Karim, 2012) – specifically in attempting to balance being
customer-centric and efficiency-driven without compromising being Shari’ah compliant
(Rashid et al., 2013). Ariff and Rosly (2011, p.301) comment that “Shari’ah compliance
can be a futile exercise when the purpose of the law (maqasid al-shari’ah) is overlooked,
for there is much more to Islamic banking than the elimination of interest”. Salleh (2012)
38 M. Rod et al.
echoes this sentiment in highlighting that ‘no-interest’ is merely one principle in Islamic
financial systems. Another perspective is shared by those that argue Islamic banking
profit-and-loss sharing is, in reality, only a small portion of Islamic bank financing where
deposits are not necessarily interest-free and that Islamic banks should be subject to the
same regulations as their western counterparts (Chong and Liu, 2009).
Thus, if a strong opinion exists that there may be difficulty in maintaining a customer
focus while still adhering to Islamic law, there is an opportunity to more closely examine
managerial perspectives regarding how Islamic banking can best compete with
conventional banking. This is an important topic given that research shows the impact
that frontline workers have on customer perceptions of service quality (Al-Mutawa and
Ibrahim, 2013; Misbach and Hadiwidjojo, 2013), the impact of service quality on
performance (Ahmad et al., 2010) and especially given evidence that barriers to service
quality seem to exist in some contexts (Chaker and Jabnoun, 2010). Service quality has
been shown to be a determining factor for choosing an Islamic bank (Subhani et al.,
2012) despite regulatory measures that seek to ensure that all Islamic banks compete on a
level playing field with each other and with traditional banks (Siddiqui, 2008;
Kamarulzaman and Madun, 2013) and under increasing pressure through the issuing of
fatwas advocating the harmonisation of Shariah rulings given the leniency and flexibility
in interpreting Shariah resolutions by Malaysian Islamic banks versus their Gulf
Cooperation Council (GCC) counterparts (Shaharuddin et al., 2012) in spite of arguments
that Malaysian civil courts and the Shariah Advisory Council in Malaysia should serve as
an exemplar for adjudicating Shariah issues in Islamic financial contracts (Trakic, 2013).
As one of the 75 previously-mentioned countries offering Islamic banking services,
Malaysia has been a pioneer in adopting dual banking systems where both Islamic and
conventional banking systems co-exist (Khiyar, 2012), and where conventional banks
have been allowed to open Islamic windows in taking a systematic planning approach to
growing Islamic finance systems in the region. In Malaysia, government has been the
main driver behind the development of an Islamic banking sector through its funding of
Islamic financial service banks and efforts to create legal frameworks (Al Nasser and
Muhammed, 2013). This paper attempts to provide a comprehensive review of the
Islamic banking extant literature from a Malaysian perspective. There is no attempt to
introduce any novel theoretical perspective; rather, the contribution that this paper makes
is to simply illustrate and summarise the range of research being conducted on Islamic
banking in a country known for its ‘pioneering’ role in growing Islamic banking and
financing. Hence, this paper provides a comprehensive review of the Islamic banking
literature within the Malaysian context before briefly illustrating perspectives of a
number of Islamic banking managers in Malaysia.
2 Literature review
In the Malaysian Islamic banking context, there has been considerable academic research
published over the past 24 years (Ariff, 1989; Al Nasser and Muhammed, 2013).
Characteristics of Islamic financing suggest that it is a viable alternative to conventional
interest-free financial systems; especially with respect to specific Islamic finance
products such as mudarabah (trust financing), musharakah (equity financing), ijarah
(lease financing), murabadah (trade financing), qard al-hassan (welfare loan), bay’ bi
al-thaman al-ajil (deferred payment financing), istisna’ (progressive payments) (Samad
Conventional and Islamic banking 39
et al., 2005), al-ijarah thumma al-bai (hire-purchase) (El-Din and Abdullah, 2007), and
sukuk (Islamic investment certificates/bonds) (Godlewski et al., 2013; Wilson, 2008).
Because the notion of accountability in Islam transcends the temporal world and the
eternal hereafter (Nahar and Yaacob, 2011), there has been a plethora of conceptual and
empirical work designed to assess these products in practice, addressing such topics as:
laws governing Islamic banks and legal issues associated with Islamic banking
innovations (Yaakub et al., 2011); the role of Islamic financial institutions in promoting
social and economic welfare as outlined by Shariah law (Aris et al., 2013); faith-based
investing and the demand for alternative investment vehicles that adhere to Sharia
principles (Hassan et al., 2010), their governance (Lewis, 2010), and their performance
relative to conventional unit trust funds (Abdullah et al., 2007; Saad et al., 2010); the
application of wa’d (unilateral promise) in Islamic banking contracts (Zaini and Isa,
2011); the determinants of profitability/performance comparing domestic versus foreign
Islamic banks (Muda et al., 2013a; Wasiuzzaman and Gunasegavan, 2013); the role of
venture capital versus Islamic finance in funding SMEs (Boocock and Presley, 1993); the
impact of macroeconomic variables on Islamic stock returns (Majid and Yusof, 2009),
and the role of Islamic and conventional stock markets in attracting foreign portfolio
investments (Yusof and Majid, 2008); perceptions of non-Muslim customers (Abdullah
et al., 2012); perceptions of corporate customers towards Islamic banking products and
services (Ahmad and Haron, 2002); the perceptions of loans officers regarding auditor
independence (Bakar et al., 2005); the evolution of an Islamic financial system (Laldin,
2008; Nakagawa, 2011), and its role in the Malaysian economy (Furqani and Mulyany,
2009; Sukmana and Kassim, 2010); assessing knowledge of and educating Malaysian
Muslims about Islamic banking (Hamid and Nordin, 2001); Islamic financing and bank
risk (Bacha, 2008; How et al., 2007); key issues in the measurement and management of
operational risk (Abdullah et al., 2011); the implications of deposit insurance (Abdullah
and Ahmad, 2012); the information content of the Islamic interbank money market rate
(Kassim and Manap, 2008); calculating the demand for money under Islamic financial
systems (Kaleem, 2000; Kaleem and Isa, 2006); disclosure and governance
(Satkunasingam and Shanmugam, 2004; Hassan and Christopher, 2005); compliance with
disclosure guidelines (Ameer et al., 2012); risk-management disclosure pre-, during, and
post-financial crises (Ismail et al., 2013b); accountability and governance (Magalhães and
Al-Saad, 2013; Nahar and Yaacob, 2011); securitisation (Zakaria and Ismail, 2008);
performance (Rosly and Bakar, 2003; Sufian, 2010a); customer attitudes towards Islamic
banking services (Haque, 2010; Thambiah et al., 2011); customers’ selection criteria for
using Islamic banks (Dusuki and Abdullah, 2007; Haque et al., 2009; Thambiah et al.,
2012; Echchabi and Olaniyi, 2012a, 2012b; Nawi et al., 2013); factors influencing
customers’ switching behaviours between banks offering Islamic banking products
(Abduh et al., 2013); determinants of internet banking acceptance (Amin, 2007a) and of
Islamic insurance acceptance (Rahim and Amin, 2011) and demand (Sherif and Shaairi,
2013); Shariah concerns associated with Islamic insurance (Wahab et al., 2007) and
associated disclosure compliance (Kasim, 2012); the impact of religion and region on
Islamic banking adoption (Thambiah et al., 2013); intent to use Islamic personal
financing (Amin et al., 2011a); the role of Islamic jurisprudence in implementing home
financing instruments that are Shariah compliant (Azli et al., 2011); criteria for choosing
Islamic home financing (Amin, 2008; Taib et al., 2008; Amin et al., 2009), the process of
adopting Islamic home financing (Amin et al., 2013), and the viability of using rental
40 M. Rod et al.
price (in comparison to lending rate) as a benchmark for fair pricing of Islamic home
financing products (Yusof et al., 2011); comparing Muslim and non-Muslim customers’
banking needs (Haron et al., 1994); determinants of Islamic and conventional banking
deposits (Haron and Azmi, 2008); comparing Islamic and conventional retail deposit
products (Amin, 2013a); the potential for various Islamic banking products (El-Din and
Abdullah, 2007; Muneeza et al., 2011); Islamic credit card patronage (Amin, 2012,
2013b) usage intentions (Amin, 2007b) and impact on loyalty as a result of service tax
implementation (Hussin, 2012); brand preference (Ahmad et al., 2011); stakeholder
perspectives on Islamic banking objectives (Dusuki, 2008); customer satisfaction and
loyalty (Amin et al., 2011b); comparing Muslim and non-Muslim customers’ trust,
satisfaction and loyalty between fully-fledged Islamic banks and banks with
Islamic windows (Hoq et al., 2010); cost efficiency (Yudistira, 2004) and
productivity/performance (Abdul-Majid et al., 2011a, 2011b; Muda et al., 2013b);
assessing Muslim and non-Muslim sensitivities towards adopting Arabic terminology in
Islamic banks (Muhamat et al., 2011); comparing efficiencies between Islamic banks and
conventional banks’ Islamic windows (Sufian, 2007; Kamaruddin et al., 2008; Ahmad
and Rahman, 2012; Yahya et al., 2012; Rozzani and Rahman, 2013) as well as
conventional banks (Mokhtar et al., 2006); comparing efficiency between Islamic banks
and conventional banks (Ismail et al., 2013a); comparing the contribution of Islamic
banking to economic growth between Malaysia and GCC countries (Farahani and Dastan,
2013; Yusof and Bahlous, 2013); comparing risk management practices between Islamic
and conventional banks in Malaysia as well as selected Islamic banks outside of Malaysia
(Tafri et al., 2011); comparing efficiency between domestic versus foreign Islamic banks
(Sufian, 2006); comparing efficiency between Islamic banks in countries like Malaysia
with conventional banking systems with Islamic banks operating in countries where
Islamic banking is more directly government legislation such as in the Middle East
(Kablan and Yousfi, 2013); comparing productivity between Islamic and conventional
banks (Ismail and Rahim, 2013); comparing the nature and extent of productivity changes
between co-operative, Islamic and conventional banks (Othman et al., 2013); comparing
financial performance of Islamic and conventional banks in the nineties (Iqbal, 2001) and
during and after economic crisis (Kadir et al., 2013; Kassim and Majid, 2010); comparing
the investment performance of conventional versus Islamic real estate investment trusts
(REITs) prior to and after global financial crises (Ong et al., 2012); comparing
profitability, liquidity and operational efficiency between Islamic and conventional banks
based on the former’s ideology (Arora and Raghu, 2011); comparing promotional tools
and practices used by conventional versus Islamic banks (Haque et al., 2010); comparing
management accounting systems between Islamic banks and conventional banks (Rasid
et al., 2011); competitive capabilities and efficiencies (Mokhtar et al., 2008); comparing
the factors influencing credit risk between Islamic and conventional banks (Ahmad and
Ahmad, 2004); Islamic rates of return (Ito, 2013) and the relationship between Islamic
and conventional banking depository returns (Kaleem and Isa, 2003); evaluating Islamic
bank resiliency to stock market fluctuation, interest rate or monetary conditions (Ibrahim
and Sukmana, 2011); the effect of interest rates of deposit account facilities of
conventional banks and past dividend rates on funds deposited by customers on the
Islamic deposit facilities of Malaysian banks (Haron and Ahmad, 2000); reasons for rapid
growth in Islamic banking (Chong and Liu, 2009); sources of productivity growth
(Sufian, 2009, 2010b); the role of Islamic banking in the Labuan International Offshore
Financial Center (Baba and Amin, 2009); the role of organisational learning in the growth
Conventional and Islamic banking 41
of Islamic banking (Mansor et al., 2010); proposed Islamic micro-investment strategies to
provide capital for micro, small and medium enterprises (Abdul Rahman et al., 2013);
awareness of e-banking services (Mansor et al., 2012); perceptions of service quality
(Abedniya and Zaeim, 2011; Kumar et al., 2010) and customer satisfaction (Amin and
Isa, 2008; Osman et al., 2009); measuring service quality across Islamic and conventional
banks (Kumar et al., 2010; Taap et al., 2011); branding Islamic financial services (Alwi
and Melewar, 2013); comparing centralised (Malaysia) and decentralised (GCC) shari’ah
governance frameworks (Hamza, 2013; Hasan, 2011) as well as the extent of shari’ah
disclosures in annual reports (Abdullah et al., 2013); assessment as to the Sharia
compliance of certain Islamic banking products (Sawari et al., 2011) and the extent to
which shubuhat exists in full-fledged versus subsidiary Islamic banks (Ahmed et al.,
2013). So, as one can see, there has been a tremendous amount of research related to
Islamic banking in the Malaysian context. Against this background, we have undertaken
an empirical study underpinned by a discursive perspective.
3 Research method
Adopting the methodological approach to business networks outlined by Ellis and
Hopkinson (2010), we use the concept of the ‘interpretive repertoire’ to facilitate the
study of discursive agency and constraint on the part of Islamic Banking managers in
Malaysia. Repertoires are recurrently used systems of terms viewed as building blocks
that speakers use strategically in explaining, justifying, excusing, etc. (Potter and
Wetherell, 1987). They effectively function as ‘scripts’ (Welch and Wilkinson, 2002) that
can facilitate and/or restrict actors’ sense-making and identity construction. Repertoires
can be identified through the examination of certain words, metaphors, figures of speech
and grammar. They enable evaluative micro discursive constructions about the
behaviours of the self and others. These constructions are facilitated by drawing upon a
variety of normative macro discourses, such as ‘relationship marketing’, that demark
what an actor ‘should’ do within the context of an inter-organisational relationship.
Discursive (spoken text) data was collected by researchers in New Zealand, with the
Malaysian component taking place in 2009. This took the form of transcripts from
semi-structured interviews with Senior Islamic Bank managers in Kuala Lumpur and
Labuan, the Secretary-General, Islamic Financial Services Board, Malaysia and the
Director-general, Labuan Offshore Financial Services Authority (LOFSA), Labuan. All
the participants were Malaysian, and the interviews, which were conducted in English,
lasted between 45 and 60 minutes, and were recorded on audio and video media.
Participants were asked open questions concerning their roles and the organisations they
represented as well questions about Islamic Banking products/services, their customers
and competitors. These included the initial scene-setting: ‘Tell us about your
bank/organisation’ before then addressing more specific issues regarding Islamic and
conventional banking in Malaysia. An academic colleague in Malaysia helped to identify
and contact relevant senior management in Islamic banks, or banks offering
Islamic services in Malaysia as well as senior personnel in associated government
departments and academic institutions to arrange interviews. Although our sample was
convenience-based, snowballing out as it did from initial contacts, it allowed us to
42 M. Rod et al.
interact with representatives from industry, government and academia in order to gain
varied perspectives on the topic of interest.
To manage the interview data, our analysis involved identifying interpretive
repertoires that were employed within the relevant portions of the interviews. We sought
to develop an understanding of how repertoires were used by identifying the various
discursive forms of any one repertoire and exploring who used such forms, when and
with reference to what. These steps were facilitated by NVivo software which allowed for
a high degree of transparency and levels of agreement as each researcher in turn coded
the data. Consistent coding of text to repertoire ‘nodes’ was guided by a protocol-based,
in part, on the management literature, but also on the emic responses of managers (cf.
Ellis and Hopkinson, 2010). In this way, we hope to have captured some of the subjective
perceptions of our participants (Zhu et al., 2005).
4 Findings
Several sets of linguistic resources were of significance to Malaysian managers. We have
organised these into three interpretive repertoires. Although the labels for each repertoire
are our own, the analysis was driven by the discourse of our participants as we moved
from ‘in vivo’ talk, through first order themes, onto second order themes which became
increasingly induced by us as researchers in order to offer suggestions regarding the
functioning of each overarching repertoire [Nag et al., (2007), p.828]. The repertoires
thereby emerged from patterns of talk wherein the same phrases and terms were drawn
upon across the sample. In discourse analysis, it is not just the identification of linguistic
tools that is important; what speakers do with language is also crucial. Although we have
sought to identify repeated usages of language, the relative frequency of occurrence of
each repertoire is not necessarily the most significant issue in discourse analysis: rather, it
is the strategic use of language by speakers that matters more. So, while our identification
of repertoires was guided by noting re-occurring expressions and terms, we use the
interpretive themes that emerged from our analysis as the guiding framework for this
section (i.e., from a broadly ‘macro’ to ‘micro’ level of constructed entities), instead of
letting pure frequency dictate the order in which we discuss our findings. In the segments
of talk presented below, in those verbal exchanges where a co-construction of meaning
appears to be taking place, P represents the participant and R the researcher.
4.1 Repertoire 1: quality of service and factors affecting choice of bank
products
The way that we organize our distribution, the way that we organize our risk
management can actually penetrate into this market because at the end of the
day what the customers are looking for is if you have good service, you have
fast turnaround time, sometimes they are willing to pay for, they’re not just,
they’re not just looking at the pricing, customers look at the service as well
especially today. (Senior manager of foreign bank operating Islamic subsidiary
bank)
We need to be competitive, so given the choice if they have two products one
conventional one Islamic and if they are both at par, no different in terms of
pricing is the same in terms of the documentation is the same, rate is the same
and all that, now very high chance that for the GLCs they [customer] will
Conventional and Islamic banking 43
choose Islamic business. (Senior manager of foreign bank operating Islamic
subsidiary bank)
While we find one product today that can more or less compete with
conventional product but along the way you probably can share this, you have
some challenges as far as Shariah is concerned. You know there are some new
findings in the Shariah activity for example they say the old you know you
can’t do this anymore. And that’s the time that we try to find a new
replacement. (Senior manager of foreign bank operating Islamic subsidiary
bank)
So as more and more players being introduced in the market for the Islamic
banking and takaful business. It’s not just bank it’s takaful and also the
investment banking. It will create competition number one. Number two it
reduce the cost, it will reduce price and when the price get reduced it benefit
the customers so there will come a time when the product of the Islamic bank
can be cheaper than the conventional bank as a result of all this. So then not
just the Muslim want to take it because the non-Muslim people will say hey this
is cheaper. I’ll go to Islamic bank. (Senior manager of foreign bank operating
Islamic subsidiary bank)
If everything is very equal they [Muslims] will high chance they choose the
Islamic. It is the non-Muslim that you want to see which one will you choose.
Their mindset depends on the salesperson. (Senior manager of foreign bank
operating Islamic subsidiary bank)
The mindset is not that you’re, you’re not just working for the money, you’re
working it because it is part of your duty to God……because in customer
service you have to do that extra mile without being asked to do. So if you are
monetarily motivated you will ask them to do something, what is in it for me.
So if you start asking what is in it for me so it’s quite difficult to get a natural
impromptu kind of quality service. The quality service will come but you will
not be natural, you will be half-hearted because I’m being paid to do that.
(Senior manager fully-fledged Islamic bank)
So that’s what I was saying that the training that continuously we are having to
ensure that our people are equipped with that knowledge of managing the
customer because if you manage it wrongly it can be the other way round. They
can tell another five customers that they have been victimized by the bank but
the training that we are giving is actually to make sure that our people know
how to manage and resolve the issue to the advantage of the bank. That’s why
we call it managing our critical and difficult customers. (Senior manager fully-
fledged Islamic bank)
We use a lot of our Shariah scholars to review and look at every single
transaction that we do in terms of the concepts and all that and we are coming
out clearer and clearer on this matter and I think Islamic banking in Malaysia is
at the stage where it’s moving towards another maturity level where then the
signs would be a lot more clearer in terms of the differential between
conventional banking and Islamic banking. (Senior manager fully-fledged
Islamic bank)
In the following exchange, we are speaking with a senior manager of a Saudi bank in
Malaysia.
P: At the end of the day I think Islamic banking okay there’s something like
this. Maybe when we did our strategy there’s something where we have low
hanging fruit, it obviously the people innately take to Islamic banking because
they understand it better which is the Muslim because Shariah to them might be
a little bit more understandable and palatable because it’s part of our whole
44 M. Rod et al.
aspect of being a Muslim to understand Shariah. So those are the low hanging
fruits we picked up fast. Being the Islamic bank, largest bank, Islamic bank in
the world coming from the Holy land. They are all businessmen and with
Shariah values so we will engage on these things.
R: Just to interrupt does that coming from the Holy land, coming from Saudi
does that give you some stronger Islamic credentials in the market here……
But compared with say Bank Islam which is a local, a Malaysian bank but not
coming from the Holy land. You’re coming from the Holy land with a non
Malaysian which is the stronger image?
P: I think we both have our own niche segments because I must say Bank Islam
you cannot take a fruit and they’re one of the, they’re the oldest Islamic bank
here, over twenty years. Now the thing is it’s also about making customer
increase it’s not only Shariah. When you go into a bank you expect service, you
expect a lot of things that are around. So that’s where we always wanted to be
different. We positioned ourselves in terms of service carrying. You know our
teams start from basic things from meet and greet you know, your bread and
butter comes from servicing them right and that’s something which we
hopefully did right. And we also realize in this market we have packaging. You
know there you could basically make a customer you know we want to be
everything to some customers. Not everything to everyone but we want to be
everything so in that way we probably did a bit of bundling in terms of our
product offering which also helped in terms of – what shall I say – capturing
that customer in terms of the Shariah wallet, we had those things basically put
in the way. Part of our KPIs is if you go to our branches it’s cross selling. So
these are things that we from day one kind of embedded into our whole plan of
getting our strategy right……. We shouted out in the market a few things. We
talked about here is the largest Islamic bank that’s going to give you products
that are transparent and etiquette. So if you look my whole campaign was based
on three words – truth, respect, honour. That’s all but I must tell you I’ve been
in advertising also with the two banks. It did wonders for us. It did wonders for
us so that acting on the first two years we’re still, we’re still driving that
perception and cashing our branches. It was a very simple campaign because all
our hoardings were truth, respect, honour and then we came to the tag line just
values, with the honour on the word just. You know being just and fair and
value. So it all this you know basically brought us into the market. They said
wow here is a bank at least that, you know that intuition to excite that mind.
Let’s find out what it was. It was more a corporate campaign bringing Al Rajhi
into the foray of saying here is a bank. Now we still, people don’t know what
the hell we are doing you know, what it is all about. But we brought out the fact
that we were the largest Islamic bank. When you look at a bank I always
believe people look for stability, security, sleep well with your money you
know. So we brought in the simple stuff and just values also basically became a
talking point you know what is just values is all about. I mean there were critics
also about it because we were also kind of evolving and in the end didn’t have a
kind of perfect model they want. We had little issues with the systems, with
people, there were a lot of training. We did a lot. We have a permanent training
centre in our head office if you go down there are two huge classrooms, it just
continues to keep doing it. (Senior Executive of a Saudi Bank in Malaysia)
4.2 Repertoire 2: the Malaysian context
A lot of other countries want to do Islamic banking. But i think as you’re
probably aware as well as Islamic bank for it to grow you really need some
changes in the regulatory framework and in the legal framework of the country
itself. If this is not changed then i think it’s going to be a long, long process for
Conventional and Islamic banking 45
you to have Islamic banking in that country. Now Malaysia has been fortunate
because the government used the amendment of the regulatory framework and
the legal framework to make the industry conducive for it to grow business. But
elsewhere is very much demand driven as opposed to regulatory framework
changes. (Senior Manager of Foreign Bank Operating Islamic Subsidiary Bank)
The other thing that prevent, well not prevent, that stifles the growth of Islamic
bank is the existing laws in the country. For example in this country you have
the Hire Purchase Act and you know you can only repossess a car through the
Hire Purchase Act so like it or not the Islamic banking have to follow that. So
these are some of the things. So whilst one wants to develop Islamic banking in
the country one has also got to look at the central bank being the regulator and
the existing laws that exist to cater and to allow for Islamic banking to try it
because it is a transaction which is not quite a lending transaction. It is a
buy/sell transaction or a deferred payment type transaction. So this is where the
countries have not been able, Malaysia is the most progressive but even the
progress on Malaysia is not as great as what it should be. So then you come and
you know face all these issues on the PPA and all that that recently happened
and these are, these are I would say legal and you know regulatory issues that
needs to be coming out of it….. the Islamic Banking Act actually allows for
you know a repossession outside Hire Purchase Act. (Senior manager
fully-fledged Islamic bank)
But at the end of the day you know in summary Islamic banking is all about
ethical banking. It’s about following the religion in terms of the way you
maumalat you deal with people and secondly is that the transactions are
premised on tangible economic activity. Every transaction that is done has an
economic activity. That is Islamic banking. If you know somebody buys house,
it’s an actual purchase with a, with a payment and with a capital benefit that
comes out of that person through whatever and if there is a financing through a
person that is an underlying asset along with it. That’s really it so the economic,
the transaction mirrors the economic activity. And that’s really it. So you can’t
get out of the realms of writing an option or writing something else to create
another value which over and above that economic value. (Senior manager
fully-fledged Islamic bank)
4.3 Repertoire 3: Sharia and Sharia compliance
From the perspective of a Western academic such as me, the most interesting discussion
in these interviews was when the conversation turned to Shariah and products that were
being offered by banks and the extent to which they were actually Shariah-compliant, as
seen in the following excerpts:
So we are a new bank we want to get it right here so we also have our proper
sharing ratio in place to make sure. But we continue to pay hiba to give them
something that is basically acceptable. So this is what I’m saying you know that
amount of modernization that can happen in eastern banking is there. Some
people think it’s archaic, that’s what I want to tell you, it is not. There are
things that Shariah can adapt to meet the changing environment. Now I am not
saying it is just the means of putting things to meet our standards, no because
hiba is hiba. It’s about the bank wants to in its own magnanimous way be free
to do anything about is okay. (Senior Executive of a Saudi Bank in Malaysia)
We provide Shariah advisory, through our audit and stock screening services.
Shariah audit, not that many are willing to come forward because you are
opening a can of worms. (Chief Executive of an Islamic Banking Institute)
46 M. Rod et al.
P: So we see a place like South Korea we approve their Shariah Islamic private
funds with people with 1billion and these funds will be used to finance and
endorse Shariah compliance areas.
R: But the money itself this is one billion coming from South Korea but I mean
does the money or the earning of the money or the origin of the money have to
be Shariah compliant?
P: No. No…. I explain this way. The promotion of the finances that they
already do in South Korea but the investment or the funds are actually from the
Middle East. The funds they’re using are from the East and then it is a clean
fund to be used like in to invest into the area, let’s say in Taiwan, in Korea or
even the Middle Eastern countries as well. In Shariah compliant products, yes.
R: But when the funds from the Middle East can come from different sources? I
mean whether it’s legal or illegal you don’t know.
P: I think in Shariah we learned not to ask questions. (Senior Executive Labuan
Offshore Financial Services Authority)
And another excerpt between the interviewer and a senior official at Bank Islam:
P: See sometimes people like me you know we are protecting Islamic business
at the bank, sometime charges are very unpopular to the customers that we are
having, so what we do is we call our Shariah people to see otherwise.
R: Can I just clarify this, looking at the Bank Islam you have the Board of
Directors, yes but you also have the Shariah supervisory council, so this is what
you are talking about?
P: That is very powerful. In case of Bank Islam they can practically close down
Bank Islam.
5 Discussion and conclusions
As previously mentioned, Islamic banking and finance should embrace more than the
simple elimination of interest by involving broader ethical and moral considerations
(Khan, 2010). In this paper, I have provided a broad but very superficial review of the
range of research that has been conducted on the topic of Islamic banking in the
Malaysian context – given that Malaysia has been a pioneer in adopting dual banking
systems where both Islamic and conventional banking systems co-exist (Khiyar, 2012),
and where government has been a major driver in the development of an Islamic banking
sector through its funding of Islamic financial service banks and efforts to create legal
frameworks (Al Nasser and Muhammed, 2013).
The results of an empirical study exploring the perspectives of a number of senior
Malaysian Islamic banking officials was presented according to three major themes that
were identified in their discussions with me, including the quality of service and factors
affecting choice of bank products, issues related to Malaysia as the context, and finally,
issues related to offering Islamic products and the extent to which Shariah compliance is
being adhered to. This latter theme raises the ongoing issue as to whether (and to what
extent do) Islamic banking practices reflect these broader ethical and moral
considerations dictated by Shariah principles.
Conventional and Islamic banking 47
References
Abduh, M., Kassim, S.H. and Dahari, Z. (2013) ‘Factors influencing switching behaviour of
Islamic bank customers in Malaysia’, Journal of Islamic Finance, Vol. 2, No. 1, pp.12–19.
Abdul Rahman, R., Muhanmmad, A.D. and Mahayudin, I. (2013) ‘Applicability of the Islamic
micro-investment model (IMIM) in Islamic Bank in Malaysia’, World Applied Sciences
Journal, Vol. 24, No. 5, pp.609–616.
Abdullah, A.A., Sidek, R. and Adnan, A.A. (2012) ‘Perceptions of non-Muslims customers towards
Islamic banks in Malaysia’, International Journal of Business and Social Science, Vol. 3,
No. 11, pp.151–163.
Abdullah, F., Hassan, T. and Mohamad, S. (2007) ‘Investigation of performance of Malaysian
Islamic unit trust funds: comparison with conventional unit trust funds’, Managerial Finance,
Vol. 33, No. 2, pp.142–153.
Abdullah, M., Shahami, S. and Ismail, A.G. (2011) ‘Operational risk in Islamic banks: examination
of issues’, Qualitative Research in Financial Markets, Vol. 3, No. 2, pp.131–151.
Abdullah, S.A.S. and Ahmad, R. (2012) ‘Deposit insurance system: an exposition for the Islamic
Banks in Malaysia’, International Journal of Social Sciences and Humanity Studies, Vol. 4,
No. 2, pp.427–438.
Abdullah, W.A.W., Percy, M. and Stewart, J. (2013) ‘Shari’ah disclosures in Malaysian and
Indonesian Islamic banks: the Shari’ah governance system’, Journal of Islamic Accounting
and Business Research, Vol. 4, No. 2, pp.100–131.
Abdul-Majid, M., Saal, D.S. and Battisti, G. (2011a) ‘The impact of Islamic banking on the cost
efficiency and productivity change of Malaysian commercial banks’, Applied Economics,
Vol. 43, No. 16, pp.2011–2054.
Abdul-Majid, M., Saal, D.S. and Battisti, G. (2011b) ‘Efficiency and total factor productivity
change of Malaysian commercial banks’, The Services Industries Journal, Vol. 31, No. 13,
pp.2117–2143.
Abedniya, A. and Zaeim, M.N. (2011) ‘Measuring the perceive service quality in the Islamic
banking system in Malaysia’, International Journal of Business and Social Science, Vol. 2,
No. 13, pp.122–135.
Ahmad, A., Bashir, M. and Nawaz, M.M. (2010) ‘Relationship between service quality and
performance of Islamic banks in Pakistan’, Interdisciplinary Journal of Contemporrary
Research in Business, Vol. 2, No. 7, pp.193–198.
Ahmad, K., Rustam, G.A. and Dent, M.M. (2011) ‘Brand preference in Islamic banking’, Journal
of Islamic Marketing, Vol. 2, No. 1, pp.74–82.
Ahmad, N. and Haron, S. (2002) ‘Perceptions of Malaysian corporate customers towards Islamic
banking products and services’, International Journal of Islamic Financial Services, Vol. 3,
No. 4, pp.13–29.
Ahmad, N.H. and Ahmad, S.N. (2004) ‘Key factors influencing credit risk of Islamic bank. A
Malaysian case’, The Journal of Muamalat and Islamic Finance Research, Vol. 1, No. 1,
pp.65–80.
Ahmad, S. and Rahman, A.R.A. (2012) ‘The efficiency of Islamic and conventional commercial
banks in Malaysia’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 5, No. 3, pp.241–263.
Ahmed, E.R., Bin Yahya, S. and Islam, M.A. (2013) ‘The relationship between bank orientation
and Shubuhat: a study on Islamic banks in Malaysia’, Economics, Management, and Financial
Markets, Vol. 8, No. 2, pp.95–109.
Al Nasser, S.A.S. and Muhammed, D.J. (2013) ‘Introduction to history of Islamic banking in
Malaysia’, Humanomics, Vol. 29, No. 2, pp.80–87.
Al-Mutawa, S.A.G. and Ibrahim, M.E. (2013) ‘Effects of gender and personality traits of front-desk
employees on customers’ assessment of service quality: evidence from Islamic banks in the
UAE’, International Journal of Business and Management, Vol. 8, No. 15, pp.1–19.
48 M. Rod et al.
Alwi, S.F.S. and Melewar, T.C. (2013) ‘Branding in the Asian context: a Malaysian perspective’,
Asia Pacific Journal of Marketing and Logistics, Vol. 25, No. 2, pp.287–297.
Ameer, R., Othman, R. and Mahzan, N. (2012) ‘Information asymmetry and regulatory
shortcomings in profit sharing investment accounts’, International Journal of Islamic and
Middle Eastern Finance and Management, Vol. 5, No. 4, pp.371–387.
Amin, H. (2007a) ‘An empirical investigation on consumer acceptance of internet banking in an
Islamic bank’, Labuan Bulletin of International Business & Finance, Vol. 5, pp.41–64.
Amin, H. (2007b) ‘An analysis of mobile credit card usage intentions’, Information Management &
Computer Security, Vol. 15, No. 4, pp.260–269.
Amin, H. (2008) ‘Choice criteria for Islamic home financing: empirical investigation among
Malaysian bank customers’, International Journal of Housing Markets and Analysis, Vol. 1,
No. 3, pp.256–274.
Amin, H. (2012) ‘Patronage factors of Malaysian local customers toward Islamic credit cards’,
Management Research Review, Vol. 35, No. 6, pp.512–530.
Amin, H. (2013a) ‘Some viewpoints of Islamic banking retail deposit products in Malaysia’,
Journal of Internet Banking and Commerce, Vol. 18, No. 12, pp.1–13.
Amin, H. (2013b) ‘Factors influencing Malaysian bank customers to choose Islamic credit cards:
empirical evidence from the TRA model’, Journal of Islamic Marketing, Vol. 4, No. 3,
pp.245–263.
Amin, H., Hamid, M.R.A., Lada, S. and Baba, R. (2009) ‘Cluster analysis for bank customers’
selection of Islamic mortgages in Eastern Malaysia: an empirical investigation’, International
Journal of Islamic and Middle Eastern Finance and Management, Vol. 2, No. 3, pp.213–234.
Amin, H., Rahim, A.R.A. and Abdul-Razak, D. (2013) ‘An integrative approach for understanding
Islamic home financing adoption in Malaysia’, International Journal of Bank Marketing,
Vol. 31, No. 7, pp.544–573.
Amin, H., Rahim, A.R.A., Sondoh Jr., S.L. and Hwa, A.M.C. (2011a) ‘Determinants of customers’
intention to use Islamic personal financing: the case of Malaysian Islamic banks’, Journal of
Islamic Accounting and Business Research, Vol. 2, No. 1, pp.22–42.
Amin, M., Isa, Z. and Fontaine, R. (2011b) ‘The role of customer satisfaction in enhancing
customer loyalty in Malaysian Islamic banks’, The Service Industries Journal, Vol. 31, No. 9,
pp.1519–1532.
Amin, M. and Isa, Z. (2008) ‘An examination of the relationship between service quality perception
and customer satisfaction’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 1, No. 3, pp.191–209.
Archer, S. and Karim, R.A.A. (2012) ‘The structure, regulation and supervision of Islamic banks’,
Journal of Banking Regulation, Vol. 13, No. 3, pp.228–240.
Ariff, M. (1989) ‘Islamic banking in Malaysia. Framework, performance, and lessons’,
International Journal of Economics, Management and Accounting, Vol. 2, No. 2, pp.67–78.
Ariff, M. and Rosly, S.A. (2011) ‘Islamic banking in Malaysia: unchartered waters’, Asian
Economic Policy Review, Vol. 6, No. 2, pp.301–319.
Aris, N.A., Othman, R. and Azli, R.M. (2013) ‘Pyramid of Maslahah for social and economic
welfare: the case of Bank Islam Malaysia Berhad’, Journal of Energy Technologies and
Policy, Vol. 3, No. 11, pp.457–470.
Arora, J. and Raghu, K.P. (2011) ‘Islamic banking and conventional banking: a comparative study’,
Asia Pacific Journal of Research in Business Management, Vol. 2, No. 10, pp.60–71.
Azli, R.M., Othman, R., Sahri, M., Aris, N.A., Arshad, R. and Yaakob, A.R. (2011)
‘Implementation of Maqasid Shari’ah in Islamic house financing: a study of the rights and
responsibilities of contracting parties in Bai’Bithaman Ajil and Musharakah Mutanaqisah’,
Journal of Applied Business Research, Vol. 27, No. 5, pp.85–96.
Baba, R. and Amin, H. (2009) ‘Offshore bankers’ perception on Islamic banking niche for Labuan:
an analysis’, International Journal of Commerce and Management, Vol. 19, No. 4,
pp.293–308.
Conventional and Islamic banking 49
Bacha, O.I. (2008) ‘The Islamic inter bank money market and a dual banking system: the
Malaysian experience’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 1, No. 3, pp.210–226.
Bakar, N.B.A., Rahman, A.R.A. and Rashid, H.M.A. (2005) ‘Factors influencing auditor
independence: Malaysian loan officers’ perceptions’, Managerial Auditing Journal, Vol. 20,
No. 8, pp.804–822.
Beck, T., Demirgüç-Kunt, A. and Merrouche, O. (2013) ‘Islamic vs. conventional banking:
business model, efficiency and stability’, Journal of Banking and Finance, Vol. 37, No. 2,
pp.433–447.
Boocock, J.G. and Presley, J.R. (1993) ‘Equity capital for small and medium-sized enterprises in
Malaysia: venture capital or Islamic finance’, Managerial Finance, Vol. 19, No. 7, pp.82–95.
Chaker, M.N. and Jabnoun, N. (2010) ‘Barriers to service quality in Islamic banks in Qatar’,
International Journal of Commerce and Management, Vol. 20, No. 4, pp.296–307.
Chong, B.S. and Liu, M.H. (2009) ‘Islamic banking: interest-free or interest-based?’, Pacific-Basin
Finance Journal, Vol. 17, No. 1, pp.125–144.
Dusuki, A.W. (2008) ‘Understanding the objectives of Islamic banking: a survey of stakeholders’
perspectives’, International Journal of Islamic and Middle Eastern Finance and Management,
Vol. 1, No. 2, pp.132–148.
Dusuki, A.W. and Abdullah, N.I. (2007) ‘Why do Malaysian customers patronise Islamic banks?’,
International Journal of Bank Marketing, Vol. 25, No. 3, pp.142–160.
Echchabi, A. and Olaniyi, O.N. (2012a) ‘Malaysian consumers’ preferences for Islamic banking
attributes’, International Journal of Social Economics, Vol. 39, No. 11, pp.859–874.
Echchabi, A. and Olaniyi, O.N. (2012b) ‘Using theory of reasoned action to model the
patronisation behaviour of Islamic banks’ customers in Malaysia’, Research Journal of
Business Management, Vol. 6, No. 3, pp.70–82.
El-Din, S.I.T. and Abdullah, N.I. (2007) ‘Issues of implementing Islamic hire purchase in dual
banking systems: Malaysia’s experience’, Thunderbird International Business Review,
Vol. 49, No. 2, pp.225–249.
Ellis, N. and Hopkinson, G. (2010) ‘The construction of managerial knowledge in business
networks: managers’ theories about communication’, Industrial Marketing Management,
Vol. 39, No. 3, pp.413–424.
Farahani, Y.G. and Dastan, M. (2013) ‘Analysis of Islamic banks’ financing and economic growth:
a panel cointegration approach’, Journal of Islamic and Middle Eastern Finance and
Management, Vol. 6, No. 2, pp.156–172.
Furqani, H. and Mulyany, R. (2009) ‘Islamic banking and economic growth: empirical evidence
from Malaysia’, Journal of Economic Cooperation and Development, Vol. 30, No. 2,
pp.59–74.
Godlewski, C.J., Turk-Ariss, R. and Weill, L. (2013) ‘Sukuk vs. conventional bonds: a stock
market perspective’, Journal of Comparative Economics, Vol. 41, No. 3, pp.745–761.
Hamid, A.H.A. and Nordin, N.A.M. (2001) ‘A study on Islamic banking education and strategy for
the new millennium – Malaysian experience’, International Journal of Islamic Financial
Services, Vol. 2, No. 4, pp.1–10.
Hamza, H. (2013) ‘Sharia governance in Islamic banks: effectiveness and supervision model’,
International Journal of Islamic and Middle Eastern Finance and Management, Vol. 6, No. 3,
pp.226–237.
Haque, A. (2010) ‘Islamic banking in Malaysia: a study of attitudinal differences in Malaysian
customers’, European Journal of Economics, Finance and Administrative Sciences, Vol. 18,
pp.7–18.
Haque, A., Ahmed, K. and Jahan, S.I. (2010) ‘Shariah observation: advertising practices of Bank
Muamalat in Malaysia’, Journal of Islamic Marketing, Vol. 1, No. 1, pp.70–77.
50 M. Rod et al.
Haque, A., Osman, J. and Ismail, A.Z.H. (2009) ‘Factor influences selection of Islamic banking: a
study on Malaysian customer preferences’, American Journal of Applied Sciences, Vol. 6,
No. 5, pp.922–928.
Haron, S. and Ahmad, N. (2000) ‘The effects of conventional interest rates and rate of profit on
funds deposited with Islamic banking system in Malaysia’, International Journal of Islamic
Financial Services, Vol. 1, No. 4, pp.1–7.
Haron, S. and Azmi, W.N.W. (2008) ‘Determinants of Islamic and conventional deposits in the
Malaysian banking system’, Managerial Finance, Vol. 34, No. 9, pp.618–643.
Haron, S., Ahmad, N. and Planisek, S.L. (1994) ‘Bank patronage factors of Muslim and
non-Muslim customers’, International Journal of Bank Marketing, Vol. 12, No. 1, pp.32–40.
Hasan, Z. (2008) ‘Credit creation and control: an unresolved issue in Islamic banking’,
International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1, No. 1,
pp.69–81.
Hasan, Z. (2011) ‘A survey on Shari’ah governance practices in Malaysia, GCC countries and the
UK: critical appraisal’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 4, No. 1, pp.30–51.
Hassan, M.K., Khan, A.N.F. and Ngow, T. (2010) ‘Is faith-based investing rewarding? The case for
Malaysian Islamic unit trust funds’, Journal of Islamic Accounting and Business Research,
Vol. 1, No. 2, pp.148–171.
Hassan, S. and Christopher, T. (2005) ‘Corporate governance statement disclosure of Malaysian
banks and the role of Islam’, Asian Review of Accounting, Vol. 13, No. 2, pp.36–50.
Hoq, M.Z., Sultana, N. and Amin, M. (2010) ‘The effect of trust, customer satisfaction and image
on customers’ loyalty in Islamic banking sector’, South Asian Journal of Management,
Vol. 17, No. 1, pp.70–93.
How, J.C.Y., Karim, M.A. and Verhoeven, P. (2007) ‘Islamic financing and bank risks: the case of
Malaysia’, Thunderbird International Business Review, Vol. 47, No. 1, pp.75–94.
Hussin, N. (2012) ‘Credit card service tax: lessons learnt from Malaysia’, Australian Journal of
Basic and Applied Sciences, Vol. 6, No. 10, pp.455–461.
Ibrahim, M.H. and Sukmana, R. (2011) ‘Dynamics of Islamic financing in Malaysia’ causality and
innovation accounting’, Journal of Asia-Pacific Business, Vol. 12, No. 1, pp.14–19.
Iqbal, M. (2001) ‘Islamic and conventional banking in the nineties: a comparative study’, Islamic
Economic Studies, Vol. 8, No. 2, pp.1–28.
Ismail, F. and Rahim, R.A. (2013) ‘Productivity of Islamic and conventional banks of Malaysia: an
empirical analysis’, The IUP Journal of Bank Management, Vol. 12, No. 3, pp.7–19.
Ismail, F., Majid, M.S.A. and Rahim, R.A. (2013a) ‘Efficiency of Islamic and conventional banks
in Malaysia’, Journal of Financial Reporting & Accounting, Vol. 11, No. 1, pp.92–107.
Ismail, R., Rahman, R.A. and Ahmad, N. (2013b) ‘Risk management disclosure in Malaysian
Islamic financial institutions: pre- and post-financial crisis’, Journal of Applied Business
Research, Vol. 29, No. 2, pp.419–432.
Ito, T. (2013) ‘Islamic rates of return and conventional interest rates in the Malaysian deposit
market’, International Journal of Islamic and Middle Eastern Finance and Management,
Vol. 6, No. 4, pp.290–303.
Kablan, S. and Yousfi, O. (2013) ‘What drives efficiency of Islamic banks among regions?’, The
Journal of Applied Business Research, Vol. 29, No. 5, pp.1411–1420.
Kadir, N.A., Jaffar, A., Abdullah, N.L. and Harun, N. (2013) ‘Comparison of the financial
performance of Islamic and conventional bank in Malaysia during and after economic crisis’,
in International Conference on Mathematical Sciences and Statistics 2013 (ICMSS2013):
Proceedings of the International Conference on Mathematical Sciences and Statistics,
Vol. 1557, No. 1, pp.247–251.
Kaleem, A. (2000) ‘Modelling monetary stability under dual banking system: the case of
Malaysia’, International Journal of Islamic Financial Services, Vol. 2, No. 1, pp.21–42.
Conventional and Islamic banking 51
Kaleem, A. and Isa, M.M. (2006) ‘Islamic banking and money demand function in Malaysia’,
Pakistan Economic and Social Review, Vol. 44, No. 2, pp.277–290.
Kamaruddin, B.H., Safa, M.S. and Mohd, R. (2008) ‘Assessing production efficiency of Islamic
banks and conventional bank Islamic windows in Malaysia’, International Journal of Business
and Management Science, Vol. 1, No. 1, pp.31–48.
Kamarulzaman, Y. and Madun, A. (2013) ‘Marketing Islamic banking products: Malaysian
perspective’, Business Strategy Series, Vol. 14, Nos. 2/3, pp.60–66.
Kasim, N.A.A. (2012) ‘Disclosure of Shariah compliance by Malaysian takaful companies’,
Journal of Islamic Accounting and Business, Vol. 3, No. 1, pp.20–38.
Kassim, S.H. and Majid, M.S.A. (2010) ‘Impact of financial shocks on Islamic banks: Malaysian
evidence during 1997 and 2007 financial crises’, International Journal of Islamic and Middle
Eastern Finance and Management, Vol. 3, No. 4, pp.291–305.
Kassim, S.H. and Manap, T.A.A. (2008) ‘The information content of the Islamic interbank money
market rate in Malaysia’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 1, No. 4, pp.304–312.
Khan, F. (2010) ‘How ‘Islamic’ is Islamic banking?’, Journal of Economic Behavior &
Organization, Vol. 76, No. 3, pp.805–820.
Khiyar, K.A. (2012) ‘Malaysia: 30 years of Islamic banking experience (1983–2012)’,
International Business & Economics Research Journal, Vol. 11, No. 10, pp.1133–1145.
Kumar, M., Kee, F.T. and Charles, V. (2010) ‘Comparative evaluation of critical factors in
delivering service quality of banks’, International Journal of Quality & Reliability
Management, Vol. 27, No. 3, pp.361–377.
Laldin, M.A. (2008) ‘Islamic financial system: the Malaysian experience and the way forward’,
Humanomics, Vol. 24, No. 3, pp.217–238.
Lewis, M.K. (2010) ‘Accentuating the positive: governance of Islamic investment funds’, Journal
of Islamic Accounting and Business Research, Vol. 1, No. 1, pp.42–59.
Magalhães, R. and Al-Saad, S. (2013) ‘Corporate governance in Islamic financial institutions: the
issues surrounding unrestricted investment account holders’, Corporate Governance, Vol. 13,
No. 1, pp.39–57.
Majid, M.S.A and Yusof, R.M. (2009) ‘Long-run relationship between Islamic stock returns and
macroeconomic variables’, Humanomics, Vol. 25, No. 2, pp.127–141.
Mansor, N., Malik, N.H.A. and Mat, A.C. (2010) ‘Enculturation of organizational learning for
developing competency: a case of Malaysian Islamic banking institution’, E-Journal of
Organizational Learning and Leadership, Vol. 8, No. 1, pp.62–75.
Mansor, N., Shariff, A.M. and Manap, N.R.A. (2012) ‘Determinants of awareness on Islamic
financial institution e-banking among Malaysian SMEs’, International Journal of Business
and Social Science, Vol. 3, No. 5, pp.93–101.
Misbach, I. and Hadiwidjojo, D. (2013) ‘Islamic bank service quality and trust; study on Islamic
bank in Makassar Indonesia’, International Journal of Business and Management, Vol. 8,
No. 5, pp.48–61.
Mokhtar, H.S.A., Abdullah, N. and Al-Habshi, S.M. (2006) ‘Efficiency of Islamic banking in
Malaysia: a stochastic frontier approach’, Journal of Economic Cooperation, Vol. 27, No. 2,
pp.37–70.
Mokhtar, H.S.A., Abdullah, N. and Alhabshi, S.M. (2008) ‘Efficiency and competition of Islamic
banking in Malaysia’, Humanomics, Vol. 24, No. 1, pp.28–48.
Muda, M., Shaharuddin, A. and Embaya, A. (2013a) ‘Comparative analysis of profitability
determinants of domestic and foreign Islamic banks in Malaysia’, International Journal of
Economics and Financial Issues, Vol. 3, No. 3, pp.559–569.
Muda, M., Shaharuddin, A. and Embaya, A. (2013b) ‘Determinants of banks’ efficiency: a panel
regression analysis of Islamic banks in Malaysia’, Economics and Finance Review, Vol. 3,
No. 3, pp.19–28.
52 M. Rod et al.
Muhamat, A.A., Jaafar, M.N. and Azizan, N.A. (2011) ‘An empirical study on banks’ clients’
sensitivity towards the adoption of Arabic terminology amongst Islamic banks’, International
Journal of Islamic and Middle Eastern Finance and Management, Vol. 4, No. 4, pp.343–354.
Muneeza, A., Yusuf, N.N.A.N. and Hassan, R. (2011) ‘The possibility of application of salam in
Malaysian Islamic banking system’, Humanomics, Vol. 27, No. 2, pp.138–147.
Nag, R., Corely, K.G. and Gioia, D.A. (2007) ‘The intersection of organizational identity,
knowledge, and practice: attempting strategic change via knowledge grafting’, Academy of
Management Journal, Vol. 50, No. 4, pp.821–847.
Nahar, H.S. and Yaacob, H. (2011) ‘Accountability in the sacred context: the case of management,
accounting and reporting of a Malaysian cash Awqaf Institution’, Journal of Islamic
Accounting and Business Research, Vol. 2, No. 2, pp.87–113.
Nakagawa, R. (2011) ‘The evolution of Islamic finance in Southeast Asia: the case of Malaysia’,
Journal of Applied Business Research (JABR), Vol. 25, No. 1, pp.111–126.
Nawi, F.A.M., Yazid, A.S. and Mohammed, M.O. (2013) ‘A critical literature review for Islamic
banks selection criteria in Malaysia’, International Business Research, Vol. 6, No. 6,
pp.143–151.
Ong, T.S., Boon, H.T., Chin, H.S. and Yat, L.Y. (2012) ‘Malaysian real estate investment trusts: a
performance and comparative analysis’, International Journal of Economics & Finance,
Vol. 4, No. 5, pp.73–84.
Osman, I., Ali, H., Zainuddin, A., Rashid, W.E.W. and Jusoff, K. (2009) ‘Customers satisfaction in
Malaysian Islamic banking’, International Journal of Economics and Finance, Vol. 1, No. 1,
pp.197–202.
Othman, A., Kari, F. and Hamdan, R. (2013) ‘A comparative analysis of the co-operative, Islamic
and conventional banks in Malaysia’, American Journal of Economics, Vol. 3, No. 5C,
pp.184–190.
Potter, J. and Wetherell, M. (1987) Discourse and Social Psychology: Beyond Attitudes and
Behaviour, Sage, London.
Rahim, F.A. and Amin, H. (2011) ‘Determinants of Islamic insurance acceptance: an empirical
analysis’, International Journal of Business and Society, Vol. 12, No. 2, pp.37–54.
Rashid, M., Abdeljawad, I., Ngalim, S.M. and Hassan, M.K. (2013) ‘Customer-centric corporate
social responsibility: a framework for Islamic banks on ethical efficiency’, Management
Research Review, Vol. 36, No. 4, pp.359–378.
Rasid, S.Z.A., Rahman, A.R.A. and Ismail, W.K.W. (2011) ‘Management accounting systems in
Islamic and conventional financial institutions in Malaysia’, Journal of Islamic Accounting
and Business Research, Vol. 2, No. 2, pp.153–176.
Rosly, S.A. and Bakar, M.A.A. (2003) ‘Performance of Islamic and mainstream banks in
Malaysia’, International Journal of Social Economics, Vol. 30, No. 12, pp.1249–1265.
Rozzani, N. and Rahman, R.A. (2013) ‘Determinants of bank efficiency: conventional versus
Islamic’, International Journal of Business and Management, Vol. 8, No. 14, pp.98–109.
Saad, N.M., Majid, M.S.A., Kassim, S., Hamid, Z. and Yusof, R.M. (2010) ‘A comparative
analysis of the performance of conventional and Islamic unit trust companies in Malaysia’,
International Journal of Managerial Finance, Vol. 6, No. 1, pp.24–47.
Salleh, M.F.M. (2012) ‘Islamic bank is not Islamic? The implementation of Islamic banking
and finance in Malaysia’, World Congress on Islamic Systems 2012 [online]
http://www.researchgate.net (accessed 14 December 2013).
Samad, A., Gardner, N.D. and Cook, B.J. (2005) ‘Islamic banking and finance in theory and
practice: the experience of Malaysia and Bahrain’, The American Journal of Islamic Social
Sciences, Vol. 22, No. 2, pp.69–86.
Satkunasingam, E. and Shanmugam, B. (2004) ‘Disclosure and governance of Islamic banks: a case
study of Malaysia’, Journal of International Banking, Vol. 6, No. 1, pp.69–81.
Conventional and Islamic banking 53
Sawari, M.F.M., Hassan, R. and Abdullah, M.F. (2011) ‘Prize-giving to the premium savings
certificate holders: a Shari’ah compliance review on the Bank Simpanan Nasional (National
Savings Bank) in Malaysia’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 4, No. 3, pp.259–270.
Shaharuddin, A., Mas’ad, M.A., Safian, Y.H.M., Shafii, Z., Salleh, A.Z., Alias, M.H., Seman J.A.,
Laldin, M.A. and Khir, M.F.A. (2012) Fatwas in Islamic Capital Markets: A Comparative
Study between Malaysia and Gulf Cooperation Council (GCC) Countries, Research Paper
No. 40, prepared by International Shariah Research Academy for Islamic Finance (ISRA) and
Islamic Science University of Malaysia (USIM).
Sherif, M. and Shaairi, N.A. (2013) ‘Determinants of demand on family Takaful in Malaysia’,
Journal of Islamic Accounting and Business Research, Vol. 4, No. 1, pp.26–50.
Siddiqui, A. (2008) ‘Financial contracts, risk and performance of Islamic banking’, Managerial
Finance, Vol. 34, No. 10, pp.680–694.
Subhani, M.I., Hasan, S.A., Rafiq, M.F., Nayaz, M. and Osman, A. (2012) ‘Consumer criteria for
the selection of an Islamic bank: evidence from Pakistan’, International Research Journal of
Finance and Economics (IRJFE), Vol. 94, pp.1–9.
Sufian, F. (2006) ‘Size and returns to scale of the Islamic banking industry in Malaysia: foreign
versus domestic banks’, IIUM Journal of Economics and Management, Vol. 14, No. 2,
pp.147–175.
Sufian, F. (2007) ‘The efficiency of Islamic banking industry in Malaysia’, Humanomics, Vol. 23,
No. 3, pp.174–192.
Sufian, F. (2009) ‘Sources of TFP growth in the Malaysian Islamic banking sector’, The Services
Industry Journal, Vol. 29, No. 9, pp.1273–1291.
Sufian, F. (2010a) ‘Does foreign presence foster Islamic banks’ performance? Empirical evidence
from Malaysia’, Journal of Islamic Accounting and Business Research, Vol. 1, No. 2,
pp.128–147.
Sufian, F. (2010b) ‘Productivity, technology and efficiency of De Novo Islamic banks’ empirical
evidence from Malaysia’, Journal of Financial Services Marketing, Vol. 15, No. 3,
pp.241–258.
Sukmana, R. and Kassim, S.H. (2010) ‘Roles of the Islamic banks in the monetary transmission
process in Malaysia’, International Journal of Islamic and Middle Eastern Finance and
Management, Vol. 3, No. 1, pp.7–19.
Taap, M.A., Chong, S.C., Kumar, M. and Fong, T.K. (2011) ‘Measuring service quality of
conventional and Islamic banks: a comparative analysis’, International Journal of Quality &
Reliability Management, Vol. 28, No. 8, pp.822–840.
Tafri, F.H., Rahman, R.A. and Omar, N. (2011) ‘Empirical evidence on the risk management tools
practised in Islamic and conventional banks’, Qualitative Research in Financial Markets,
Vol. 3, No. 2, pp.86–104.
Taib, F.M., Ramayah, T. and Razak, D.A. (2008) ‘Factors influencing intention to use diminishing
partnership home financing’, International Journal of Islamic and Middle Eastern Finance
and Management, Vol. 1, No. 3, pp.235–248.
Thambiah, S., Eze, U.C., Santhapparaj, A.J. and Arumugam, K. (2011) ‘Customers’ perception on
Islamic retail banking: a comparative analysis between the urban and rural regions of
Malaysia’, International Journal of Business and Management, Vol. 6, No. 1, pp.187–198.
Thambiah, S., Ismail, H., Ahmed, E.M. and Khin, A.A. (2013) ‘Islamic retail banking adoption in
Malaysia: the moderating effect of religion and region’, The International Journal of Applied
Economics and Finance, Vol. 7, No. 1, pp.37–48.
Thambiah, S., Ramanathan, S. and Mazumder, M.N.H. (2012) ‘The determinants of Islamic retail
banking adoption in Malaysi’, International Business & Economics Research Journal,
Vol. 11, No. 4, pp.437–442.
Trakic, A. (2013) ‘The adjudication of Shari’ah issues in Islamic financial contracts: is Malaysian
Islamic finance litigation a solution?’, Humanomics, Vol. 29, No. 4, pp.260–275.
54 M. Rod et al.
Wahab, A.R.A., Lewis, M.K. and Hassan, M.K. (2007) ‘Islamic Takaful: business models, Shariah
concerns, and proposed solutions’, Thunderbird International Business Review, Vol. 49,
No. 3, pp.371–396.
Wasiuzzaman, S. and Gunasegavan, U.N. (2013) ‘Comparative study of the performance of Islamic
and conventional banks: the case of Malaysia’, Humanomics, Vol. 29, No. 1, pp.43–60.
Welch, C. and Wilkinson, I.F. (2002) ‘Idea logics and network theory in business marketing’,
Journal of Business to Business Marketing, Vol. 8, No. 3, pp.27–48.
Wilson, R. (2008) ‘Innovation in the structuring of Islamic sukuk securities’, Humanomics,
Vol. 24, No. 3, pp.170–181.
Yaakub, N.I., Mujani, W.K., Jusoff, K., Hussain, W.M.H.W., Zainaol, Z.A., Deuraseh, N.,
Sulaiman, A., Hamid, M.A. and Jamsari, E.A. (2011) ‘Laws governing Islamic banks and
financial institutions in Malaysia: an overview’, Middle-East Journal of Scientific Research,
Vol. 7, pp.87–92.
Yahya, M.H., Muhammad, J. and Hadi, A.R.A. (2012) ‘A comparative study on the level of
efficiency between Islamic and conventional banking systems in Malaysia’, International
Journal of Islamic and Middle Eastern Finance and Management, Vol. 5, No. 1, pp.48–62.
Yudistira, D. (2004) ‘Efficiency in Islamic banking: an empirical analysis of eighteen banks’,
Islamic Economic Studies, Vol. 12, No. 1, pp.1–19.
Yusof, R.M. and Bahlous, M. (2013) ‘Islamic banking and economic growth in GCC and East Asia
countries: a panel cointegration analysis’, Journal of Islamic Accounting and Business
Research, Vol. 4, No. 2, pp.151–172.
Yusof, R.M. and Majid, M.S.A. (2008) ‘Towards an Islamic international financial hub: the role of
Islamic capital market in Malaysia’, International Journal of Islamic and Middle Eastern
Finance and Management, Vol. 1, No. 4, pp.313–329.
Yusof, R.M., Kassim, S.H., Majid, M.S.A. and Hamid, Z. (2011) ‘Determining the viability of
rental price to benchmark Islamic home financing products: evidence from Malaysia’,
Benchmarking: An International Journal, Vol. 18, No. 1, pp.69–85.
Zaini, S.M. and Isa, N.M. (2011) ‘The application of Wa’d in Islamic banking contract’, Malaysian
Accounting Review, Vol. 10, No. 2, pp.27–45.
Zakaria, R.H. and Ismail, A.G. (2008) ‘Does Islamic banks’ securitization restrain their financing
activity?’, Humanomics, Vol. 24, No. 2, pp.95–109.
Zhu, Y., Bhat, R. and Nel, P. (2005) ‘Building business relationships: a preliminary study of
business executives’ views’, Cross Cultural Management, Vol. 12, No. 3, pp.63–84.
... Few questionable marketing functions, in particular, creation of false wants and motivating customers towards too much materialism, offering them harmful products, charging higher price than their perceived value, adopting deceptive practice in marketing promotion, and polluting individual cultural norms encounter few social marketing criticisms (Kotler and Armstrong, 2016). The issues can be addressed through Islamic religiosity which is hardly studied in marketing studies (Siddiqi, 1992) because social marketing is not the powerhouse of theory development (Rod et al., 2015). ...
... Islamic marketing must include honesty and ethics which could enhance the value of transactions between producers and consumers (Rod et al., 2015). Islamic principles help the Muslim consumers refrain from excessive consumption (Kuran, 2004). ...
... Islamic marketing requires efforts to construct its theories (Rod et al., 2015) though insights given by the authors are not complete yet (Alserhan et al., 2016). Few studies on Islamic marketing, for instance, Muslims buying behaviour (Esso and Dibb, 2004;Mokhlis, 2006), utility of Islamic principles in marketing (Hasan et al., 2008), developing brand with Islamic principles (Wilson and Liu, 2010), Muslim market segmentation (Zakaria and Abdul-Talib, 2010), opportunity of offerings to develop Muslim markets (Rehman and Shabbir, 2010), sales promotion techniques in Islamic marketing (Abdullah and Ahmad, 2010;Yusuf, 2010) and marketing of Islamic tourism (Khan and Khan, 2015;Razalli et al., 2015) have come out. ...
... Few questionable marketing functions, in particular, creation of false wants and motivating customers towards too much materialism, offering them harmful products, charging higher price than their perceived value, adopting deceptive practice in marketing promotion, and polluting individual cultural norms encounter few social marketing criticisms (Kotler and Armstrong, 2016). The issues can be addressed through Islamic religiosity which is hardly studied in marketing studies (Siddiqi, 1992) because social marketing is not the powerhouse of theory development (Rod et al., 2015). ...
... Islamic marketing must include honesty and ethics which could enhance the value of transactions between producers and consumers (Rod et al., 2015). Islamic principles help the Muslim consumers refrain from excessive consumption (Kuran, 2004). ...
... Islamic marketing requires efforts to construct its theories (Rod et al., 2015) though insights given by the authors are not complete yet (Alserhan et al., 2016). Few studies on Islamic marketing, for instance, Muslims buying behaviour (Esso and Dibb, 2004;Mokhlis, 2006), utility of Islamic principles in marketing (Hasan et al., 2008), developing brand with Islamic principles (Wilson and Liu, 2010), Muslim market segmentation (Zakaria and Abdul-Talib, 2010), opportunity of offerings to develop Muslim markets (Rehman and Shabbir, 2010), sales promotion techniques in Islamic marketing (Abdullah and Ahmad, 2010;Yusuf, 2010) and marketing of Islamic tourism (Khan and Khan, 2015;Razalli et al., 2015) have come out. ...
... Alexander (2011) claimed that in the Islamic world, compliance with Sharia law has caused difficulty for Western project financiers to undertake projects. Islamic financing also refers to ethical financing that follows Sharia law when dealing with people and transactions regarding tangible activity (Quresh et al., 2012;Rod et al., 2015). Generally, knowledge of Islam or with Islamic background, understood with Islamic financing system and religious environment in the city are the factors motivating customers preferred Islamic financing (Quresh et al., 2012;Riaz et al., 2014). ...
... Customers prefer financing institutions that could give them a quality of services (Echchabi & Olaniyi, 2012;Saad, 2012). Nevertheless, customers who need a good service and low pricing would choose either Islamic or conventional option (Rod et al., 2015). On the other hand, a person's attitude towards choosing a bank is subjective and may also be affected by the social influence and their environment (Quresh et al., 2012). ...
... Customers who are looking for economical financing are looking for financiers that could provide financial benefits with low service charges such as processing fee (Quresh et al., 2012). If the customers have to choose two products, conventional and Islamic options are both at par, with no different in cost, term and rate; but now, many companies will accept Islamic financing (Rod et al., 2015). Riaz et al. (2014), reported that the factors that motivated customers in choosing Islamic financing due to economic benefits they received in the form of profit sharing and the interest-free loan. ...
Article
Full-text available
Project Financing Initiative (PFI) projects require the private sector to invest an enormous amount of capital for the development of public projects. The private sector has to seek cost-effective financing sources for their survival in the long-term concession. Conventional financing uses widely; however, Islamic financing promises better financing through profit and loss sharing. This paper reviews financing preferences for PFI projects and the factors influencing the choice of funding. The results show that religious perspective, quality of services, financing facilities and reputation are the factors that are expected will influence the financing preference behaviour, either Islamic or conventional finance.© 2016. The Authors. Published for AMER ABRA by e-International Publishing House, Ltd., UK. Peer–review under responsibility of AMER (Association of Malaysian Environment-Behaviour Researchers), ABRA (Association of Behavioural Researchers on Asians) and cE-Bs (Centre for Environment-Behaviour Studies, Faculty of Architecture, Planning & Surveying, Universiti Teknologi MARA, Malaysia.Keywords: Conventional project finance; Islamic project finance; preference; Private Finance Initiative
... The nature of studies conducted in the area of perception towards Islamic banking industry is diverse, and that includes the reasons for selecting (Wajdi Dusuki and Irwani Abdullah, 2007) and not selecting Islamic banks (Seah, 2017;Butt et al., 2018), awareness and ability to differentiate between Islamic banks and conventional banks (Islam and Rahman, 2017), studies focus on the perception of a specific product of Islamic banks (Johan et al., 2017), comparison of perception between Islamic and non-Islamic countries (Rehman, 2012), between Muslim and Non-Muslims population in a single country (Loo, 2010), between rural and urban areas (Thambiah et al., 2011), between different time periods (Ramadan, 2013). Perception of Islamic bankers (Rod et al., 2015), retail customers (Iqbal et al., 2018), institutional clients (Weill and Godlewski, 2012;Ahmad and Haron, 2002) and perception of stakeholders on governance dimensions of the Islamic banking sector (Oladapo et al., 2019). ...
Article
Purpose This paper aims to investigate the differences in patronage factors influencing “retail customers” and “institutional clients” to bank Islamically and to identify the reasons bankers perceive that their customers’ bank with them in the United Arab Emirates (UAE). Design/methodology/approach A total of 237; 416; and 70 balanced responses were collected from Islamic bankers, retail customers and institutional clients of UAE, respectively. Weighted average scores were computed for ranking the selection criteria factors across the data set and paired comparison analysis was conducted to analyse the variation of selection criteria between the data sets. Findings Empirical results indicate that Islamic banking practitioners maintain an identical perception with retail customers in relation to the selection criteria of Islamic banking products and services, with the “Sharīʿah-compliance” factor dominating other factors under examination. With respect to the perception regarding institutional/corporate clients, Islamic bankers exhibited a divergent perception in connection with selection criteria of Islamic banking products and services and the factor “cost and affordability” and “rates and return” are prioritized above factor “Sharīʿah-compliance”. Research limitations/implications The scope of the study is limited to a single country. Hence, the finding of this study cannot be generalized to the other regions. Although the study covers a considerable sample from each segment, still there is an avenue for improvement by covering more respondents into the survey. Consequently, the results of this study should be read with these limitations. Further, analysis of the variation among intra divisions of each segment such as Muslim and non-Muslim with respect to retail customers; the different level of management at the banks and focusing the specific sector of the industry is beyond the scope of this study. These directions provide avenues for future research. Practical implications The study provides useful insights for bankers to revisit their marketing strategies to attract and retain more clients. Hence, the findings also suggest policy recommendations for nascent Islamic banking markets to move to the next stages of maturity. The findings of this study have implications for firms’ strategic directions and future investments of organizations, especially when the competition in the industry is intense. Future studies are recommended in other countries where the Islamic financial market share is significant. Originality/value While ample perception studies have carried out in the Islamic banking industry of the UAE, studies that focus on institutional clients, especially with reference to the factors that determine the selection criteria; studies examining banker’s perception towards Islamic banks and their clients (retail and institutional); studies that reconcile the perception of bankers and customers (retail and institutional) are all inadequately covered in existing literatures. This study attempts to fill some of these significant gaps.
... In 1950s, the first IBS was developed and it results in the development of the first generation of investment banks complying with Shariah in Egypt. However, it was started in early 1960s in Malaysia with Tabung Haji, which was referred as saving box for performing Haj (Drake & Anderson, 2020;Rod, ALHussan, & Beal, 2015). In 1974, the Dubai Islamic Bank was established, which lead as a private bank based on interest free banking. ...
Article
Full-text available
The prime objective of the study is to investigate the impact of the corporate culture on the service quality of Islamic banks in Libya. Additionally, the study has also investigated the mediating role of work engagement. We have used a survey-based method where the close ended questionnaires were structured. For the collection of quantitative data, we have distributed questionnaires among the respondents. To test the 0hypothesis of this study we have used Partial Least Squares Structural Equation Modelling (PLS-SEM). We have distributed total 538 questionnaires, whereas 412 questionnaires were received back. Total 15 questionnaires were dropped because of missing information. The total useable questionnaires were 397, and the response rate for the present study was 76.6%. This aim of this paper is to review previous studies that addressed the phenomena of organizational culture in several organizations, and what their impact it on service quality. Organizational culture as a social phenomenon has been studied in previous studies to find deficiencies in this field and to examine the future research focus on this issue. However, concern the issue of organizational culture on service quality still unconsidered and require more in-depth studies especially in Libya.
... In 1950s, the first IBS was developed and it results in the development of the first generation of investment banks complying with Shariah in Egypt. However, it was started in early 1960s in Malaysia with Tabung Haji, which was referred as saving box for performing Haj (Drake & Anderson, 2020;Rod, ALHussan, & Beal, 2015). In 1974, the Dubai Islamic Bank was established, which lead as a private bank based on interest free banking. ...
Article
The prime objective of the study is to investigate the impact of the corporate culture on the service quality of Islamic banks in Libya. Additionally, the study has also investigated the mediating role of work engagement. We have used a survey-based method where the close-ended questionnaires were structured. For the collection of quantitative data, we have distributed questionnaires among the respondents. To test the 0hypothesis of this study we have used Partial Least Squares Structural Equation Modelling (PLS-SEM). We have distributed total 538 questionnaires, whereas 412 questionnaires were received back. Total 15 questionnaires were dropped because of missing information. The total useable questionnaires were 397, and the response rate for the present study was 76.6%. This aim of this paper is to review previous studies that addressed the phenomena of organizational culture in several organizations, and what their impact it on service quality. Organizational culture as a social phenomenon has been studied in previous studies to find deficiencies in this field and to examine the future research focus on this issue. However, concern the issue of organizational culture on service quality still unconsidered and require more in-depth studies especially in Libya.
... The verses of the Holy Qur'an are prescriptive (Bainess et al., 2010;Saeed et al., 2001). So, the Muslims have to source marketing tools from the Islamic principles (Alserhan et al., 2016) to overcome the limitations of conventional marketing (Rod et al., 2015). ...
Article
Full-text available
Purpose This study aims to conceptualize the basic Islamic marketing (IM) process according to Shari’ah , addressing some of the queries raised by scholars on halal and marketing. Design/methodology/approach A qualitative approach and content analysis have guided to shape segmentation, targeting and positioning (STP) with the help of secondary data from conventional and IM. Required Qur’anic verses and hadiths have been galvanized to shape STP in line with empirical evidence, showing potential marketing implications. Findings This study has accepted Islamic resources to segment markets, mentioning mankind, non-Muslims, Muslims, generic, halal and Islamic products. It has proposed to target mankind, non-Muslims markets with generic and halal products. Muslim marketers can target the pious Muslim consumers with Islamic products. For positioning, the halal certification has been suggested for the non-Muslim marketers and Islamization is for Muslim marketers. The whole process has been conceptualized in a single framework. Practical implications Marketers can have many product development ideas and basic guidelines and scholars may be able to sense some queries as to IM. Social implications This study has shown how inter-religious relationships can be harmonized with carrying out marketing functions to keep the social fabric following the Qur’anic verses. Originality/value This study has outlined the IM process as per Muslim and non-Muslim marketers’ needs under Shari’ah . Besides, it has answered some questions on halal and IM that has been hardly addressed before.
... Some of the items used to measure this dimension include "Islamic banking prohibits uncertainty in all forms of transactions" and "Islamic banks operate according to Shariah law." Studies suggest that one of the main factors that differentiate Islamic banking with conventional is the role of Shariah principles and its implementation (Rod et al., 2015). Few studies conducted to examine perception of non-Muslims Malaysians towards Islamic banking also suggested that non-Muslims consider Islamic banking is different because of its Islamic principles (Loo, 2010). ...
Article
Purpose Despite widespread acceptance and exponential growth of Islamic banking across many countries, research indicates some critical issues that can potentially downturn this Industry. Literature suggests that like other stake holders such as customers, some employees too have ambivalent attitude towards its concept and practices. This calls for an empirical assessment. As no such comprehensive instrument was available, an attempt to develop a scale is made. Design/methodology/approach This scale development process begins with literature review pertinent to employees’ perspective in Islamic banking followed by a series of steps critical to achieve robustness and to ensure validity and reliability of the instrument. Research methods include a detailed set of qualitative interviews, content validation, pilot testing and exploratory factor analysis (EFA) with subsequent confirmatory factor analysis (CFA). Findings The final scale embodies five orthogonal dimensions: awareness of Islamic banking, usefulness of Islamic banking, perception of Shariah compliance, patronage towards Islamic banking and attractiveness towards Islamic banking. Research limitations/implications This instrument may be used both by research scholars and practicing managers to measure employees’ attitude towards Islamic banking system and practices. It may also serve as a diagnostic tool to identify the areas of strength and weaknesses in the Islamic banking system as perceived by the employees themselves. Originality/value An instrument to measure employees attitude towards Islamic banking system is much needed as no such comprehensive instrument is available to the best of authors’ knowledge. The study attempts to fulfil this need.
Article
Full-text available
Purpose – The purpose of this paper is to discuss how the current research on the Islamic financial services industry attempts to classify its consumers and provide a fresh and critical insight into the retail Islamic banking market segmentation to harness and enhance understanding, as well as provide a guideline for a better segmentation to bank marketers. Design/methodology/approach – This study is conceptual in nature. Based on Qur’anic verses and previous literature, the authors aim to propose an applicable model of market segmentation for the retail Islamic banking market in Malaysia. Consumer segmentation in the conventional financial service industry is analysed, and prior studies on the selection criteria of Islamic banks are evaluated. Findings – In moving forward, taking cue from the classification of people in classical doctrinal and historical literature and the initial exploratory study conducted from the managerial perspective, the authors propose five cluster groups of consumers for the retail Islamic banking market in Malaysia, namely, religious conviction, religious and economic rationality, economic rationality, ethical observant and economic rationality and ethical observant. A discussion linking consumer segmentation to the branding in the retail Islamic banking market is discussed. Research limitations/implications – The five cluster groups of consumers for the retail Islamic banking market in Malaysia proposed in this study pave the way for embarking on promising and relevant future research, which is needed to substantiate and enrich the academic understanding and managerial practice of linking market segmentation and brand positioning for Islamic banking market in Malaysia. Future research should focus on verifying the five proposed segments by conducting empirical studies on a larger scale among the retail banking consumers in Malaysia and globally. Practical implications – The study provides an initial bases or dimensions of consumers of the retail Islamic banking market in Malaysia. The proposed consumers segments are useful in guiding the management of Islamic bank in Malaysia in making decisions relating to the promotion strategy as well as product and brand positioning strategy. Originality/value – For both academia and the Islamic banking industry, this study provides useful knowledge in strategically using market segmentation to position Islamic banking products and services in Malaysia and the global market.
Article
Full-text available
Islamic banking initially established to cater for the needs of Muslims customers, as Muslims are obliged to obey the Shari’ah principles (Islamic Jurisprudence) in all aspects of life. However, the number of non-muslims involved in Islamic banking is increasing. In the case of Malaysia, the contributions of non-Muslims towards the development of Islamic banking have been remarkable, as some banks report that more than half of their Islamic financial products is by non-Muslim customers. It is argued that Muslims patronize Islamic banking due to religious consideration however, it is not clear why the non-Muslims patronize Islamic banking. Hence, the study aims to examine critical criteria for Islamic banks selection. The findings from the literature show that there are six main reasons why customers prefer Islamic banking, namely understanding of Islamic banking concept, Shari’ah compliance, religious contradiction, quality and attractiveness of offerings, willingness to deal with Islamic banks and prospect and potentials of Islamic banking.
Article
Full-text available
Purpose – The purpose of this paper is to explore the extent to which macroeconomic variables affect the Islamic stock market behavior in Malaysia in the post 1997 financial crisis period. Design/methodology/approach – The paper employs the latest estimation technique of autoregressive distributed lag (ARDL) model approach to cointegration. Findings – The results suggest that real effective exchange rate, money supply M3, treasury bill rate (TBR) and federal fund rate (FFR) seem to be suitable targets for the government to focus on, in order to stabilize the Islamic stock market and to encourage more capital flows into the market. As for the interest rates and stock returns relationship, the paper finds that when interest rates rise either domestically (TBR) or internationally (FFR), the Muslim investors will buy more Shari'ah compliant stocks; thereby escalating the Islamic stock prices. Research limitations/implications – The results of this study are limited to the post 1997 financial crisis period until the beginning of the year 2006 for a small open economy, Malaysia. Practical implications – The paper reveals that both changes in the local monetary policy variables and in the US monetary policy as measured by the changes in the FFR have a significant direct impact on the Islamic stock market behavior in Malaysia. Originality/value – The paper adopts the latest time series econometrics technique to test for cointegration, ARDL. And it is among the earliest attempts to investigate the long-run effects of the macroeconomic variables changes either domestically or internationally on the Islamic stock market.
Article
Full-text available
Awareness of organic food consumption and green environment sustainability toward a healthy living has become a crucial area of study in recent years. Despite a large number of empirical literatures explaining the multi - cultural food consumption behavior among different ethnic groups in Malaysia, the puzzling reality remains, that knowledge on Malaysian Generation ‘Y’ customers’ attitude and buying behavior towards organic food is not well addressed. Therefore, this study aims to fill the research gap by investigating the organic food consumption intention of Generation ‘Y’ customer segment in Malaysian context. The Theory of Planned Behavior underpins the conceptual framework and hypotheses developed for this study. A total of 600 personally administered questionnaires will be distributed to young adults, aged from 20 to 25 years old, based in Selangor, Kuala Lumpur and Malacca via convenience sampling technique.
Article
Full-text available
This study aims to examine the factors affecting the adoption of Islamic retail banking (IRB) products and services among the banking customers of Malaysia. The market share of Islamic retail banking remains low despite being in operation for the past 28 years. Therefore, an empirical analysis was conducted to study the usage of Islamic retail banking products and services between the urban and rural banking customers of Malaysia. Comparisons were also made on the usage of Islamic deposits and financing schemes between the Muslim and non-Muslim customers. The findings of the study revealed, relative advantage, promotional efforts, complexity, compatibility and awareness on attributes of Islamic retail banking as the significant determinants of the usage of Islamic retail banking products and services. Thus, the findings of this study serves as a valuable guideline to the banking sector and policy makers to devise appropriate marketing strategies to promote Islamic retail banking products and services aggressively among the banking customers of Malaysia.
Technical Report
The Islamic banking industry has experienced rapid growth, notably in Southeast Asia and the Middle East. However, after four decades in operation, the two regions have diverged over Shariah resolutions. The former is said to have adopted a more lenient and flexible approach as compared to the latter. The present paper examines this issue by analysing fatwas issued by Malaysian Shariah scholars and their GCC counterparts. The discussion focuses on fatwas related to the Islamic capital market. The fatwas are analysed based on resolutions made by the Shariah advisors of the Malaysian Securities Commission, Kuwait Finance House, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the International Islamic Fiqh Academy, Dubai Islamic Bank and Dallah al-Baraka Group. The study is pertinent to bridging the gap related to Islamic banking practices in various Muslim
Article
This paper examined the effects of front-desk employees’ personality traits and their gender on customers’ assessment of Islamic banks' service quality in the United Arab Emirates. We used a sample of 104 front-desk employees and 454 customers. The Mini-Markers instrument was used to assess personality traits and the SERVPERF instrument to collect data on service quality for a pair-matching sample design. We used regression analysis to determine the relationship between the five factors of personality of front-desk employees, their gender, and the overall bank service quality as well as each of its dimensions. The paper provided evidence indicating that personality traits do not have their own independent effects on customers’ perceptions of Islamic banks' service quality. Although Lin, Chui and Hsieh (2001) found supporting results for such linkages when they studied service quality in four service sectors (not including banks) in Taiwan, we concluded that these effects may be dependent on other factors such as culture, research design, or industry characteristics. However, employees’ gender was found to have significant effects on the empathy dimension of service quality. The originality of this paper lies in its attempt to link personality traits of front-desk employees of banks to customers’ perceptions of service quality in the UAE. It is the first study that uses the Mini-Markers and SERVPERF together in the UAE to achieve its purpose. Its value lies in its contribution to the settlement of the debate about possible linkages between employees’ personality traits and service quality perceptions.
Article
A unique feature of Islamic banking, in theory, is its profit-and-loss sharing (PLS) paradigm. In practice, however, we find that Islamic banking is not very different from conventional banking. Our study on Malaysia shows that only a negligible portion of Islamic bank financing is strictly PLS based and that Islamic deposits are not interest-free, but are closely pegged to conventional deposits. Our findings suggest that the rapid growth in Islamic banking is largely driven by the Islamic resurgence worldwide rather than by the advantages of the PLS paradigm and that Islamic banks should be subject to regulations similar to those of their western counterparts.