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Factors affecting SMEs’choice of
banks in Oman: an emphasis on
Islamic banks
Mohammad Dulal Miah
Accounting and Finance, College of Banking and Financial Studies,
Muscat, Oman
Norizan Mohd. Kassim and Mohammad Zain
Department of Management and Marketing, Bang College of Business,
KIMEP University, Almaty, Kazakhstan, and
Mohammad Usman
Department of Management, University of Nizwa, Nizwa, Oman
Abstract
Purpose –Commercial banks are the catalysts for meeting the financing needs of small and medium
enterprises (SMEs). However, not all commercial banks are equally attractive to SMEs because of differences
in banking services’key attributes. Moreover, customers’preferences vary between Islamic and conventional
banks. This paper aims to identify factors motivating SMEs to establish business ties with banks in Oman.
Design/methodology/approach –The authors collected data from 217 SMEs through a questionnaire
survey. The data were analyzed using a t-test and structural equationmodeling (SEM). In addition, the research
applies the theory of planned behavior as a theoretical framework.
Findings –The t-test results show that SMEs place greater emphasis on electronic banking, convenient
locations, religious beliefs and favorable terms and conditions. The results from the SEM analysis show that
the SMEs in Oman consider attractive packages, including favorable rates, transaction processing time, fees
and the availability of technology-enabled services, when choosing a bank. Moreover, customers who are
aware of Islamic banking products are optimistic about the future of Shariah-based banking.
Originality/value –As a Muslim-majority country, Oman lags behind its Gulf Cooperative Council peers in
terms of the development of the Islamic banking system. For the success of this mode of financing, it is
essential to know which factors SMEs prioritize to establish ties with Islamic banks. Hence, the research is
expected to provide new information for bank management to devise financial products attractive to investors.
Keywords Entrepreneurs, Islamic finance, Small and medium enterprises, Oman,
Paper type Research paper
1. Introduction
The evolution of Islamic banking in the 1970s and its subsequent rapid growth attracted
attention from scholars, practitioners and regulators not only in Muslim-majority countries
JEL classification –G21, G28
The authors acknowledge the research grant from The Research Council (TRC), Oman (block funding
# BFP/RGP/CBS/20/093).
Conflict of interest statement: On behalf of all authors, the corresponding author states that there is
no conflict of interest.
International
Journal of Islamic
and Middle
Eastern Finance
and Management
Received 8 Apr il 2024
Revised 25 May 2024
11 July 2024
Accepted29 August 2024
International Journal of Islamic
and Middle Eastern Finance and
Management
© Emerald Publishing Limited
1753-8394
DOI 10.1108/IMEFM-04-2024-0179
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1753-8394.htm
but also in Western countries, including the USA, the UK and Australia. The Islamic
Financial Services Board (IFSB, 2022) reports that the global Islamic financial services
industry grew by 11.3% in 2021, compared to 2020, reaching an estimated amount of US
$3.06tn in assets. Furthermore, the Shariah-compliant banking system is predicted to rise to
US$5tn in 2025 (Garcia, 2023). Notwithstanding, the development of Islamic finance varies
greatly across regions and countries. For example, the Gulf Cooperative Council (GCC)
countries account for more than half (52.4%) of the global Islamic financial sectors’assets
(as of 2021), followed by South-East Asian countries (23.5%) (IFSB, 2022).
Among the GCC countries, the development of Islamic finance and banking varies
enormously. For instance, as of 2021, Saudi Arabia accounts for 30.6% of the global Islamic
banking sector assets, followed by the UAE (10%), Qatar (6.6%), Kuwait (6.3%) and Bahrain
(3.3%). The respective estimate for Oman is only 0.7% (IFSB, 2022). Domestically, the Islamic
banking system holds a 15.3% share of the national financial system in Oman, compared to
77.2% in KSA, 51.9% in Kuwait, 28.1% in Qatar, 23.9% in the UAE and 21.2% in Bahrain.
Unlike other GCC countries, which adopted the Islamic banking system much earlier, Oman
established its first Islamic bank, Bank Nizwa, in 2013. This raises the following question: Why
has Islamic banking development in Oman been delayed compared to other GCC countries?
Literature explores various antecedents attracting customers to adopt Islamic banks in
different countries. As expected, religiosity and adherence to Islamic principles are found to
be the important factors influencing customers to choose Islamic banks over others (Miah
and Sharmeen, 2015;Suzuki and Miah, 2016). In addition, the provision of rapid and
efficient services (Erol et al., 1990), the bank’s reputation and brand image (Naser et al.,
1999), the staff’s attitude and service quality (Ahmad et al., 2018) are the key factors shaping
customers’inclination toward Islamic banking services. Studies further show that customers
consider the friendliness of bank staff when selecting Islamic banks (Haron et al., 1994).
Studies also focus on the GCC countries. For instance, Abdullah and Kassim (2009)
identify two important dimensions of service quality –human skills and empathy –that help
Qatari Islamic banks satisfy and retain customers. In the context of Emirati banks, Al-
Tamimi et al. (2009) show that the service quality, religiosity and attitude of banks’staff
directly affect Islamic banks’customers. In another study, Tawfiqi et al. (2018) studied the
role of Islamic banks in entrepreneurial development in Bahrain. They reported that the
awareness of entrepreneurs, as well as their flexibility in developing Islamic banking
products, play a key role in entrepreneurial success in Bahrain. In the context of Oman, Alam
and Al-Amri (2020) reveal that service reliability, responsiveness and security positively
affect Islamic banks’customer satisfaction. Also, Belwal and Al Maqbali (2019) found that
most Islamic bank customers show trust in Shariah-based banks, while some respondents
perceive no difference between Islamic and conventional banks.
Most studies in the context of Oman focus on individual customers, with the notable
exception of Al Balushi et al. (2018,2019a,2019b), who found that the perceptions of
corporate customers and small and medium enterprises (SMEs) are crucial for thriving
Islamic banking. Al Balushi et al. (2018), after surveying 385 SMEs in Oman, found that
SMEs’owner–managers’attitudes, subjective norms, perceived behavioral control and
intentions influence their financial decisions. Regarding SMEs’choice of Islamic finance, Al
Balushi et al. (2019a) document that Islamic financial knowledge and the personal
characteristics of the owners and managers of Omani SMEs influence their choice toward
Islamic finance. They further find that the owners/managers of Omani SMEs are aware of
Islamic banking principles and know aboutIslamic banks’products (Al Balushi et al.,2019b).
Our study builds upon and contributes to the above stream of literature. For instance, Al
Balushi et al. collected data between 2016 and 2017 from 385 SMEs located in Muscat,
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Oman. They urge further studies that focus on different geographic locations in the country.
This motivates us to collect data from Muscat and Ad-Dhakhiliyah governorates to
complement the work of Al Balushi et al. (2018). Indeed, their study also highlights the need
for further research to determine the impact of Omani SMEs owners’/managers’intentions to
adopt Islamic finance. Addressing this challenge would enable Islamic financial institutions
to create and provide financial solutions catering to SMEs’specific needs while reducing
risks. Therefore, this study is timely, relevant and contributes to the literature.
Our study is further motivated by the fact that Omani SMEs are either shy of seeking
finance from the formal banking system or face some obstacles that keep them away from the
banking sector as a reliable financing partner. For example, data from a recent World Bank
and the Union of Arab Banks survey of over 130 Middle Eastern and North African banks
shows that only 2% of lending goes to SMEs in Oman (Saleem, 2013). This is substantially
lower than the lending average of middle-income countries (18%) and high-income countries
(22%). This suggests that a huge unmet financing need exists for SMEs in Oman. Tapping
this potential market requires an understanding of SMEs’perceptions of the different modes
of finance (conventional and Islamic). Our research aims to contribute to this strand of
literature by exploring factors that SMEs prioritize to establish ties with Shariah-compliance
and conventional banks. In addition, there has been a significant rise in recent academic
research exploring the different dynamics of SMEs worldwide, but very little is known about
Oman. In extending a relatively new but growing literature, our study aims to provide new
information that is relevant to bank management and policymakers.
The study is organized as follows. Section 2 describes the theoretical framework and
develops the hypotheses of the research. Section 3 elaborates on the data and methodology.
Section 4 analyses the data and interprets the results. This is followed by the discussion and
conclusion in Section 5.
2. Literature review and hypotheses development
2.1 Theoretical underpinning
Following the prior literature (Al Balushi et al., 2018;Aziz et al.,2018;Nasri and
Charfeddine, 2012), we apply the theory of planned behavior (TPB) as a conceptual
framework. The TPB is an extension of the theory of reasoned actions (TRA), which predicts
one’s volitional behavior based on behavioral intention. According to the TRA, behavioral
intention is influenced by both personal attitudes and subjective norms (Fishbein and Ajzen,
1975). Personal attitudes toward a certain behavior depend greatly on actors’beliefs and
evaluation of the perceived outcomes derived from performing the behavior. On the other
hand, subjective norms are the individual’s perception of what others think he should or
should not do. This element of behavioral intention not only depends on actors’normative
beliefs but also on the motivation attached to others’thinking (Vallerand and Blssonnette,
1992;Shimp and Kavas, 1984).
The TPB extends the TRA by including “perceived behavioral control,”together with
behavioral intention embedded with the TRA, as important elements of analyzing
individuals’intention to perform a behavior (Ajzen, 1991). Perceived behavioral control
defines people’s perception of the ease and difficulty of performing the behavior of interest
(Ajzen, 2002). The TPB further asserts that informational and motivational influences on
behavior are the primary drivers that determine the extent to which an individual is likely to
put effort into performing the behavior. The greater the force of intention to engage in certain
behaviors, the higher the probability of performing them.
The theory further opines that a behavioral intention turns into an actual behavior if the
planned behavior is under volitional control (Bosnjak et al., 2020). In other words, it is the
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discretion of the individual to decide if he likes to perform or not to perform the behavior.
When an individual enjoys the freedom of volitional control, he tends to carefully consider
the available information when performing a behavior. From this perspective, Ajzen and
Madden (1986) argue that the probability of an intention turning into a performance is
proportional to the degree of behavioral control. Furthermore, the performance of an
individual tends to increase with behavioral control to the extent that the individual is
adequately motivated.
The TPB has been widely used in the field of behavioral psychology as a cognitive theory
to study the change in actors’behavior in a specific context. Recently, the theory has been
applied to examine customers’perceptions of different financial products. For instance, Al
Balushi et al. (2018) apply the TPB to investigate the perception of Omani SMEs toward
Islamic finance. Also, Shih and Fang (2004) and Aboelmaged and Gebba (2013) apply the
TPB to examine the customers’intentions to adopt the internet and mobile banking,
respectively. Similarly, Aziz et al. (2018) show that normative and control beliefs are
significant determinants influencing customers toward Islamic banking in Pakistan. In
addition, Ho et al. (2020) identify compatibility, perceived usefulness and perceived risk as
important attributes that affect customers’intention to adopt mobile banking. In the context
of Tunisian banks, Nasri and Charfeddine (2012) conclude that the TPB can predict the
behavior of customers when using internet banking. They identify different attributes of
internet banking, including security and privacy, self-efficacy, perceived usefulness, ease of
use, attitude and social norms that affect customers’intentions to use internet banking. In
another study, Tucker et al. (2020) identify perceived behavioral control as an important
determinant influencing Australian customers’intention to use student banking. Similarly,
Farah (2017) links customers switching intentions toward banks to behavioral and normative
beliefs, attitudes and subjective norms. In a recent study, Maryam et al. (2022) point out that
attitude bears enormous relevance to potential customers’intentions to adopt Islamic
banking. Moreover, Shith et al. (2021) state that religion influences behavioral intentions to
adopt Islamic banking services in Malaysia.
Although we consider SMEs for this study, the financing decisions of SMEs depend on
the owners and managers. We follow the literature (Irwin and Scott, 2010;Al Balushi et al.,
2018,2019b) that assesses the SME’sfinancing choices through the behavior of owners and
managers. As a result, we apply the TPB, which describes individuals’intentions toward a
particular behavior. We emphasize the “ease,”“difficulty,”“informational factors”and
“motivational influences”to analyze SMEs’owners/managers’perceptions of Islamic
banking in Oman. In particular, we ask questions that assess customers’ease of access to
finance, level of difficulty (unappealing and complexity), motivation (attractive packages)
and informational factors (awareness). We also include religion as a perceived motivational
factor that may attract customers to use Islamic finance.
2.2 Hypotheses development
2.2.1 Impact of banks’attractive package on customers’perception. The bank’s attractive
package includes low interest rates, easy access to loans, processing time, processing fees
and favorable terms and conditions. Prior studies found a positive relationship between
banks’attractive packages and customers’preferences toward banks. For instance, Rokhman
and Abduh (2020) and Ziky and Daouah (2019) have shown that the cost of financing plays a
crucial role in the inclination of SMEs toward Islamic banking services. Studies also
document that customers consider product price and other determinants in choosing Islamic
banks in Malaysia (Dusuki and Abdullah, 2007). In Bahrain, Al-Ajmi et al. (2009) show that
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cost–benefit analysis is the third most important factor in adopting a bank, following Islamic
religious belief and corporate social responsibility.
While we ask if attractive packages influence customers’preferences toward a bank, we
also ask a contrasting question: whether the absence of attractive packages makes a bank
unappealing. Banks’unappealing features include customer skepticism about the Islamic
banking system, the perception that Islamic banking is not purely Islamic in practice, higher
rates of profit charges on products and services and unfavorable terms and conditions. Amin
et al. (2013) argue that easy access and proper understanding of Islamic financial products
motivate customers to use them. Al-Awlaqi and Aamer (2023) show that SMEs’owners/
managers’knowledge about Islamic finance affects their decision to choose Islamic banking
products. Similarly, Thambiah et al. (2011) find that customers’intention to use Islamic
banking products decreases with an increase in the level of difficulty of innovation in Islamic
banking services. On the other hand, Haron et al. (1994) state that the speed of transactions,
the friendliness of bank workers and rapid and efficient services reduce complexities. Based
on the above discussion, we draw the following hypotheses:
H1a. Attractive package positively affects customers’preference toward Islamic banks.
H1b. Attractive package negatively affects customers’perception of unappealing features
of Islamic banks.
H1c. Attractive package negatively affects customers’perceived complexity about
Islamic banks.
2.2.2 Impact of the ease of access to banking services on customers’perception. Ease of
access includes acquaintances with banks’staff and their cordial behavior, electronic
banking systems and convenient locations of bank branches and ATMs. A positive
correlation between ease of access and client preference has been shown in earlier
investigations. For instance, AlNajem (2018) shows that customers of Kuwaiti banks
place priority on the quality of staff as well as the safety and security of transactions when
choosing a bank. Similarly, Muthama (2015) finds that banks’convenient location
impacts customer loyalty. Ahmad et al. (2018) contend that service qualities are important
for SMEs to choose a bank. Studies also show that branch networks (Rosenblatt et al.,
1988) and personnel attitude (Kaur and Gupta, 2023) are crucial elements in developing a
business tie with a bank. On the other hand, ease of access will reduce customers’
unappealing perceptions of Islamic banks. Prior research finds that the number of
branches and the availability of ATMs affect customer decisions about selecting a bank
(Mahal et al.,2021;Suzuki and Miah, 2021). Studies also illustrate that ease of access to
banks’services reduces customers’perceived complexity about Islamic banks. Mansour
(2019) finds that customer care negatively affects the perceived complexity of Islamic
banks. Hedayatnia and Eshghi (2011) identify that the ease of the bank’s location and
services results in reduced perceived complexity. Based on the above discussion, we draw
the following hypotheses:
H2a. Ease of access to banking services positively affects customers’preference toward
Islamic banks
H2b. Ease of access to banking services negatively affects customers’unappealing perception
of Islamic banks
H2c. Ease of access to banking services negatively affects customers’perceived
complexity about Islamic banks.
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2.2.3 Impact of unappealing and complex features of bank products on customers’
awareness. Unappealing features of Islamic banks may hamper customers’awareness of them.
Awareness includes awareness of Islamic bank products such as Mudarabah and Musharaka,
banks’financing processes and the latest offers. Albaity and Rahman (2019) find that banks’
appealing features are positively related to customers’awareness of Islamic banks. Kaabachi
and Obeid (2016), for a Tunisian case, find that perceived complexity and risk negatively affect
consumers’intentions to adopt Islamic finance. Similarly, Mahdzan et al. (2017) draw
evidence from Malaysian data to conclude that a proper understanding of Islamic banking
processes, products and perceived advantages affects customers’intentions to establish
business ties with Islamic banks. However, the effect of unappealing product features on
customer awareness is not known a priori. Thus, we can draw the following hypotheses:
H3a. Unappealing feature affects customers’awareness about Islamic banks.
H3b. Perceived complexity reduces customers’awareness about Islamic banks.
2.2.4 Impact of the complex features and customers’preference for Islamic banking prod-
ucts on customers’optimism. Customers prefer a bank if it charges a lower interest rate,
takes shorter processing time, requires fewer documents, has sufficient ATMs and branches,
etc. Those who adopt Islamic finance are likely to be optimistic about this mode of finance.
According to Muthama (2015), minimal opening and operating balance, requiring fewer
documents and shorter processing times result in customers’optimism. Optimism refers to
the perception that Islamic banking is likely to flourish in the future, follow a more ethical
approach than conventional banking and customers switch their intention to the Islamic
banking system or to continue with it. Prior studies identified a positive relationship between
customers’preference for Islamic banking and optimism about this mode of finance.
Karbhari et al. (2004) show that UK customers, who prefer Islamic banking, are optimistic
about this mode of financing. Analyzing data from three GCC countries (UAE, Kuwait and
Saudi Arabia), Khursheed et al. (2021) find that Islamic bank customers are optimistic about
the industry’s future.
In contrast, banks’unappealing features negatively affect customers’optimism. Previous
research demonstrates that the unappealing feature has a detrimental impact on customers’
optimism. Durmuş(2023) finds, in the context of Turkey, that the lack of product diversity,
proper legislation and insufficient compliance with the Shariah make some Islamic bank
customers perceive pessimistic views about the future of Shariah-based finance. Based on
the above evidence, we draw the following hypotheses:
H4a. Customers’preference for Islamic banking positively affects their optimism.
H4b. Banks’unappealing features negatively affect customer optimism.
2.2.5 Impact of customers’awareness on optimism. Customer awareness extends
customers’optimism. Previous studies show that awareness positively affects customer
optimism (Osano and Languitone, 2016). Those who are aware of Islamic banks are more
likely to adopt Shariah-based finance than those who are unaware of it (Albaity and Rahman,
2019). Optimism reflects customers’tendency to increasingly adopt Islamic finance.
Mahmoud and Abduh (2014) find a positive association between customers’awareness and
their intention to adopt Islamic banks in Mauritania. This finding is confirmed by Sudarsono
et al. (2021) in the context of Indonesia. Islam and Rahman (2017), analyzing 350
questionnaires from the United Arab Emirates, find that the use of Islamic finance by a
limited number of customers can be attributed to a lack of awareness of Islamic financial
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products. Studies further conclude that customer awareness may lead to optimism, which
eventually results in customers’intention to adopt Islamic banking products (Ibrahim et al.,
2017). Based on the above discussion, we can draw the following hypothesis (Figure 1):
H5. Customers’awareness positively affects their optimism about Islamic banks.
3. Materials and methods
3.1 Questionnaire design and sample collection
The authors developed a five-part questionnaire to assess the factors influencing SMEs to
transact with Islamic banks in Oman. The first part consists of items that assess respondents’
demographic characteristics. Part two captures the basic information about SMEs financing
patterns. Part three aims to know why an entrepreneur chooses a particular mode of banking
for financing, regardless of the mode of operation (Islamic or conventional). Likewise, part
four identifies the logic as to why SMEs select Islamic banks as their preferred source of
external finance. The final section examines why an entrepreneur, if he or she has not yet been
involved with Islamic banks, is reluctant to do business with them. We measure these items
using a five-point Likert scale ranging from 1 = “strongly disagree”to 5 = “strongly agree.”
The primary data for this research were collected using a face-to-face or a personal-
administered questionnaire. The survey was carried out for approximately one month. The
targeted respondents were SMEs located in the Ad-Dakhiliyah and Muscat governorates of
Oman. SMEs are selected following a convenience sampling procedure. Ad-Dakhiliyah and
Muscat regions were selected because of the greater presence of SMEs and their strategic
location. According to the Oman National Centre for Statistics and Information (NCSI), as of July
2022, 9,104 and 27,400 SMEs are located in Ad-Dakhiliyah and Muscat regions, respectively
(National Centre for Statistics and Information, Oman, 2022). A total of 223 questionnaires were
collected. However, six questionnaires were discarded because of improper recording, leaving
217 for analysis. Respondent demographic characteristics are presented in Tabl e 1.
We can observe in Tab le 1 that most of the respondents from SMEs are male (73.3%) and
Omani nationals (77.0%), with the age group between 26 and 35 years old (44.7%).
Unappealing
Attractive
package
Ease of
access
Preference
Optimism
Complex
Awareness
H2b
H1a
H1b
H1c
H2a
H3a
H3b
H4a
H5
H2c
H4b
Source: Constructed by the author
Figure 1. Conceptual framework and hypotheses
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Regarding business operations, 35.5% of respondents report that their business operations
range between 4 and 10years, 27.2% between 1 and 3years and 19.8% for more than
20 years. Only 17.5% of SMEs have been operating between 11 and 20 years. Nearly 61.0%
of the surveyed SMEs are sole proprietorships, and most are in trading businesses (58.5%).
Meanwhile, more than 80.0% of the respondents indicate that they have employed between 1
and 10 employees and are currently using conventional banks for financial activities
(69.1%). Notably, 77.0% of respondents self-financed their businesses; however, most SMEs
chose Islamic banks for borrowing funds (53.5%).
3.2 Analytical techniques
First, the Harman single factor is performed to test the common method bias. Second, a one-
sample t-test analysis is performed to analyze various statements under each item by
assigning the rating of pluses (Kassim et al., 2010;Zain, 1995) based on the degree of
agreement among the respondents with the statements, as shown in Table A1 (Appendix).
Third, an exploratory factor analysis (EFA) is conducted to explore a measurement
Table 1. Respondents’demographic characteristics (n= 217)
Item Description n%
Nationality Omani 167 77
Non-Omani 50 23
Age Between 18 and 25 years 47 21.7
Between 26 and 35 years 97 44.7
Between 36 and 50 years 64 29.5
More than 50 years 9 4.1
Gender Male 159 73.3
Female 58 26.7
Years of operations Between 1 and 3 years 59 27.2
Between 4 and 10 years 77 35.5
Between 11 and 20 years 38 17.5
More than 20 years 43 19.8
Types of ownership Sole 132 60.8
Partnership 39 18.0
Joint venture 16 7.4
Others 30 13.8
Types of business Trading 127 58.5
Manufacturing 18 8.3
Services 46 21.2
Others 26 12.0
No. of employees 1–10 Employees 181 83.4
11–20 employees 14 6.5
20–50 employees 11 5.1
More than 50 employees 11 5.1
Maintain a bank account Yes 196 90.3
No 21 9.7
Financial needs Self-financing 167 77.0
Banks 19 8.8
Friends, family and relatives 31 14.3
Chosen banks for loan Islamic 116 53.5
Conventional 63 29.0
Both 38 17.5
Source: Constructed by the author based on survey data
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instrument’s possible underlying factor structure (Pallant, 2020). Each component was
analyzed individually with oblique rotation and the Kaiser Criterion variance extraction rule.
Confirmatory factor analysis (CFA) is used to verify the factor structure of a measurement
instrument following the EFA. Moreover, CFA is more suitable for analyzing uni-
dimensionality and in the overall process of validation of a scale (Kaur and Gupta, 2023).
Typically, EFA and CFA are carried out to verify the reliability and validity of an instrument.
The reliability of the questionnaire was tested using Cronbach’s alpha and composite
reliability (Hair et al., 2010). Finally, the structural equation modeling (SEM) statistical
technique is used to determine the key factors that impact SMEs’views on receiving finance
from Islamic banks. We utilized AMOS software, version 24, to perform the SEM,
confirmatory analysis and SPSS for the one-sample t-test and EFA.
4. Data analysis and interpretation.
4.1 Common method bias
The Harman single factor was performed to test the common method bias. The result of the
statistical evidence was considered at the higher side, which explains 47.7% of the variance
(Podsakoff et al., 2003); moreover, the figure meets the cutoff criterion of less than 50%.
Therefore, common method bias does not appear to be a concern.
4.2 Results from one-sample t-test mean differences
Strong support is represented by +++, average support by ++ and low support by +. It is
observed from the results presented in Table 2 that entrepreneurs place electronic banking
facilities at the top when selecting a bank (mean = 3.66; rating ++). About two-thirds (63%)
of the SMEs either agree or strongly agree with the statement that they choose a particular
bank because transactions through electronic means are easier. This result confirms the
findings of Mahal et al. (2021),Shih and Fang (2004) and Aboelmaged and Gebba (2013).
This is followed by the convenient location of banks (mean = 3.60; rating ++), the well-
mannered bank staff (mean = 3.59; rating +) and favorable terms and conditions for loan
contracts (mean = 3.39; rating +). Our results support the findings of Haron et al. (1994) and
Ramadan (2013).
We then ask respondents to identify factors that motivate them to choose an Islamic bank.
As expected, religious motive drives the customer to choose an Islamic bank (mean = 4.00;
rating ++). More than three-fourths (75.4%) of the respondents either agree or strongly agree
with the statement that their religious beliefs drive them toward Islamic banks. This finding
confirms the conclusion of Chowdhury et al. (2019). Similarly, Usman’s (2015) perspective
on religious norms and their belief in the prohibition of bank interest is supported by our
findings. About half of the respondents (47.2%) agree or strongly agree with the statement
that the transaction processing fee in Islamic banks is lower (mean = 3.40). Al-Tamimi et al.
(2009) reports the confirmatory findings in the context of UAE Islamic banks.
We then separate SMEs that do not have business relations with Islamic banks and ask
them if any particular reason prohibits them from adopting Shariah-compliance banks.
Fewer branches and ATMs of Islamic banks have been highlighted as one of the proximate
causes of not establishing business ties with Islamic banks (mean = 3.40; rating +). Al
Balushi et al. (2019a) identified similar factors through discussions with SME owners/
managers. Moreover, Rosenblatt et al. (1988) mentioned that superior branching networks
are preferred by clients. Regarding the overall perception of Islamic banks in Oman, about
60% of the respondents believe (either agree or strongly agree) that Islamic banking will
flourish in the future (mean = 3.56; rating ++). Karbhari et al. (2004) reported the same for
the UK Islamic banking system. Similarly, about 42% of the surveyed SMEs, who are not
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Table 2. Rating analysis and one-sample t-test
Items SD (%) D (%) Neutral (%) A (%) SA (%) Mean SD t_value P_value Rating
c
3. Reasons for choosing either a conventional or an Islamic bank
a. It matches my religious belief 13.8 10.1 25.8 27.2 23.0 3.35 1.32 9.574 0.000*** +
b. Its interest rate is low 9.7 12.9 33.6 30.4 13.4 3.25 1.14 9.679 0.000***
c. Applying for and getting a loan is easier 6.5 12.9 35.9 35.5 9.2 3.28 1.02 11.303 0.000***
d. I have some acquaintances (known persons) with the bank 20.7 20.7 28.1 22.6 7.8 2.76 1.24 3.105 0.002**
e. The behavior of the bank staff is cordial 4.6 7.4 29.5 41.5 17.1 3.59 1.01 15.963 0.000*** +
f. Convenient locations 6.9 6.9 25.3 41.0 19.8 3.60 1.09 14.811 0.000*** ++
g. Processing a loan takes a shorter time 7.4 12.9 40.6 28.1 11.1 3.23 1.05 10.187 0.000***
h. The loan processing fee is reasonable 8.3 12.0 40.6 29.5 9.7 3.20 1.05 9.881 0.000***
i. Loan terms and conditions are favorable 6.5 9.2 34.1 39.6 10.6 3.39 1.01 12.905 0.000*** +
j. Electronic transactions (e-banking, M-banking) are easier 6.9 6.0 24.0 40.1 23.0 3.66 1.11 15.491 0.000*** ++
4. Reasons for choosing an Islamic bank
a. My religious belief 4.4 3.1 17 39.6 35.8 4.00 1.03 18.336 0.000*** ++
b. Lower profit rate charged on the loan 10.1 10.7 29.6 33.3 16.4 3.36 1.17 9.215 0.000***
c. Shorter processing fee 4.4 9.4 39 37.1 10.1 3.40 0.94 11.968 0.000***
d. Lower processing fee (transaction costs) 3.8 13.2 36.5 36.5 10.1 3.35 0.99 10.736 0.000***
e. Fewer documents required 7.5 10.7 37.1 35.2 9.4 3.27 1.06 9.169 0.000***
f. Availability of a large number of ATMs and branches 13.2 20.8 30.2 25.2 10.7 3.00 1.19 5.262 0.000***
g. Shorter loan processing 5.7 11.3 46.5 28.9 7.5 8.3 34.1 21.2 0.000***
h. The cooperative behavior of the bank’s staff 3.1 5.7 28.3 42.8 20.1 3.72 0.95 16.159 0.000*** ++
i. Favorable loan terms and conditions 6.3 5 37.7 38.4 12.6 3.47 0.99 12.316 0.000*** +
j. People’s recommendation about Islamic banks 6.3 3.7 23.3 38.4 28.3 3.80 1.09 15.003 0.000*** ++
(continued)
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Table 2. Continued
Items SD (%) D (%) Neutral (%) A (%) SA (%) Mean SD t_value P_value Rating
c
5. Reasons for not choosing an Islamic bank
a. I don’t believe in Islamic banking 19.0 17.2 44.8 12.1 6.9 2.69 1.12 1.339 0.186
ns
b. Islamic banks are not pure Islamic in practice 6.9 22.4 32.8 24.1 13.8 3.15 1.13 4.449 0.000***
c. Islamic bank charges a higher rate of profit 5.2 17.2 37.9 20.7 19.0 3.31 1.12 5.531 0.000***
d. The processing fee (transaction costs) is high 5.2 15.5 4.8 29.3 5.2 3.14 0.92 5.316 0.000***
e. Transactions with Islamic banks are complex 10.3 17.2 36.2 27.6 8.6 3.10 1.13 4.109 0.000***
f. Islamic banks have fewer branches and ATMs 6.9 8.6 2.1 41.4 19.0 3.54 1.12 7.154 0.000*** +
g. Processing a loan takes a longer time 5.2 8.6 51.7 31 3.4 3.17 0.85 6.021 0.000***
h. The bank’s staff are not cooperative 19.0 34.5 32.8 8.6 5.2 2.49 1.07 −0.061 0.952
ns
i. The loan’s terms and conditions are not favorable 5.2 19 43.1 24.1 8.6 3.10 1.00 4.646 0.000***
6. My perception about Islamic banks
a. I know about the variety of Islamic bank products 13.8 17.5 35.5 26.3 6.9 2.95 1.13 5.872 0.000***
b. I am aware of Islamic banks’mudarabah (trust-based) scheme 15.7 18.9 38.2 19.4 7.8 2.85 1.14 4.486 0.000***
c. I am aware of Islamic banks’musharaka (partnership) scheme 15.7 16.1 35.9 23.5 8.8 2.94 1.17 5.470 0.000***
d. I am aware that Islamic banks’finance is profit-and-loss-based 12.9 17.1 33.6 24.9 11.5 3.05 1.18 6.856 0.000***
e. I am aware of Islamic bank’s latest offers 19.4 18.9 32.7 22.6 6.5 2.78 1.19 3.465 0.001***
f. I believe that Islamic banks will flourish in Oman in the future 6.9 11.5 22.1 37.8 21.7 3.56 1.15 13.503 0.000*** +
g. Islamic banks are more ethical than conventional banks 8.3 9.2 33.2 30.0 19.4 3.43 1.15 11.905 0.000***
h. I am an existing customer of Islamic banks, and I will continue
Transacting with it
21.2 19.8 24.4 24.9 9.7 2.82 1.29 3.665 0.000***
i. I am not a customer of Islamic banks, but I intend to engage
With Islamic banks in the future
15.2 14.3 28.6 29.0 12.9 3.10 1.25 7.105 0.000***
j. Overall, I am satisfied with Islamic bank’s products and services 9.2 10.1 35.9 27.2 17.5 3.34 1.16 10.662 0.000***
Notes: Significant levels at p< 0.001; ***p< 0.01; **p< 0.05; SD = strongly disagree; D = disagree; A = agree; SA = strongly agree; SD = standard deviation
Source: Constructed by the authors based on survey data
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currently customers of Islamic banks, either agree or strongly agree with the statement that
they intend to switch to Islamic banks in the future (mean = 3.10).
4.3 Results of exploratory factor analysis and confirmatory factor analysis
The EFA was used to determine the underlying factors of each component of bank selection
criteria, reasons for choosing or not choosing an Islamic Bank and perceptions toward
Islamic Banks. The results, displayed in Tabl e 3 , show a two-dimensional solution for each
component. Multiple-factor items were identified, namely, as Attractive Packages (6 items),
Ease of Access (3 items), Preference (7 items), Religiosity (2 items), Unappealing features (5
items), Complexity (4 items), Awareness (5 items) and Optimism (4 items) with a significant
factor loading criterion of 0.5 applied. The Kaiser–Meyer–Olkin value was between 0.81 and
0.88, exceeding the recommended value of 0.60 (Kaiser, 1970,1974). The mentioned factors
show acceptable internal consistency, except for Religiosity, which has a lower Cronbach’s
alpha coefficient of 0.49. This factor was excluded from the further CFA test.
Next, the sample factor means, standard deviation, correlations and average variance
extracted (AVE) are reported in Ta ble 4. The initial AVE values for ease of access and
optimism were unacceptable, so we used the approach suggested by Anderson and Gerbing
(1988). Items with a standardized regression weight less than 0.50 are eliminated (items 3d =
0.42 and 6i = 0.47, respectively). The significant factor loadings demonstrate convergent
validity. Moreover, all the AVEs are at least equal to the minimum level, 0.50 (Fornell and
Larcker, 1981), demonstrating adequate discriminant validity of the constructs.
4.4 Results from structural equation modeling
We use reliable model fit indices such as Chi-square (χ
2
), comparative fit index (CFI),
standardized root means square residual (SRMR), root mean square error of approximation
(RMSEA) and pof close fit (PCLOSE), which are robust and insensitive to sample size.
Model fit statistics of χ
2
, CFI, SRMR, RMSEA, PCLOSE, degrees of freedom (d.f.) and
p-statistic are reported in Tabl e 5. Based on the findings of Hair et al. (2010), we can
confidently affirm the model’s validity. As a result, we can proceed with examining the
potential impacts of the hypothesis.
The standardized path coefficients in Table 6 indicate the strength of the relationships
between the constructs. Based on the recommendations of Cohen (1988), path coefficients
(β) that have absolute values below 0.10 may indicate a “small”effect, while those around
0.30 may indicate a “medium”effect. Coefficients with absolute values of 0.50 or more
suggest “large”effects. The results of the analyses are discussed below.
Tab le 6 displays the concise and conclusive model of the connections. Initially, we
examine how banks’attractive packages impact SMEs’choices in selecting an Islamic bank,
both positively (reasons for selecting) and negatively (reasons for not selecting). According
to the path coefficients (β), it is evident that banks’attractive packages play a crucial role in
influencing SMEs’behavior in choosing (preference: β= 0.40; t_value = 5.68) and not
choosing (unappealing: β= 0.20; t_value = 2.52; complexity: β= 0.21; t_value = 2.68) an
Islamic bank for financing. Thus, H1a,H1b and H1c are supported. One potential reason for
this trend could be that entrepreneurs seek more favorable loan terms when seeking bank
financing. Dusuki and Abdullah (2007), for Malaysian data; Al-Ajmi et al. (2009), analyzing
samples drawn from Bahrain; and Nugraheni and Widyani (2021) in the context of
Indonesia, reported similar findings.
Second, we examined H2a,H2b and H2c, which explain the influence of banks’ease of
access on positive (choosing an Islamic bank) and negative (not choosing an Islamic bank)
attributes of Islamic banks. Based on the analysis, it appears that the ease of access does not
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Table 3. EFA and reliability results (n= 217)
Item
Reasons for choosing a bank Positive reasons for IB Negative reasons for IB IB perceptions
Attractive packages Ease of access Preference Religiosity Unappealing Complexity Awareness Optimism
3b. Low-interest rate 0.87
3c. Easy access to a loan 0.70
3g. Loan processing time 0.70
3h. Loan processing fee 0.82
3i. Loan’s terms and conditions 0.87
3j. Electronic banking 0.51
3d. Acquaintances 0.75
3e. Staff’s cordial behavior 0.81
3f. Convenient locations 0.70
4b. Lower rate charged 0.66
4c. Shorter processing time 0.80
4e. Require fewer documents 0.85
4f. Availability of ATM and branches 0.80
4g. Shorter loan processing time 0.81
4h. Staff’s cooperative behaviours 0.87
4i. Favorable terms and conditions 0.52
4a. Religious belief 0.94
4j. Recommended by someone 0.59
5a. Do not believe in Islamic banking 0.81
5b. Not pure Islamic in practice 0.79
5c. Higher rate of profit charged 0.66
5f. Fewer branches and ATMs 0.83
5i. Unfavorable terms and conditions 0.85
5d. Higher processing and transactions cost 0.78
5e. Complex transactions 0.98
5g. Loan processing takes a longer time 0.77
5h. Uncooperative staff 0.62
(continued)
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Table 3. Continued
Item
Reasons for choosing a bank Positive reasons for IB Negative reasons for IB IB perceptions
Attractive packages Ease of access Preference Religiosity Unappealing Complexity Awareness Optimism
6a. Aware of variety of IB’s products 0.84
6b. Aware of IB’s Mudarabah scheme 0.93
6c. Aware of IB’s Musharaka scheme 0.92
6d. Aware of IB’sfinancing system 0.68
6e. Aware of IB’s latest offers 0.75
6f. IB will flourish in future 0.84
6g. IB are more ethical 0.79
6i. Intend to switch to IB 0.59
6j. Satisfied about IB’s products and services 0.84
Cronbach’s alpha 0.86 0.62 0.90 0.49 0.86 0.79 0.88 0.77
% Of variance 47.4 12.2 52.3 11.9 49.1 15.3 42.1 20.1
Kaiser–Meyer–Olkin 0.85 0.88 0.81 0.82
Source: Constructed by the authors based on survey data
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Table 4. Validity measures
Variable Mean SD CR 1 2 3 4 5 6 7
1. Attractive packages 3.33 0.81 0.85 0.54
2. Ease of access 3.32 0.84 0.66 0.67*** 0.50
3. Preference 3.35 0.68 0.91 0.52*** 0.39*** 0.55
4. Unappealing 3.16 0.46 0.86 0.16* 0.16†0.00 0.56
5. Complexities 2.97 0.41 0.82 0.23** 0.19* 0.00 0.58*** 0.54
6. Awareness 2.91 0.96 0.88 0.14†−0.04 0.08 0.34*** 0.19* 0.61
7. Optimism 3.36 0.90 0.80 0.33*** 0.36*** 0.44*** −0.02 0.092 0.265** 0.57
Notes: SD = Standard deviation; CR = composite reliability; in italic is the average variance extracted
(AVE); Significance of Correlations: †p< 0.100; *p< 0.050; **p< 0.010; ***p< 0.001
Source: Constructed by the author based on survey data
Table 5. Model fits measures
Measure Estimate *Threshold Interpretation
CMIN (χ
2
) 17.252 ––
d.f. 8 ––
CMIN/d.f. 2.156 Between 1 and 3 Excellent
P_value 0.03 ––
CFI 0.97 >0.95 Excellent
SRMR 0.06 <0.08 Excellent
RMSEA 0.07 <0.06 Acceptable
PClose 0.18 >0.05 Excellent
Note: *Hu and Bentler (1999)
Source: Constructed by the author based on survey data
Table 6. SEM results
Hypothesis Independent variable Dependent variable Estimate (β)t_value P_value Results
H1a Attractive packages Preference 0.40 5.68 *** Accepted
H1b(i) Attractive packages Unappealing 0.20 2.52 0.01 Accepted
H1b(ii) Attractive packages Complexity 0.21 2.68 0.01 Accepted
H2a Ease of access Preference 0.11 1.53 NA Rejected
H2b(i) Ease of access Unappealing −0.05 −0.59 NA Rejected
H2b(ii) Ease of access Complexity 0.01 0.14 NA Rejected
H3a Unappealing Awareness 0.23 3.02 *** Accepted
H3b Complexity Awareness 0.04 0.56 NA Rejected
H4 Preference Optimism 0.35 5.73 *** Accepted
H5 Unappealing Optimism −0.10 −1.60 NA Rejected
H6 Awareness Optimism 0.28 4.52 *** Accepted
Notes: **p< 0.01; ***p< 0.001
Source: Constructed by the author based on survey data
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influence the favorable (H2a:β= 0.10; t_value = 1.53) or unfavorable (H2b: unappealing:
β=−0.05; t_value = 2.59; H2c: complexity: β= 0.01; t_value = 0.14) aspects of Islamic
banks. Hence, H2a,H2b and H2c are rejected.
Third, we conduct a test to determine the direct impact of unfavorable perceptions (not
choosing an Islamic bank) on an individual’s awareness of Islamic banking loans. Table 6
shows that the impact of unappealing characteristics of Islamic banking products on awareness
(H3a:β=0.23;t_value = 3.02) is significant. Hence, we accept H3a.Thisfinding implies that
SMEs that do not establish business ties with Islamic banks are aware of the unfavorable
financing packages of Islamic banks. In other words, business owners are familiar with the
terms and conditions of Islamic financing schemes. This result supports the findings of
Al-Ajmi et al. (2009) and Tawfiqi et al. (2018). However, the coefficient of the impact of the
complexity of Islamic banking activities on awareness (β=0.04;t_value = 0.56) is found to be
insignificant. Therefore, we reject H3b.
Finally, we examine the effect of SMEs’preference (H4a), unappealing features (H4b)
and awareness (H5) of Islamic banking products on customers’optimism about the future of
Islamic banking in Oman. Our investigation of the path coefficient shows that positive
perceptions of preference (β= 0.35; t_value = 5.73) and awareness (β= 0.28; t_value = 4.52)
influence optimism. Consequently, H4a and H5 are accepted. In other words, SMEs that are
aware of Islamic banking products and prefer to choose Islamic banks for financing believe
that Islamic banks in Oman will thrive in the future. Our results confirm the findings of
Mahmoud and Abduh (2014) and Sudarsono et al. (2021). As expected, unappealing aspects
of Islamic finance do not affect customers’optimism toward Islamic banks (H5:β=−0.10;
t_value = −1.60). Hence, we reject H4b. This means that customers who consider Islamic
banks not practically distinct from conventional banks are not optimistic about the future of
Islamic banks in Oman.
5. Discussion and conclusion.
Islamic banks have products that are purely profit- and loss-sharing-based, and they are
designed to share a project’s risks between entrepreneurs and financiers (Islamic banks).
Hence, the Islamic banking system is posed to meet SMEs’financing needs, thereby
mitigating their financing constraints. Based on this economic and financial backdrop, this
research has attempted to assess SMEs’owners/managers’perceptions of the Islamic Bank’s
financing in Oman. To achieve this objective, we collected data from 217 SMEs through a
questionnaire survey. The collected data are analyzed using sample t-tests and SEM.
Moreover, the validity and reliability of the models have been checked using several
measurement techniques.
5.1 Discussion
Our t-test’s mean scores indicate that entrepreneurs put greater emphasis on electronic
banking systems, including e-banking, M-banking and the convenient location of banking
facilities, in selecting a bank regardless of the bank’s business orientation (Islamic or
conventional). Moreover, the behavior of bank staff and favorable terms and conditions of
borrowing are also highlighted as important driving forces for choosing a particular bank.
Our t-test results further reveal that recommendations by friends or relatives, staff’s
cooperative behavior and religious beliefs help Omani SMEs owners/managers choose
Islamic banks as financing partners. However, SMEs owners/managers do not specify any
clear reason for not choosing an Islamic bank. They indicate the shortage of physical
facilities, including branches and ATMs, as a hindrance to selecting an Islamic bank. On a
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positive note, most owners/managers believe that Islamic banking will thrive in the future
and wish to engage with Islamic banks in the coming days.
Results derived from SEM show that banks’attractive packages positively affect
customers’preferences for a bank, whereas they negatively affect customers’perceptions of
the complexity and unappealing features of banks. However, a bank’seaseofaccessdoesnot
show any statistically significant impact on customers’preferences, perceived complexity or
the unappealing features of a bank’s products. Those who believe that Islamic banking in
Oman is not much different from the conventional banking system know about Islamic
banking services. SMEs that are currently involved with Islamic banks have expressed their
optimistic perceptions about Islamic banking in Oman. This means that existing customers of
Islamic banks in Oman are satisfied with the Shariah-compliant banks’products and services.
5.2 Theoretical implications
The research has important theoretical implications. We apply the TPB, which hypothesizes
that informational and motivational influences on behavior are the primary drivers that
determine the extent to which an individual is likely to put effort into performing a behavior.
Our finding that SME owners/managers show interest (planned behavior) in responding to
the bank’s attractive packages (motivation) affirms the above proposition of the TPB. In
addition, our finding that information (awareness) drives customers’preference toward a
certain bank or financial product supports the TPB.
5.3 Managerial implications
Our findings offer some important policy recommendations for managers and regulatory
authorities. First, customers prefer technology-enabled banking platforms regardless of
banks’business orientation (conventional or Islamic). This indicates that banks in Oman must
not lag in adopting technology (i.e. fintech). Second, how banks design their products is
important for SMEs when selecting a bank. In particular, SMEs choose products that are
designed with attractive features. Hence, banks can attract customers by designing their
products in innovative ways. Third, SMEs perceive a bright prospect for Islamic banks.
Customer awareness has played an important role in creating such a positive perception.
Hence, Islamic banks in Oman should emphasize creating awareness among the community
about the existence of Islamic banks and their distinct products. In so doing, Islamic banks can
arrange marketing campaigns in which their distinctive features are significantly highlighted.
5.4 Limitations and future research
Certain limitations apply to this research. For instance, this research focuses on data collected
only from two governorates or regions in Oman. However, more regions in Oman and other
countries can be included in future research to obtain a comparative insight into similarities and
differences among and between countries regarding SMEs’perceptions of Islamic and
conventional banks. Moreover, our respondents have pointed out that they prefer banks that
provide technology-enabled financial services. Thus, it is highly recommended that banks equip
themselves with the latest financial technologies. However, what kind of financial technology is
more demanding for customers and whether banks can cost-effectively provide it are empirical
questions that require further research. This issue can be explored in future studies.
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Appendix
Corresponding author
Mohammad Dulal Miah can be contacted at: dulal@cbfs.edu.om
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Table A1. Ratings used to assess the variables
Criteria Assigned rating
80% or more of the respondents either strongly agreed or agreed with the statement,
indicating a moderate contribution to the item measured +++
61%–79% of the respondents either strongly agreed or agreed with the statement,
indicating a moderate contribution to the item measured ++
50%–60% of the respondents either strongly agreed or agreed with the statement
indicating a weak contribution to the item measured +
Source: Adopted from Kassim et al. (2010) and Zain (1995)
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