An empirical survey

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An empirical survey of individualconsumer, business firm andfinancial institution attitudes

towards Islamic methodsof finance

Alsadek GaitUniversity of Wollongong, Wollongong, Australia, and

Andrew WorthingtonGriffith University, Brisbane, Australia

Abstract

Purpose – The purpose of this paper is to review the attitudes, perceptions and knowledge of Islamicfinancial products and services.

Design/methodology/approach – A synoptic survey of empirical analyses about Islamic financialproducts and services and comparison with the literature on conventional financial services andproducts.

Findings – It was found that while religious conviction is a key factor in the use of Islamic finance,consumers also identify bank reputation, service quality and pricing as being of relevance. Whenselecting a financial institution’s products and services, business firms usually employ criteria that aremore conventional, such as the cost of finance, in their decision making. There is also interest amongfinancial institutions in supplying Islamic financial products and services, but this is mitigated bycomplications with firm management and a lack of familiarity with business conditions. The concept

of risk sharing with borrowers serves as a substantial barrier to most financial institutions engagingin Islamic methods of finance.

Research limitations/implications – This survey is limited to work published in refereed journals, books and book chapters.

Practical implications – Need for further theoretical and empirical research on how religiousconvictions affect consumers in their financial decision making. In addition, most work on Islamicfinance is in a single national context, international comparisons are required.

Originality/value – This paper is the only known empirical survey of attitudes, perceptions andknowledge of Islamic financial products and services. It provides guidance for future research inIslamic finance and serves as an aid for decision making by policymakers, consumer interest groups,business firms and financial institutions.

Keywords Islam, Banking, Finance, Financial services

Paper type Literature review

1. IntroductionIslamic finance – financial institutions, products and services designed to comply withthe central tenets of Sharia (or Islamic law) – is one of the most rapidly growingsegments of the global finance industry. Starting with the Dubai Islamic Bank in 1975(and operations in the United Arab Emirates, Egypt, the Cayman Islands, Sudan,Lebanon, the Bahamas, Bosnia, Bahrain and Pakistan), the number of Islamic financial

The current issue and full text archive of this journal is available at

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Islamic methodsof finance

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International Journal of SocialEconomics

Vol. 35 No. 11, 2008pp. 783-808

q Emerald Group Publishing Limited0306-8293

DOI 10.1108/03068290810905423


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institutions worldwide now exceeds over 300, with operations in 75 countries andassets in excess of US$400 billion (El-Qorchi, 2005).

Though initially concentrated in the Middle East (especially Bahrain) and SoutheastAsia (particularly Malaysia), Islamic finance principles are now increasingly found

elsewhere. This includes developing economies where the financial sector is almostentirely Islamic (Iran and Sudan) or where Islamic and “conventional” financialsystems coexist (Indonesia, Malaysia, Pakistan and the United Arab Emirates)(El-Qorchi, 2005). It also includes developed economies where a small number of Islamic financial institutions have been established and where large conventionalbanks have opened Islamic financing windows (such as in Europe and the US).

While Islamic finance has been practiced for many centuries, it is important to recallthat only in the last 30 years have the Islamic financial institutions offering Sharia – compliant products and services become more widespread and substantial. Indeed,even in Muslim countries it is only very recently that analogous Islamic financeproducts and services have been offered in direct competition to the financial productsand services offered by conventional banks. Clearly, as Islamic products and servicesenter these markets, an important consideration is the attitudes, perceptions andknowledge of market participants towards these new methods of finance. Forindividual consumers and business firms, these factors determine the extent to whichthey choose to patronize these alternative products and services. Key concerns includethe influence of religious persuasion and the relative pricing, costs and benefits,convenience and access of Islamic products and services vis-à -vis conventional bankproducts and services. For conventional financial institutions, the presence of financialinstitutions offering Islamic financial products and services may affect theircompetitive position and how they construct new marketing strategies. It may alsoinfluence to their decision to introduce Sharia – compliant products and servicesthemselves.

The purpose of this paper is to provide an empirical literature review of thecomparatively few studies of attitudes, perceptions and knowledge of Islamic methodsof finance (primarily those offered by Islamic banks). The paper is structuredas follows. Section 2 provides a brief review of Islamic finance, including its religioussources, principles and most-common products and services. Section 3 discusses theliterature on individual consumers’ attitudes towards Islamic finance. Business firms’attitudes towards Islamic banks and other institutions are reviewed in Section 4.Section 5 includes a discussion of financial institutions’ attitudes toward Islamicmethods of finance. The final section includes some concluding remarks and directionsfor future research.

2. A brief review of Islamic finance

Islamic finance is defined as a financial service or product principally implemented tocomply with the main tenets of Sharia (or Islamic law). In turn, the main sources of Sharia are the Holy Quran, Hadith, Sunna, Ijma, Qiyas and Ijtihad . The Holy Quran isthe book of revelation given to the Prophet Muhammad; Hadith is the narrativerelating the deeds and utterances of Muhammad; Sunna refers to the habitual practiceand behaviour of Muhammad during his lifetime; Ijma is the consensus among religionscholars about specific issues not envisaged in either the Holy Quran or the Sunna;Qiyas is the use of deduction by analogy to provide an opinion on a case not referred to

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in the Quran or the Sunna in comparison with another case referred to in the Quranand the Sunna; and Ijtihad represents a jurists’ independent reasoning relating to theapplicability of certain Sharia rules on cases not mentioned in either the Quran or theSunna.

In brief, the principles of Islamic finance are as follows:. the prohibition of Riba (usually interpreted as usury or interest) and the removal

of debt-based financing;. the prohibition of Gharar , encompassing the full disclosure of information,

removal of asymmetric information in contracts and the avoidance of risk taking;. the exclusion of financing and dealing in activities and commodities regarded as

sinful or socially irresponsible (such as gambling, alcohol and pork);. an emphasis on risk-sharing, the provider of financial funds and the entrepreneur

share business risk in return for a pre-determined share of profits and losses;. the desirability of materiality, a financial transaction needs to have “material

finality”, that is a direct or indirect link to a real economic transaction; and. consideration of justice, a financial transaction should not lead to the exploitation

of any party to the transaction.

See El-Gamal (2000), Warde (2000), Lewis and Algaoud (2001), Iqbal and Llewellyn(2002), Abdul-Gafoor (2003), Obaidullah (2005) and Iqbal and Molyneux (2005) forsuitable introductions to Islamic finance.

In practical terms, these prohibitions and recommendations manifest themselves asthe following commercial products and services offered by Islamic financial institutions:

. Mudarabah: the provision of capital to a partial-equity partnership in return for ashare of profits, but where the losses on funds lent are borne by the lender.

.

Musharakah: full-equity partnerships where the provider of funds and theentrepreneur directly and wholly share in the business.

. Murabaha: an instrument used for financing the purchase of goods and serviceswhere the financial institution purchases these on behalf of the customer.

. Bai muajjall: deferred payments on products encompassed under Murabaha.

. Bai Salam: advance or pre-paid sale contracts of goods and services.

. Istisna: or manufacturing contracts to cover work in progress and paid by thefinancial institution on behalf of the customer.

. Ijarah: lease financing in the form of operating leases only.

. Takaful: or Islamic insurance in the form of cooperative self-help schemes.

. Quard Hassan: benevolent loans offered interest free.

In turn, these commercial products and services underlie the various depositor andinvestor accounts offered to retail customers. In terms of Islamic banks, these are againvery similar to the products and services offered by conventional banks with theexception that Islamic financing principles apply to the underlying bank assets andliabilities. For example, unlike a conventional savings account, interest is forbidden onbalances in Islamic accounts. Depositors can, however, obtain benefits in the form of


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“voluntary prizes”, whose value depends, in part, on the deposit’s balance and thebank’s profitability. These services are often offered fee-free to depositors.

Islamic products and services also increasingly manifest themselves as mutualfunds underpinned by investments in Sharia-compliant equity or property, Sukuk

(Islamic bonds), Takaful (Islamic insurance) or Ijarah (Islamic leasing) constructedwith Islamic principles in mind. For example, a Sharia-compliant equity mutual fundwould, through a process of sector screening and dividend “purification”, normallyexclude: banking, insurance or any other interest-related activity; alcohol, tobacco,gambling, armaments; any activity related to pork; other activities deemed offensive toIslam; and any sectors or companies significantly affected by any of the above.

3. Individual customers’ attitudes towards Islamic financeA substantial literature on individual consumers’ attitudes towards conventionalfinancial products and services is already in place, especially concerning selectioncriteria (or patronage) and customer satisfaction. Moreover, most of this work is

focused on banking. Although, the following section focuses on individual consumers’attitudes towards Islamic banks, it is useful to first briefly summarise the most-recentfindings concerning individual retail consumers’ attitudes towards conventionalbanks.

Bank selection criteria have been studied in a large number of studies. Kaynak andWhiteley (1999), for example, observed that the convenience of a bank was a primarymotivation for customers in selecting a specific institution. Further, the conveniencemotivation include location or other factors such as service quality (see, for instance,Wel and Nor (2003) and Lee and Marlowe (2003)). By way of contrast, Kennington et al.(1996) and Almossawi (2001) concluded that the bank’s reputation was the mostsignificant factor in the use of conventional banks’ services, while Owusu-Frimpong(1999), Ta and Har (2000) and Kaynak and Harcar (2005) found that profitability

factors, such as low service charges and high interest rates, were the major reasonswhy customers chose a particular bank. Kaynak and Harcar (2005) also concluded thata fast and efficient service was also an attractive feature valued by current andpotential customers, while Gerard and Cunningham (2001) considered that for mostcustomers the most important criterion for bank selection was feeling secure. In relatedwork, Devlin (2002) showed that professional advice was the most significantmotivation for the choice of a home loan institution by customers in the UK.

At the same time, the increasingly competitive environment in which conventionalbanks operate has seen customer satisfaction become the focus of increasing attention.Generally, there is a consensus among many studies that service quality is the primaryfactor in customers’ satisfaction with conventional bank services (Taylor and Baker,1994; Levesque and McDougall, 1996; Jamal and Naser, 2002). Moutinho and Smith

(2000), for instance, considered customer satisfaction with human and automatedbanking and found that consistent and efficient service delivery was most-highlyvalued. Al-Hawari and Ward (2006) likewise considered the impact of automatedbanking on the perception of service quality. In terms of outcomes, Pontand McQuilken (2005) concluded that a high level of customer satisfaction impactedpositively on the continued loyalty of a customer towards a particular bank.

In sharp contrast to the voluminous work on consumers’ perceptions, patronage andsatisfaction with conventional bank services, relatively little work has been

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undertaken including Islamic banks. Selected details of studies including Islamicbanks are included in Table I. Of these, Erol and El-Bdour (1989) is considered to be thefirst study of individual consumers’ attitudes towards Islamic banking.A self-administered questionnaire was used to ascertain the attitudes, behaviour and

patronage factors of bank customers (both Islamic and conventional) in Jordan. Themain finding was that factors such as a fast and efficient service, the bank’s reputationand image, and confidentiality were the primary bank criteria for the choice of bank,whether Islamic or conventional. This implied that a religious motivation in bankselection did not appear very important. Interesting, the study also found thatbank customers (at least in Jordan) were generally aware of Islamic banks and theirmethods, usually from information provided by relatives and neighbours, but thatexpansion in the number of Islamic bank branches appeared to be insignificant indetermining patronage.

Subsequent work by Erol et al. (1990) employed the same survey data with adifferent technical methodology to again examine the patronage behaviour of

Jordanian bank customers. In general, there was much agreement between the twostudies about the awareness of Islamic banking in Jordan and that a fast and efficientservice, the bank’s reputation and image, and confidentiality of the bank werethe significant factors for the choice of a bank. However, it was also found that thepatronisers of Islamic banks differed significantly from the patronisers of conventionalbanks in their viewpoint of bank pricing policies. But once again, religious motivationwas found to have no significant effect on the overall use of Islamic banks’ services.

Later, Omer (1992) surveyed 300 Muslims in the UK on their patronage factors andawareness of Islamic financing methods. At the time, Sharia-compliant products andservices were primarily available though Islamic finance “windows” at conventionalbanks. The main finding was that a high level of ignorance prevailed among Muslimsin the UK concerning Islamic finance principles. This is generally consistent with

findings elsewhere in the literature that Muslims living in a notionally Muslim countryhave a greater awareness and knowledge of Islamic banking than immigrant Muslims.That said, although UK Muslims were largely ill informed about Islamic methods of finance, religious motivation comprised the most significant factor in their strongpreference for Islamic banking services. Metwally (1996) also used factor analysis tostudy the attitudes of Muslims in three Arabic dual-banking systems (Kuwait, SaudiArabia and Egypt) towards Islamic banking. The results indicated that Islamic banksdid not significantly differ from conventional banks in the benefits and costs of bankproducts and services and that Islamic banks equalled conventional bank in terms of staff competency and speed of the services. On this basis, and similarly to Omer (1992),it was concluded that religion was the primary factor in the choice of an Islamicbanking institution.

In Egypt, Hegazy (1995) compared the demographic profiles of four hundredcustomers of two banks: the Faisal Islamic Bank and the (conventional) Bank of Commerce and Development. The results showed that 98.8 percent of the Islamicbank’s customers were Muslims married with children, while 32.4 percent of theconventional bank’s customers were Christians and 54.3 percent were Muslims.This suggested that the choice of an Islamic bank is based, in part, on a religiousmotivation. Regardless, and similarly to Erol and El-Bdour (1989), Erol et al. (1990) andHaron et al. (1994), Hegazy (1995) observed that Islamic bank customers still ranked the


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A u t h o r ( s )

M e t h o d o l o g y

S a m p l e

V a r i a b l e s

T e c h n i q u e ( s )

M a i n fi n d i n g s

E r o l a n d

E l - B d o u r ( 1 9 8 9 )

S e l f - a d m

i n i s t e r e d

q u e s t i o n n a i r e

4 3 4 J o r d a n i a n I s l a m i c a n d

c o n v e n t i o n a l b a n k c u s t o m e r s

D e m o g r a p h i c f a c t o r s ,

b a n k

s e r v i c e s a n d s e l e c t e d

p a t r o n a g e f a c t o r s

U n i v a r i a t e a n d m u l t i v a r i a t e

s t a t i s t i c a l t e c h n i q u e s a n d

f a c t o r a n a l y s i s

R e l i g i o n i s n o t t h e p r i m a r y

m o t i v a t i o n f o r c u s t o m e r s

d e a l i n g w i t h I s l a m i c b a n k s .

M o r e i m p o r t a n t

f a c t o r s a r e a

f a s t a n d e f fi c i e n

t s e r v i c e , t h e

b a n k ’ s r e p u t a t i o n a n d i m a g e ,

a n d c o n fi d e n t i a l i t y .

R e l a t i v e s a n d n e i g h b o u r s

p l a y a s i g n i fi c a n t r o l e i n t h e

a w a r e n e s s o f r e

s p o n d e n t s

w i t h k n o w l e d g e

o f I s l a m i c

b a n k i n g

E r o l e t a l . ( 1 9 9 0 )

S e l f - a d m

i n i s t e r e d


4 3 4 J o r d a n i a n I s l a m i c a n d

c o n v e n t i o n a l b a n k c u s t o m e r s


b a n k

s e r v i c e s a n d s e l e c t e d

p a t r o n a g e f a c t o r s

M u l t i v

a r i a t e t e c h n i q u e s a n d


I m p o r t a n t f a c t o r s f o r t h o s e

s e l e c t i n g I s l a m i c b a n k s a r e a

f a s t a n d e f fi c i e n

t s e r v i c e ,

t h e b a n k ’ s r e p u t a t i o n a n d

i m a g e , a n d c o n fi d e n t i a l i t y .

S i g n i fi c a n t d i f f e

r e n c e s

b e t w e e n p a t r o n s o f

c o n v e n t i o n a l b a

n k s ’ a n d

t h o s e o f I s l a m i c

b a n k s i n

t h e i r p r i c i n g p o l i c i e s .

N o i m p a c t o f r e l i g i o n o n b a n k

s e l e c t i o n c r i t e r i a

O m e r ( 1 9 9 2 )

S e l f - a d m

i n i s t e r e d

q u e s t i o n n a i r e s

3 0 0 M u s l i m s r e s i d i n g i n t h e

U K

S e l e c t e d p a t r o n a g e f a c t o r s

D e s c r i p t i v e a n a l y s i s

H i g h l e v e l o f i g n o r a n c e

a m o n g U K M u s

l i m s a b o u t

I s l a m i c fi n a n c e

p r i n c i p l e s .

R e l i g i o u s r e a s o n s a r e t h e

p r i n c i p l e m o t i v a t i o n f o r

M u s l i m s i n t h e

U K d e a l i n g

w i t h I s l a m i c fi n

a n c i a l

i n s t i t u t i o n s

( c o n t i n u e d )

Table I.Summary of studiesconcerning attitudestowards Islamic methodsof finance

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A u t h o r ( s )


S a m p l e

V a r i a b l e s



H a r o n e t a l .

( 1 9 9 4 )

S e l f - a d m

i n i s t e r e d


3 0 1 M u s l i m s a n d

n o n - M u s l i m s i n M a l a y s i a


b a n k

s e r v i c e s , s e l e c t e d p a t r o n a g e

f a c t o r s a n d k n o w l e d g e o f

I s l a m i c fi n a n c e




M u s l i m s a n d n o n - M u s l i m s

h a v e s i m i l a r p e r c e p t i o n s i n

s e l e c t i n g b a n k s e r v i c e s .

R e l i g i o u s m o t i v

a t i o n i s n o t

t h e p r i m a r y m o

t i v a t i o n f o r

M u s l i m s i n d e a l i n g w i t h

I s l a m i c b a n k s .

B o t h g r o u p s v a l u e t h e

p r o v i s i o n o f f a s

t s e r v i c e a n d

t h e q u a l i t y o f s e r v i c e s h i g h l y

i n t h e i r p a t r o n a

g e f a c t o r s .

M o s t r e s p o n d e n

t s h a v e s o m e

a w a r e n e s s o f I s l a m i c b a n k i n g

b u t a r e u n a w a r e o f s p e c i fi c

m e t h o d s a n d t h

e d i f f e r e n c e s

b e t w e e n c o n v e n

t i o n a l a n d

I s l a m i c b a n k s

H e g a z y ( 1 9 9 5 )

S e l f - a d m

i n i s t e r e d


4 0 0 E g y p t i a n c u s t o m e r s o f

t h e F a i s a l I s l a m i c B a n k a n d

t h e B a n k o f C o m m e r c e a n d

d e v e l o p m e n t

D e m o g r a p h i c e l e m e n t s

( i n c l u d i n g s e x , a g e ,

o c c u p a t i o n , e d u c a t i o n ,

i n c o m e l e v e l , r e l i g i o n a n d

m a r i t a l s t a t u s ) .

S e l e c t i o n

c r i t e r i a ( i n c l u d i n g e f fi c i e n c y

o f p e r s o n a l , s p e e d o f s e r v i c e ,

e a s e o f a c c e s s , f r i e n d l i n e s s o f

p e r s o n a l , a v a i l a b i l i t y o f

p a r k i n g , e t c . )

P a r a m e t r i c t e s t s a n d f a c t o r

a n a l y s i s

M o s t o f I s l a m i c

b a n k

c u s t o m e r s w e r e

M u s l i m s

c h o o s i n g t o c o m

p l y w i t h

I s l a m i c l a w .

I s l a m i c b a n k c u

s t o m e r s a l s o

r a n k e d s p e e d o f d e l i v e r i n g

b a n k i n g s e r v i c e

s a n d

e f fi c i e n c y a t t h e

t o p o f t h e i r

s e l e c t i o n c r i t e r i a .

C o n v e n t i o n a l b a

n k c u s t o m e r s

i n c l u d e d m i x o f

C h r i s t i a n a n d

M u s l i m s w h o r a n k e d t h e

r a t e s o f o f f e r e d

r e t u r n h i g h l y

i n t h e i r b a n k s e l e c t i o n c r i t e r i a


Table I.


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A u t h o r ( s )


S a m p l e

V a r i a b l e s



M e t w a l l y ( 1 9 9 6 )

T e l e p h o

n e

i n t e r v i e w s

3 8 5 r e s p o n d e n t s e a c h i n

K u w a i t ,

S a u d i A r a b i a a n d

E g y p t

S e l e c t e d p a t r o n a g e f a c t o r s ,

i n c l u d i n g r e l i g i o n , r e p u t a t i o n ,

s t a f f , s t a t e m e n t , h o u r s , p r o fi t ,

c o s t , e a s i n e s s , s p e e d ,

b r a n c h e s , a n d c o m m u n i t y

F a c t o r

a n d c o r r e l a t i o n

a n a l y s i s

T h e m o s t i m p o r t a n t f a c t o r s

i n d e t e r m i n i n g a t t i t u d e s o f

M u s l i m s t o w a r d s I s l a m i c

b a n k s a r e r e l i g i o n ,

c o n v e n i e n c e a n d t r a d i t i o n a l

s e r v i c e s .

M o s t M u s l i m s w i t h i n a d u a l

b a n k i n g s y s t e m

c h o o s e t h e i r

b a n k s f o r r e l i g i o u s r e a s o n s .

I s l a m i c b a n k s d

o n o t d i f f e r

f r o m c o n v e n t i o n a l b a n k s i n

t h e r e t u r n s a n d

c o s t s o f f e r e d

t o c u s t o m e r s .

S t a f f c o m p e t e n c

e a n d s p e e d

o f s e r v i c e s o f I s

l a m i c b a n k s

s a m e a s c o n v e n

t i o n a l b a n k s

E d r i s ( 1 9 9 7 )

S e l f - a d m

i n i s t e r e d


3 0 4 b u s i n e s s c u s t o m e r s o f

c o m m e r c i a l , s p e c i a l i z e d a n d

I s l a m i c b a n k s i n K u w a i t

D e a l i n g b e h a v i o u r q u e s t i o n s ,

b a n k s e r v i c e s a n d s e l e c t e d

p a t r o n a g e f a c t o r s b y

b u s i n e s s fi r m s

D e s c r i p t i v e a n a l y s i s a n d

m u l t i p l e d i s c r i m i n a n t

a n a l y s i s

M a j o r i t y o f b u s i n e s s fi r m s

d e a l w i t h c o m m

e r c i a l b a n k s

m o r e t h a n s p e c i a l i z e d o r

I s l a m i c b a n k s .

I s l a m i c b a n k i n g

p r a c t i c e s

r a n k e d h i g h l y a

m o n g

p a t r o n a g e f a c t o r s .

M o s t b u s i n e s s fi r m s i n

K u w a i t a r e m u l t i p l e - b a n k

u s e r s


Table I.

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A u t h o r ( s )


S a m p l e

V a r i a b l e s



G e r r a r d a n d

C u n n i n g h a m

( 1 9 9 7 )

S e l f - a d m

i n i s t e r e d


1 9 0 r e s p o n d e n t s i n S i n g a p o r e

S e l e c t e d p a t r o n a g e f a c t o r s b y

M u s l i m s a n d n o n M u s l i m s ,

b a s i c t e r m s I s l a m i c b a n k

k n o w l e d g e




M u s l i m s d i f f e r f r o m

n o n - M u s l i m s i n

t h e i r

a t t i t u d e s t o w a r d s I s l a m i c

b a n k s

c o n c e r n i n g r e l i g

i o u s a n d

p r o fi t a b i l i t y m o

t i v a t i o n s ,

n e w b r a n c h e s a

n d u s e f u l n e s s

o f i n t e r e s t - f r e e l o a n s .

F a s t a n d e f fi c i e n t s e r v i c e s

a n d c o n fi d e n t i a l i t y a r e

p r i m a r y f a c t o r s

i n s e l e c t i n g

b a n k s e r v i c e s .

M u s l i m s m o r e a w a r e o f t h e

c u l t u r e o f I s l a m

i c b a n k i n g

t h a n n o n - M u s l i m s

M e t a w a a n d

A l m o s s a w i

( 1 9 9 8 )

S e l f - a d m

i n i s t e r e d


3 0 0 I s l a m i c b a n k s c u s t o m e r s

i n B a h r a i n


b a n k

s e r v i c e s , s e l e c t e d p a t r o n a g e

f a c t o r s o f c u s t o m e r s a n d

k n o w l e d g e q u e s t i o n s

P r o fi l e

a n a l y s i s a n d

n o n - p a

r a m e t r i c s t a t i s t i c a l

t e s t s

M o s t I s l a m i c b a

n k s ’

c u s t o m e r s i n B a h r a i n

s a t i s fi e d w i t h I s l a m i c b a n k s ’

s e r v i c e s ,

e s p e c i a l l y i n v e s

t m e n t

a c c o u n t s .

C u s t o m e r s

d i s s a t i s fi e d w i t h

h i g h c o s t s o f

s e r v i c e s .


f o r t h e u s e o f I s

l a m i c b a n k

s e r v i c e s i s r e l i g i o n t h e n

p r o fi t a b i l i t y .

M o s t I s l a m i c b a

n k i n g

c u s t o m e r s w e r e

a w a r e o f

f u n d a m e n t a l I s l a m i c t e r m s ,

e x c e p t i n g m o r e

c o m p l e x

fi n a n c i n g s c h e m

e s ( c o n t i n u e d )

Table I.


791


10/26

A u t h o r ( s )


S a m p l e

V a r i a b l e s



J a l a l u d d i n a n d

M e t w a l l y ( 1 9 9 9 )

S e l f - a d m

i n i s t e r e d


3 8 5 s m a l l b u s i n e s s e s i n

S y d n e y ,

A u s t r a l i a

I n d e p e n d e n t v a r i a b l e s

i n c l u d i n g r i s k s h a r i n g , c o s t o f

b o r r o w i n g a n d p r o fi t a b i l i t y

l i n k a g e , c o s t v a r i a b i l i t y o f

fi n a n c e , m o t i v a t i o n f o r

b u s i n e s s e x p a n s i o n a n d

m a n a g e m e n t i n t e r v e n t i o n

L o g i t a

n d P r o b i t a n a l y s i s

R e l i g i o n i s n o t t

h e o n l y f a c t o r

t h a t m o t i v a t e s s m a l l

b u s i n e s s e s i n

A u s t r a l i a t o u s e p r o fi t / l o s s

s h a r i n g m e t h o d

s o f fi n a n c e .

T h e p r o b a b i l i t y

o f b o r r o w i n g

f u n d s o n a p r o fi

t / l o s s s h a r i n g

b a s i s i n c r e a s e s

w h e n

b u s i n e s s r i s k o r

i n t e r e s t r a t e s

a r e h i g h .

E x p e c t e d r a t e o

f r e t u r n a n d

d e g r e e o f i n t e r v

e n t i o n i n

m a n a g e m e n t a r e c o n s i d e r e d

m o r e t h a n fi n a n

c i n g i n a

p r o fi t / l o s s s h a r i n g s y s t e m


Table I.

IJSE35,11

792


11/26

A u t h o r ( s )


S a m p l e

V a r i a b l e s



J a l a l u d d i n ( 1 9 9 9 )

I n - p e r s o

n

i n t e r v i e w

8 0 fi n a n c i a l i n s t i t u t i o n s i n

S y d n e y ,

A u s t r a l i a

F a v o u r e d l e n d i n g f a c t o r s a n d

i n d e p e n d e n t v a r i a b l e s

F a c t o r

a n d m u l t i p l e

d i s c r i m

i n a n t a n a l y s i s

4 1 . 2 p e r c e n t o f fi n a n c i a l

i n s t i t u t i o n s i n d i c a t e d t h e i r

r e a d i n e s s t o l e n

d o n a

p r o fi t / l o s s s h a r i n g b a s i s .

B u s i n e s s s u p p o r t i s t h e m a i n

m o t i v a t i o n i n m

o t i v a t i n g

fi n a n c i a l i n s t i t u t i o n s t o a p p l y

p r o fi t / l o s s s h a r i n g m e t h o d s

o f fi n a n c e .

R e s p o n d e n t s s u

g g e s t e d

i n t e r e s t p a y m e n

t s s o m e t i m e s

c r e a t e d i f fi c u l t i e s f o r

b u s i n e s s .

M a n a g e m e n t c o

m p l i c a t i o n ,

u n f a m i l i a r i t y a n

d r i s k

s h a r i n g w i t h b o

r r o w e r s a r e

t h e m a i n r e a s o n

s f o r fi n a n c i a l

i n s t i t u t i o n s b e i n

g n o t

p r e p a r e d t o l e n d o n a

p r o fi t / l o s s s h a r i n g b a s i s .

T h e g r o w t h i n t h e d e m a n d

f o r f u n d s i s t h e

m o s t

s i g n i fi c a n t f a c t o

r i n

d i s c r i m i n a t i n g b e t w e e n

fi n a n c i a l fi r m s w h o w e r e

p r e p a r e d t o l e n d o n t h e b a s i s

o f p r o fi t / l o s s s h

a r i n g ( c o n t i n u e d )

Table I.


793


12/26

A u t h o r ( s )


S a m p l e

V a r i a b l e s



J a l a l u d d i n ( 1 9 9 9 )

S e l f - a d m

i n i s t e r e d


3 8 5 s m a l l b u s i n e s s e s i n

S y d n e y ,

A u s t r a l i a

F a v o u r i n g f a c t o r s , r e j e c t i n g

f a c t o r s a n d i n d e p e n d e n t

v a r i a b l e s

F a c t o r

a n d m u l t i p l e

d i s c r i m

i n a n t a n a l y s i s

5 9 . 5 p e r c e n t o f s

m a l l b u s i n e s s

fi r m s i n t e r e s t e d

i n u s i n g


o f fi n a n c e .

B u s i n e s s s u p p o r t i s t h e m a i n

m o t i v a t i o n i n a p p l y i n g


o f fi n a n c e

T e r m s a n d s o m

e c o n d i t i o n s

o f p r o fi t / l o s s fi n

a n c i n g a r e

m a j o r

r e a s o n s f o r t h e

r e j e c t i o n o f


o f fi n a n c e .

R i s k

s h a r i n g

b e t w e e n b o r r o w

e r s a n d

l e n d e r s i s t h e m

o s t

s i g n i fi c a n t

f a c t o r i n d i s c r i m

i n a t i n g

b e t w e e n b u s i n e s s e s w h o

a g r e e w i t h p r o fi

t / l o s s

fi n a n c i n g

N a s e r e t a l . ( 1 9 9 9 ) S e l f - a d m

i n i s t e r e d


2 0 6 J o r d a n i a n I s l a m i c b a n k s

c u s t o m e r s


I s l a m i c

b a n k i n g s e r v i c e s , r e a s o n s f o r

d e a l i n g w i t h a n I s l a m i c b a n k ,

r e a s o n s f o r b a n k i n g w i t h

c o n v e n t i o n a l a n d I s l a m i c

b a n k s a n d d e g r e e o f

s a t i s f a c t i o n w i t h t h e s e r v i c e s

o f t h e I s l a m i c b a n k



d e t e r m i n i n g a t t i t u d e s

t o w a r d s I s l a m i c

b a n k s w e r e

b a n k r e p u t a t i o n

t h e n r e l i g i o n .

M a j o r i t y o f c u s t o m e r s

s a t i s fi e d w i t h I s l a m i c b a n k s ’

p r o d u c t s a n d s e

r v i c e s a n d

m o s t h a d a h i g h l e v e l o f

a w a r e n e s s o f a t

l e a s t s o m e

I s l a m i c m e t h o d s o f fi n a n c e .

L i m i t e d n u m b e r o f

r e s p o n d e n t s u s e d I s l a m i c

fi n a n c i n g m e t h o d s e l s e w h e r e


Table I.

IJSE35,11

794


13/26

A u t h o r ( s )


S a m p l e

V a r i a b l e s



A l - S u l t a n ( 1 9 9 9 )

S e l f - a d m

i n i s t e r e d


3 8 5 r e s p o n d e n t s i n K u w a i t

S o c i o e c o n o m i c d e m o g r a p h i c

f a c t o r s ,

I s l a m i c b a n k s e r v i c e s

a n d r e a s o n s f o r p r e f e r e n c e

F a c t o r

a n a l y s i s

A d h e r e n c e t o I s

l a m i c r e l i g i o n

i s p r i m a r y m o t i v a t i o n f o r

d e a l i n g w i t h I s l a m i c b a n k s ,

t h o u g h 5 2 p e r c e n t o f

r e s p o n d e n t s p r e

f e r t o d e a l

w i t h c o n v e n t i o n

a l b a n k s

b e c a u s e o f b e t t e r s e r v i c e s .

N o d i f f e r e n c e b e t w e e n

I s l a m i c a n d c o n

v e n t i o n a l

b a n k s i n c o s t a n d r e t u r n t o

i n d i v i d u a l c u s t o

m e r s

H a m i d a n d

N o r d i n ( 2 0 0 1 )

S e l f - a d m

i n i s t e r e d


9 6 7 b a n k c u s t o m e r s i n K u a l a

L u m p u r

D e m o g r a p h i c f a c t o r s a n d

k n o w l e d g e q u e s t i o n s


M a j o r i t y o f r e s p

o n d e n t s

k n o w a b o u t t h e

e x i s t e n c e o f

I s l a m i c b a n k s i n M a l a y s i a .

A p p r o x i m a t e l y

5 0 p e r c e n t o f

r e s p o�

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An empirical survey