Barriers to adoption of Islamic banking in Pakistan

Abstract

PurposeThe purpose of this paper is to report the findings of a pilot study conducted in Pakistan, about the barriers perceived by users and non‐users of Islamic banking when selecting Islamic banks.Design/methodology/approachThis study was conducted to include two types of banking customers, users (customers of Islamic banks only and, Islamic and conventional banks both) and non‐users (customers of conventional banks only). The qualitative research included in‐depth interviews with managers of Islamic banks and two focus groups with users and non‐users, respectively. The survey questionnaire that was subsequently designed received 109 responses. The analysis includes hypothesis testing, factor analysis, and cluster analysis.FindingsA narrow branch network, inconvenient branch locations and perception that “Islamic banks do not completely follow Islamic principles” acted as barriers for non‐users when selecting Islamic banks. Further, “a religious ruling against Islamic banks” was not considered an important barrier when selecting Islamic banks.Originality/valueThis research outlines an alternative methodology of looking at bank selection criteria, by measuring the other side of the coin, i.e. the barriers perceived by users and non‐users of Islamic banking when selecting Islamic banks. Compared to the prevailing literature on the subject, such an approach is enlightening and can have enormous potential as it directly measures the perceived barriers towards Islamic banking. Furthermore, this pilot study is also an important contribution to the limited literature on consumer attitudes towards Islamic banking in Pakistan, where the operations of Islamic banks are still in their formative stage.

Identifying the Factors Determining of Muslims’ Intention to Adopt Islamic Banking in the Local Region: Religiosity as Moderating Variable

“…This is one of the reasons why the market share is still low in Indonesia. Butt et al (2011) support this idea that such belief along with the small network and un-strategic location of Islamic banking causes the low preferences of the customer in Islamic banks. Another perception that is spread among the customers is that many still believe that Islamic banks only provide services to Muslims (Abiah & Wabekwa, 2012).…”

“…Access to Islamic banking seems to play an important role in customers' preferences or intentions. Butt et al (2011) state that the unstrategic place of Islamic banks and the small network it has affect's choice in using Islamic bank's service. Saad & Mubasshera (2015) also point out that customers' familiarity with conventional banks causes them to still use their service.…”

Grievances on Islamic Banks: A Survey

“…The Muslim Consumers Association of Malaysia (PPIM) has received about 4,000 complaints against Islamic banks since 2003 [15]. The Islamic banks have been described as moving away from its sacred intentions [9], promoting similar products of those conventional banks [10,13,16,17], and it was stressed that there is a need to innovate new products which based on Islamic foundations and yet harmonious with the demands of the modern market [18].…”

“…In Malaysia, the Islamic banking industry had begun with the establishment of the Bank Islam Malaysia Berhad in 1983 [1]. Currently there are 16 Islamic banks in Malaysia and the industry is growing rapidly.…”

The Influence of Religiosity Toward of the Muslim's Happiness With the Behavior of Zakat, Infaq and Alms as Moderating Variables

“…In reality, similar problems echoed in this part of the world and continues to cloud the market. In a research by Butt (2011), consumers in Pakistan feels discourage from using Islamic banking services due to the perception that Islamic banks do not follow the Islamic principles. Ling et all(2011) concede the findings by adding that most developers in Malaysia are unaware of the Islamic principles embedded within an Islamic financing contract.…”