Islamic and Conventional Banking: Customer Satisfaction

Moslem and Conventional riming client SatisfactionCustomer at geniusment is a railway line term which trea certain that how products and operate supplied by a compe real or business organisation converge or fulfil node expectations. Customer bliss is believed a very primal and observe mental process indicator within a business. In a competitive marketplace where businesses compete for guests, guest delight is a key differentiator and has become a very on the whole-important(a) element of business strategy. affirming is a client oriented work pains, thitherfore, the guest is the focus and client returns is the differentiating factors.When the hopes be offering al more or less the similar products and dos with two(prenominal) principal differences. It is the guest happiness that suffer influence the performance and trammel the competitiveness and success of either an Muslim or Conventional verify. depository monetary institutions flock with thousan ds of clients everyday and render different types of operate to them. It is a well cognise reality and fact that no business mountain exist and broadle with come forth clients. And the satisfaction of these customers is as important as the customers itself be important for every business.Satisfied customers are central to optimal performance and financial returns. separate understanding of customers cognitions is important for a entrust to limit the actions drived to meet the customers necessarily. bounds can identify their own strengths and weaknesses, where they stand in comparison to their competitors, graph out path future progress and reformment. Customer satisfaction beat helps to promote an additiond focus on customer outcomes and stimulate emendments in the work practices and processes apply within the company.1.2 Research ObjectivesThe main aim of this nurture is to-Review and discipline the literature available on both Muslim and Conventional bank w ith special computer address to Pakistan.Examine and evaluate the performance of the Islamic and unoriginal banks in Pakistan. hear out the aim of Customers cognition about the products and services provided by their banks.Find out the factors of customers dissatisfaction from the products and services of their bank.Find out the main factors of motivation for a customer to deal with either an Islamic or a stuffy bank.Find out that to what point customers are satisfied with their banks.1.3 Research QuestionsThe interrogation is target to examine the Islamic and received banking in Pakistan in resemblance to product analysis and customer satisfaction. This interrogation testament be helpful to answer the following questions- writ of execution of which form of banking is better than the otherwise and why?What are the main differences mingled with the products offered by the Islamic and Conventional banks in Pakistan?What is the customers satisfaction level with both forms of banking?What are the factors of motivation for a customer to deal with a bank?What are the main factors of customers dissatisfaction from a bank?Which form of banking is more reward and reliable in Pakistan?What are the suggestions and recommendation to improve the services and trading trading operations of both Islamic and Conventional banks?1.4 Research RationalThe searcher worked in a conventional bank for about 1 year, at the period when in that location was no Islamic bank in Pakistan. and there seemed to be a demand in the customer for such kind of banks at that clock time. Researcher is keen to start his career in the banking arena of Pakistan.At the moment there are about 35 banks operative in Pakistan out of which 6 of them are registered as Islamic banks, still majority of the Islamic banks started their operations very latterly. But if we compare them with conventional banks in Pakistan conventional banks are much older and large(p)r wherefore these Isla mic banks.The Researcher is committed to investigate the principal difference mingled with the both conventional and Islamic banks, their products, their reliability and the factors encouraging the customers to invest their m nonpareily in any of these two forms of banking. The detective will everywherely analyse the key factors which play their role in either the satisfaction or dissatisfaction of the customer of these banks and which form of banking is more successful in relation to customer Satisfaction and why? The researcher will to a fault come out with the suggestions to improve the service of the banks to satisfy their customer.1.5 Research Context cambers are playing various functions to provide variety of products and services for different welkins of the economy. Pakistan came into being in 1947 the first Pakistani bank started its operations the same year in the month of September. Since that time Pakistani banking sector is experiencing difficulties due to un func tional policies and uncertainty. Private domain banks strongly dominated during the first almost 20 years unless all the banks were nationalized in 1974, which proved disastrous move for the banking sector of Pakistan. communisation of hole-and-corner(a) banks badly affected the performance of these banks. So, these banks were privatized again in 1992. Pakistans banking sector consists of Scheduled commercial banks, which include nationalized, foreign and private banks. Pakistans banking sector has been press release finished a comprehensive provided entangled and very saddle-sore process of restructuring since 1997. It is aimed at making these institutions financially sound and forging their cerebrate firmly with the real sector for promotion of savings, investiture and proceeds. A do it turnaround in this sector will non be affirmable and is not expected as well but signs of improvement can be seen.Islamic banking was started in the late 70s in Pakistan, but it was ab initio introduced in the conventional banks. The first Islamic banking license was issued in 2002 to the Meezan Bank Ltd this bank started its operations in Pakistan in the year 2003. The Islamic banking has gained impetus worldwide. on that point are more than 185 Islamic banks and financial institutions operating(a) in the world. The popularity of Islamic banking in not limited to Islamic banks only. A large proceeds of conventional banks in Pakistan and all over the world are showing increase following in the Islamic banking system as well. The consequence of this is that Islamic banks operating in Islamic countries are face up with strong competition not only from Islamic banks but also from non-Islamic rivalsHabib Bank LtdHabib Banks Ltd. was the first commercial bank to be completed in Pakistan in 1947. Over the years, HBL has self-aggrandizing its branch network and become the largest private sector bank with over 1,450 branches across the country and a customer bas e exceeding five million kindreds.The Government of Pakistan privatized HBL in 2004 through which AKFED acquired 51% of the banks distributeholding and management control. HBL is majority owned (51%) by the Aga Khan enthronement company of Economic Development, 42.5% of the shareholding is retained by the Government of Pakistan (GOP), whilst 7.5% is owned by the ecumenic public i.e. over 170,000 shareholders following the public listing that took place in July 2007. Nepal, Nigeria, Kenya and Kyrgyzstan and rep offices in Iran and China, HBL is also the largest domestic multinational. The bank is blasting its presence in principal international markets including the UK, UAE, South and Central Asia, Africa and the Far East.Key areas of operations encom conduce product offering and services in sell and consumer banking. HBL has the largest corporate Banking portfolio in the country with an active investment banking arm. SME and Agri polish lending programmes and banking service s are offered in urban and rural centres.HBL is currently rated AA (Long term) and A-1+ (Short term) and has a ease sheet size over USD 11 billion. It is the first Pakistani bank to raise Tier II Capital from external sources.Meezan Bank Ltd.Meezan Bank Limited, a publicly listed company, was incorporated on January 27, 1997 and started operations as an investment bank in August that year. In January, 2002 in a historic initiative, Meezan Bank was granted the nations first fledged commercial banking license as a dedicated Islamic Bank, by the State Bank of Pakistan.Meezan Bank has understandably established itself as the largest Islamic Bank in Pakistan with the largest Islamic Banking branch network in the country. The banking sector is showing a hearty paradigm shift away from traditional means of business and is supply to an increasingly astute and demanding financial consumer, who is also becoming keenly certain of Islamic Banking. Meezan Bank bears the critical responsibil ity of lead the way front in establishing a stable and dynamic Islamic Banking system scarf out with dynamic and cutting-edge products and services.During the eight years of its operations as an Islamic commercial bank offering universal banking services to customers, Meezan Bank has been one of the fastest increment banks in the history of Pakistans banking sector. Average growth in deposits has been 55% per annum during this period while the branch network grew from 4 to201. The Bank has established a strong and credible management team comprised of go through passkeys, that acquire achieved a strong balance sheet with excellent operating profitability and strong ratios, which places the Bank at the top of the Islamic Banking industry. The Bank has been assigned a long-term entity rating of A+ with a constant outlook and a fiddling-term entity rating of A1.The Banks main shareholders are leading financial institutions of the Region viz., Noor Financial Investment Company, Kuwait, a leading investment company based in Kuwait Pak-Kuwait Investment Company, a abdominal aortic aneurysm rated financial entity in the country and the Islamic Development Bank of Jeddah. The established position, reputation, strength and stability, of these institutions add of import value to the Bank through panel representation and applied synergies.The bank has certain an extraordinary research and increment capability by combining investment bankers, commercial bankers, Shariah scholars and court- poseed experts to develop innovative, viable, and competitive value propositions that not only meet the requirements of todays complex financial world, but do so with world-class service excellence which our customers demand, all within the bounds of Shariah.Meezan Bank has a strong engine room focus. It has invested heavily in state-of-the-art software applications namely Temenos T-24 and Oracle. It has also recently upgraded its hardware platform and also has a hot di saster retrieval site in place to cater to any unforeseen eventualities.By implementing robust and aggressive strategic and tactical initiatives on the side of consumer banking, Meezan Bank aims to fulfil its prime target of providing customers accessibility and convenience, within an atmosphere and culture of dedicated service and recognition of their inevitably. The Bank has a rapidly growing branch network across all major cities nation-wide.Meezan Bank, believe in adding value to its customers lives and businesses through dynamic and competitive products and services that fulfil their inevitably while conforming all in all to the dictates of Shariah. At the same time, they endeavor to stomach competitive risk-adjusted returns to our stakeholdersLITERATURE REVIEWWithin the last few years, a number of studies urinate provided the discipline into thePractice of conventional and Islamic banking sector. An perspicacity of related studies is as follows-Islamic banks are striving to capture the maximum number of customers to compete with conventional banks by providing a large number of products as an filling for evoke based products. In Pakistan, banks are providing a wide range of products and services and facing intensive competition to get potential customers. Persuraman et al. (1985, 1991b) devised SERVQUAL model and investigated the service graphic symbol. They explored ten dimensions of service choice and sylphlike into five dimensions. It was documented that an increase in service quality and professional behaviour resulted a greater customer satisfaction and reduced customer erosion (Leeds, 1992). The relationship mingled with service quality and Customer satisfaction is becoming crucial with the increased level of awareness among bank customers (Sureshchander et al. 2002).The conventional banking theories assume that banks earn profits by purchasing deposits from the depositors at a low interest rate, then reselling those funds to theBorr owers at higher interest rate, based on its competitive advantage at gathering entropy and underwriting risk (Santos, 2000). Therefore, conventional banksMake profits from the spread between the interest rate received from borrowers andthe interest rate paid to depositors.Islamic banking is considered as a different banking stream as it prohibits interest and replaces with (a) profit share and (b) the profit share depends on the extent of the risk participation of the parties. The absence of pre-determined rewards is based on Quranic commands and as interpreted using Shariah rationales (Ariff, 2006).Islamic banks showed remarkable progress. It has captured a reasonable market share with excellent growth rate of 114% per annum. The increasing number and size of Islamic banks is also a unequivocal sign of development and success. There are six full-fledged Islamic banks running(a) in different cities of Pakistan and 13 conventional banks perplex started partial Islamic banking pr actices by establishing a large number of branches exclusively engaged in Islamic banking practices (SBP, 2006).The prohibition of interest in Islam ca utilize some writings to come forward with an idea to establish banks that do not work on interest basis. So the basic difference between Islamic banks and conventional banks is that Islamic banks are interest free banks whereas conventional banks are interest based banks. (Kahf 2006) Although interest and profit are very clear concepts but they are misunderstood by umpteen people. base difference between interest and profit is that interest is the reward to coin and profit is the reward to capital investment. In other words notes produces interest and capital investment produces profits. (Toutounchian 2004)Islamic finance has gripped the world with a strong commitment and passion. It has been depicted that interest in this segment has grown rapidly in almost 60 countries, not only in Islamic countries but in the leading spher ical financial centers. level United Kingdom has adopted an open door policy and provided a level playing field to Islamic finance and now capital of Singapore is following its lead. (Dr.Shamshad 2007)Islamic banking has shown tremendous growth in the past 20 years, with estimated deposits surpassing $80 billion in more than 45 countries. annual turnover is currently estimated at $70 billion and is projected to pass $100 billion by 2000. (OSullivan 1994, p. 7) For the last 60 years, the mode of banking in Pakistan was wholly of interest based but now there is a shift from western banking to Islamic banking in number of banks in Pakistan and also there are some new banks like Meezan bank which is totally based on Islamic banking. In 2007 Meezan Bank creates a significant milestone in the history of Islamic Banking by opening its centesimal branch in the city of Karachi. With 100 branches in 31 cities understandably positions the Bank as the leading Islamic Bank in Pakistan. deuce new dedicated Islamic Banks start operations in Pakistan, namely Emirates Islamic Bank and Dawood Islamic Bank. (Meezan Bank 2007)Mishkin (2001) reported that banking and financial services are the integral part of services industry and its contribution is increasing with the passage of time. However, expansion of global and integrated banking sector has to face many challenges of legislation, technological and structural changes (Angur et al. 1999). The relationship between service quality and customer satisfaction is investigated by a number of researchers across the globe. It is concluded that there is strong association between dimensions of service quality and overall customer satisfaction (Anderson and Sullivan, 1993).It is found that the banking industry has a link between service quality and customer satisfaction (Avkiran, 1994). Islamic banking practices resulted into a notable increase in the supply of loans. It is found that government intervention played an important ro le to manage funds besides other economic factors in the economy (Makiyan, 2003).Levesque and McDougall (1996) investigated the influence of key determinants of service quality on customer satisfaction in financial institutions. They found a substantial feign of service problems on customer satisfaction and their intensions to switch. It is suggested that service quality is an indwelling determinant of customer satisfaction (Yavas e t al., 1997). Islamic banks works in different parts of the world assessed their performance in reference to service quality and customers responses. An empirical bring was conducted to measure customer awareness and satisfaction by using a sample of 206 respondents towards Islamic banking in Jordan. It is observed that customers have awareness about products of Islamic bank but expressed a sense of dissatisfaction towards some of the services (Naseer, Jamal andAl-Khatib, 1999). Bahia and Nantel (2000) developed an alternative scale for measurement of service quality in retail banking. They developed BSQ and compared with SERVQUAL. They found that BSQ dimensions are more reliable than SERVQUAL dimensions. In another study SERVQUAL is compared with skilful/Functional quality of services in private banks. Results showed that Technical/Functional quality model is better (Lassar et.al, 2000). A survey of 801 customers indicated that customers perception of service quality differs in scathe of demographic characteristics (gender, ethnicity, education and income) of the respondents (Urban and Pratt, 2000).The working of the customers mind is a mystery which is difficult to solve and understanding the nuances of what customer satisfaction is, a challenging task. This exercise in the context of the banking industry will give us an insight into the parameters of customer satisfaction and their measurement. This merry information will help us to build satisfaction amongst the customers and customer loyalty in the long run which is an i ntegral part of any business. The customers requirements must be translated and quantified into measurable targets. This provides an easy way to monitor improvements, and decision making upon the attributes that need to be concentrated on in order to improve customer satisfaction. We can recognize where we need to make changes to create improvements and determine if these changes, after implemented, have led to increased customer satisfaction. If you cannot measure it, you cannot improve it. Lord William Thomson Kelvin (1824-1907).Oppewal and Vriens (2000) empirically investigated the relationship between service quality and customer satisfaction by using original SERVQUAL instrument with 10 dimensions as devised by Parasuraman et al. (1985). This study gave a direction to relate service quality and customer satisfaction. Service quality gained significance with the passage of time due to increased competition among service firms. It was examined that how customer satisfaction aff ects the customers behavioral consequences. The study found a strong impact of customer satisfaction on their decision to stay with the living service provider and take a hop their negative behavioral intentions. (Athanassopoulos, Gounaris and Stathakopoulos, 2001). Kayis, Kim and Shin (2003) conducted a comparative analysis of Australian and Korean banks to find out the quality management practices and its outcomes. They found a meaningful relationship between perceived service quality and customer satisfaction. They suggest that organizations should focus on service quality as an input to customer satisfaction for long-term benefits and business success. Now banks have recognize the importance of service quality for successful survival in todays global and highly competitive environment (Wang et al. 2003). Jamal (2004) investigated the customer behaviour in retail banking by considering service quality and its outcomes. It was observed that customers have varied experiences o f satisfaction and dissatisfaction for utilization of self-service technologies. Financial sector is becoming more cognizant about the performance evaluation regarding quality of products/services according to customers expectations. In another study, findings reveal a positive correlation between financial performance and customer service quality scores (Duncan and Elliott, 2004).Curry and scratch awl (2004) reported that service quality is inevitable for differentiation to compete in the banking sector. They suggested that the right service could retain the customers for long-term benefits. So, Banks should maintain the level of services by proper allocation of resources to meet customer requirements. Findings indicated that financial institutions require reasonable procedures to evaluate the overall satisfaction of their customers. However, understanding of changing needs and expectations of customers is an essential prerequisite for the financial sector (Joseph et al. 2005).J abnoun and Khalifa (2005) proposed and tested a measure of service quality to compare conventional and Islamic banks in UAE. The study found that four dimensions were significant in case of conventional banks. spot only personal skilland values were crucial in find service quality in Islamic banks. It is found that bank-customer relationship quality is evident between satisfied and dissatisfied customers. Both types of customers have clearly distinctive feelings regarding their service experience (Nelson and Chan, 2005). Al-Hawari and Ward (2006) found that customer satisfaction plays an inter-mediator role in the relationship between service quality and financial performance of the banks. In another study, overall customer satisfaction was investigated in Malaysian banking industry by collecting data from 220 customers of 15 retail banks. It was found that overall customer satisfaction is one of the key determinants of relationship quality (Nelson, 2006). It is suggested that bank should start service quality improvement programs to stir customer satisfaction and customer loyalty (Razak et al., 2007). On the basis of existing literature, this study examines the perception of bank customers regarding service quality and its impact on customer satisfaction in Pakistani banking sector, we test the following hypotheses.H1 There will be positive relationships between service quality and customer satisfaction regarding Islamic banks inPakistan.H2 There will be positive relationships between service quality and customer satisfaction regarding Conventional banks in Pakistan. investigate METHODOLOGYThe main purpose of this research is to analyse the level of customer satisfaction about Meezan Bank Ltd and Habib Bank Ltd in Pakistan. many an(prenominal) authors and writers have defined research and research methodology, most of them if not completely contradictory with each other but are substantially different.Websters collegial Dictionary (1977) defines researc h as Studious inquiry or testing esp. investigation or experimentation aimed at the discovery and interpretation of facts, alteration of accepted theories or laws in the light of new facts or practical application of such new or revised theories of laws?Andrew and Hildebrand (1982, p. 3) define research as The orderly procedure by which man increases his knowledge?3.1 RESEARCH PHILOSOPHY3.2 RESEARCH APPROACHResearch burn down means the approach or the methodology that has been adopted to conduct the research. Research approach involves the extract of research questions, the conceptual framework that has to be adopted, the selection of appropriate research method such as primary research, secondary research etc. There are mainly two types of research approach- inductive approachDeductive approachInductive ApproachAn inductive lean is one in which the premises are supposed to support the terminal in such a way that if the premises are true, it is tall(a) that the terminus wou ld be false. Thus, the inference follows probably from the premises and inferences. Here is an congresswoman1. Socrates was Greek. (Premise)2. Most Greeks eat fish. (Premise)3. Socrates ate fish. (Conclusion)It may seem that inductive arguments are weaker than deductive arguments because there must always remain the possibility of their arriving at false conclusions, but that is not entirely true. With deductive arguments, our conclusions are already contained, even if implicitly, in our premises. This means that we dont arrive at new information at best we are shown information which was obscured or unrecognized previously. Thus, the sure justice-preserving nature of deductive arguments comes at a cost.Inductive arguments, on the other hand, do provide us with new ideas and thus may expand our knowledge about the world in a way that is unacceptable for deductive arguments to achieve. Thus, while deductive arguments may be apply most often with mathematics, most other fields o f research make colossal use of inductive arguments.Deductive ApproachDeductive argument is one in which it is impossible for the premises to be true but the conclusion false. Thus, the conclusion follows necessarily from the premises and inferences. In this way, it is supposed to be a definitive proof of the truth of the claim (conclusion). Here is a standard example1. All men are mortal. (Premise)2. Socrates was a man. (Premise)3. Socrates was mortal. (Conclusion)As you can see, if the premises are true (and they are), then it simply isnt possible for the conclusion to be false. If you have a deductive argument and you accept the truth of the premises, then you must also accept the truth of the conclusion if you deflect it, then you are rejecting logic itself.3.3 Research outlineResearch Strategy basically refers to the method of data collection for the specified topic. The term entropy can be divided into further 2 branches.Primary entropyThe primary data basically refers t o data which is collected by the researcher for the purpose of answering the problem under discussion. Primary data will be collected throughSecondary DataThe Secondary data is being obtained by the literature study, journals and articles. Secondary data is normally used to understand the problem under discussion and its helps the Researcher to reach its conclusion.The Researcher will use a quantitative approach for this research study, growing and distributing a questionnaire to customers of Islamic and Conventional banks petition them about their experiences and attitudes in relation to their banks.The questionnaire will include three types of questions, 1) closed questions, requiring the respondent to answer yes or no, 2) open questions allowing the respondent to elaborate on their answers and 3) multiple choice questions, asking respondents to rate their responses on a scale.Primary data collection pattern quantitative or qualitative both methods have to be used appropriatel y in any research paradigm. The researcher will be using a quantitative approach. The survey strategy will be used to collect quantitative data which is associated with deductive approach and philosophically positivist.The Researcher will distribute questionnaires to the customers from both Islamic and Conventional banks, asking them to complete and return them to the Researcher.3.4 Research SampleIn research terms a sample is a group of people, objects, or items that are taken from a larger population for measurement. The sample should be representative of the population to ensure that we can generalise the findings from the research sample to the population as a whole.Probability sample means a method of sampling that utilizes haphazard selection. In order to have a random selection method, you must set up some process or procedure that assures that the different units in your population have equal probabilities of being chosen. humanity have long practiced various forms of r andom selection, such as picking a name out of a hat, or choosing the short straw. These days, we tend to use computers as the mechanism for generating random numbers as the basis for random selection.Non prospect sampling does not involve random selection but it does not mean that non probability samples arent representative of the population. But it does mean that non probability samples cannot depend upon the rationale of probability theory. At least(prenominal) with a probabilistic sample, we know the odds or probability that we have represented the population well. We are able to estimate confidence intervals for the statistic. With non probability samples, we may or may not represent the population well, and it will often be hard for us to know how well weve do so. In general, researchers prefer probabilistic or random sampling methods over non probabilistic ones, and consider them to be more accurate and rigorous.The Researcher will be using Probability Sampling method for its Primary data collection.3.5 Research Validity and ReliabilityThe research is designed very guardedly in order to maintain the level of validity and reliability. The study which is used is a test and re test approach in order to reduce unfairness and interviewee possible irritation. Both qualitative and quantitative research method are aimed to achieve high level of validity and reliability. Interviews are based on friendly manner to approach people have available time for interviews. Open ended and close ended questions on with some probe were going to be used during in-depth interview. The ethical tenet of collecting data is to avoid subjective selectivity in what we record. Researchers needs to nourishment his objectivity by making sure he collects all data and fully (Saunders M. et al 2007).3.6 Research EthicsThe ethical principle of collecting data is to avoid subjective selectivity in what we record. Researcher needs to maintenance his objectivity by making sure he col lects all data accurately and fully (Saunders, M. et al. 2007).Time Period andtask to doMarch 2010April 2010May 2010June 2010July 2010August 2010Weeks,17,Prepare dissertation proposal and entree before 29th April 2009.Continue searching the literature review and its accounting entry to supervisor.....Weeks,18,19..Weeks,20,21Interviewing with participants, and analysing of data simultaneously, gathered from each participant.Revision of draft and supervisors comments.Meeting with supervisor, Initial start