MALAYSIAN CUSTOMERS BEHAVIOUR IN ADOPTING ISLAMIC BANKING PRODUCTS AND SERVICES

ByAMEER SHAFIQ BIN KAMALULLAIL

A research project submitted in partial fulfillment of the requirements for the degree of

BACHELOR OF BUSINESS ADMINISTRATION (HONS)B.B.A. (Hons) (Intl. Bus.)

FACULTY OF BUSINESS AND LAWMULTIMEDIA UNIVERSITYMAY 2011

The copyright of this thesis belongs to the author under the terms of the Copyright Act 1987 as qualified by Regulation 4(1) of the Multimedia University Intellectual Property Regulations. Due acknowledgement shall always be made of the use of any material contained in, or derived from, this thesis.

Ameer Shafiq, 2011 All rights reserved

vi

DECLARATION

I hereby declare that the work have been done by myself and no portion of the work contained in this research project report has been submitted in support of any application for any other degree or qualification of this or any other university or institute of learning.

I hereby declares that pursuant to the provisions of the Copyright Act 1987 (the Act) that I shall not during my tenure at the University or thereafter engage in any unauthorised act of copying or reproducing or attempt to copy / reproduce or cause to copy / reproduce or permit the copying / reproducing or the sharing and / or downloading of any copyrighted material or an attempt to do so whether by use of the Universitys facilities or outside networks / facilities whether in hard copy or soft copy format, of any material protected under the provisions of sections 3 and 7 of the Act whether for payment or otherwise save as specifically provided for therein. This shall include but not be limited to any lecture notes, course packs, thesis, text books, exam questions, any works of authorship fixed in any tangible medium of expression whether provided by the University or otherwise.

I hereby further declare that in the event of any infringement of the provisions of the Act whether knowingly or unknowingly the University shall not be liable for the same in any manner whatsoever and undertake to indemnify and keep indemnified the University against all such claims and actions.

Ameer Shafiq Kamalullail1071116646

ACKNOWLEDGEMENT

This report is prepared to fulfil the Final Year Project requirements. Our deepest thankfulness to God for his consent to make this desertion is possible and complete.

First of all, I want to thank all of my family members especially my beloved parent. Thank you to all of you for your support and encouragement.

Secondly, we owe our gratitude to our lecturers, for devoting their utmost of time and effort with generosity and patience, and most of all for being so understandable person.Our sincere appreciation also goes to Mdm. Rahayu binti Tasnim our supervisor for this project and land a helping hand and kindly cooperation.

Finally, we also indebted to all of our friends for their comments, criticism and moral support to make the project over at last. Highly appreciation goes to whoever that involves indirectly during the period. Your kind and cooperation will always be in our inner heart that no one could wash out this fondest memory.

ABSTRACT

Purpose - The purpose of this paper is to examine the key factors that influence the Malaysian customers behaviour in adopting Islamic banking products and services.

Design/methodology/approach The paper presents primary data collected by self-administered questionnaires involving a sample of 400 respondents in Malaysia. The Islamic banking criteria ranking as perceived by the respondents are analysed using Friedman test. To further explore the customers understanding of the banking criteria, an exploratory factor analysis is employed.

Significance of Study The empirical evidence of this paper affects two aspects; first, Islamic banks must offer quality services while maintaining its Islamic credential and reputation; second, Islamic banks should also embrace good customers services policies o reap its potential as a strategic tool to achieve competitive advantage enhance reputation and secure customers allegiance. This research will be of interest to both incumbent and potential entrants into this niche market.

TABLE OF CONTENT

Page

COPYRIGHT ii

DECLARATION iii

ACKNOWLEDGEMENTS iv

ABSTRACT v

TABLE OF CONTENTS vi

LIST OF TABLES vii

LIST OF FIGURES ix

PREFACE x

CHAPTER 1 INTRODUCTION

1.1History of Islamic Banking 1

1.2Islamic Banking in Malaysia 8

1.3Principles and Characteristics of Islamic Banking System10

1.4

1.5Islamic Banking Concepts

Justification14

18

1.6Research Problem Statement and Questions19

1.7Objective of Study20

1.8Organisational of Research Project21

CHAPTER 2 LITERATURE REVIEW

2.1Shariah Principles/Framework of Islamic Banking 23

2.2

2.3

2.4Impact of Interest Rate

Banking Selection Criteria

Intention towards Dealing with Islamic Banking and Finance28

30

33

CHAPTER 3 METHODOLOGY

3.1 Research Framework and Design 35

3.2Descriptions of Variables 38

3.2.1Independent Variables3.2.2Dependent Variables

3.2.3Moderating Variables

3.3 Hypothesis Study 40

3.4Sampling Procedures and Sampling Method 42

3.5Sources of Data and Data Collection Procedure 44

3.6 Questionnaire Design 45

3.7Data Analysis 46

APPENDICES 48

REFERENCES 49

LIST OF TABLES

Table No.

Page

12A Summary of the Characteristics of Islamic Banking SystemThe differences between Islamic banking and conventional banking1112

3Islamic Banking Concepts14

4Islamic Banking Products and Services in Malaysia (Deposit)25

5Islamic Banking Products and Services in Malaysia (Retail Financing)25

6Islamic Banking Products and Services in Malaysia (Card Services)26

7Islamic Banking Products and Services in Malaysia (Trade Finance)27

8

9Islamic Banking Products and Services in Malaysia (Banking Services)Summary of Customers Selection Criteria Based27

31

10List of Islamic Banks in Malaysia32

11Religions in Malaysia43

LIST OF FIGURES

Figure No.

Page

1

2

Theory of Planned Behaviour

Research framework of the intention to deal with Islamic Banking affected by awareness towards shariah principles of Islamic Banking33

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CHAPTER ONEINTRODUCTIONThe purpose of this research is to examine the key factors that influence the Malaysian customers behavior in adopting Islamic bank products and services.The two feet of the son of Adam will not move on the Day of Judgement in front of his Lord until he is asked about five matters: about his life and how he exhaust it? And about his youth, what did he consume it in? And about his wealth, how did he earn it? An what did he spend it on? And how much did he act upon what he knew? (At-Tirmidhi, no 2416; Albani: Sahih)Any flesh that has grown from impure wealth (forbidden), verily the hellfire is more deserving for it (Related by At-Tabrani, 19/136; Al- Mughni lil Iraqi, 2/9207; Ithaf As-Sadat al Muttaqin, Az-Zubaydi, 5/226)Do not sell in our market except to those who already have deep understanding of the Deen (Related by Tirmidhi, no487, pg 129; Albani: Hasan)There will come upon the people a period in which a person will not care whether what he earned of wealth was through halal or through haram(Related by At-Tirmidhi)When riba and zina (fornication) becomes evident in a town, verily they have made it permissible upon themselves the torment of Allah s.w.t (Related by Al-Hakim, 2/37 Abyu Yula; Al-Hakim: Sahih and agreed by Az-Zahabi; Albani : Hasan)

Hadith mentioned above is the evidences regarding the importance of learning about lawful and unlawful matters pertaining to finance. The principal goal of Islam is to maintain good relationship with all human beings which lead to the importance of brotherhood, the importance of justice among them, and to understand the means and concept of zuhud (asceticism). Chapra (1993) stated that the well-being (falah) of all human beings includes physical satisfaction because mental peace and happiness can be achieved only by means of a balances realization of both the material and spiritual needs of the human personality where therefore the conventional means of the maximization of total output cannot be the goal of a Muslim society. From the Islamic perspective, the economical concept and the means of money are viewed and interpreted in a different kind of perspectives. Economic is defined as a social science concerned chiefly with description and analysis of production, distribution and consumption of goods and services (Merriam-Webster Online Dictionary, 2011). While economics from the Islamic perspective viewed as, the Islamic ummah are people who work to obtain rezeki (sustenance) by using the resources made available by Allah for their use while living in this world and as preparation for the Hereafter. The knowledge of economy can be found in many Verses in the Al-Quran which also supported by the Hadith given by the Prophet where these source of knowledge can be used as a guidelines, view, and lessons regarding to the economy and business. The religion of Islam does not only focus and covers the relationship between human beings and their Creator, but also taught humans n how to manage the existing resources on earth in line with the reasons and intent of them being made available. The means of money is interpreted differently from the perspective of Islam. The religion of Islam view money as a divine favour and the essence of life. There are two types of Islamic concept in the matter of money that can be seen in the concept of ownership and utilization. In the teaching of Islam, the ownership of either money, wealth or all the resources on earth belongs to Allah, alone. Man has only the rights of disposal and use the things that Allah bestows upon him including money where they will be asked in Hereafter; how he earned it and how he spent it. To Him belongs what is in the heavens and the earth, and all between them, and all beneath the soil (Surah Ta Ha, verse 6)This refer to that Allah has created the heavens and the earth and all things existent therein. He is the only owner of all things in existence.And give them something yourselves out of the means which He has given to you (Surah An-Nur verse 33)It refers to anything, including money, in our hand is given by Allah and we are the heirs thereof.While in the concept of utilization, money is seen as a great Divine favour to the human being where it is only attributed to mankind. Mankind has no ultimate ownership to the resources on earth but he has only the right to utilise the resources where by utilising it, mankind can fulfil their needs and wants. There are several aspects that must be focused on, in the sense of ways in utilisation and preservation of money. The aspects are debt management, wasting money, squandering, spending money and earning money. He it is Who has made the earth subservient to you (i.e. easy for you to walk on, to live in and to cultivate, etc.), so walk in the path thereof and eat of His provision, and to Him will be the Resurrection. (Al-Mulk, 67:15)In order to keep up with the changing needs and environment of individuals and society, it is very important to generate income through halal professions as one of the changing needs is our wealth. We also should realize that this act also fulfilling the words of Allah s.w.t where generating income and wealth through halal professions will allow them to earn rewards that will bring closer to Allah s.w.t (Al-Qaradawi, 2001). In Islam, working through halal professions and having halal businesses in order to gather wealth is also part of the righteous deeds where it is very common that most of the Muslims misinterpreted it to only specific acts of worships such as dhikr (remembrance), solah (prayer), umrah, hajj, sadaqah (charity) and other typical acts of worship.Wealth can be either beneficial or detrimental depends on these factors; intention, how wealth is earned, how wealth is grown, how wealth is spend and the rights of poor and needy. However, in order to acquire wealth, many Muslims often mislead the ways of how the wealth is earned even though it is accumulated through haram means. Al-Qaradawi states that the temptation of wealth does not mean accumulating it through halal means according to the rules of Islam, rather, it is about being obsessive in acquiring and hoarding wealth, even through haram means. The temptation of wealth is mentioned by The Prophet Muhammad s.a.w as below:Verily, upon every nation is a temptation, and the temptation of my nation is the wealth. (Related by At-Tirmidhi, no2337; Ibn Hibban, Al-Hakim: Sahih (Authentic) according to Al-Hakim and agreed by Az-Zahabi. Hasan (good) according to Tirmidhi)However nowadays, the temptation of gaining more wealth even though it is through haram means becomes commonly practise. The society becomes more material-oriented individuals, either ignores or not aware of the lawful and unlawful ways to gain wealth, and focused too much on this world. Wealthy individuals become wealthier, while the needy become poorer. Justice among mankinds is ignored. Daily activities containing unlawful matters in terms of finance are being adopted in the financial framework and done every day such as the adoption of the interest (riba) framework in the conventional financial institution. Recently, the emergence and rapid development of the Islamic bank and finance that adopted the Shariah principle and framework started to open the eyes of the global society especially among the Muslims about the importance and advantages dealing with Islamic banks. The awareness regarding the lawful and unlawful matters in finance started to arise besides of mass research and study regarding Islamic banks in terms of development, challenges, regulations, financial products and services, and the effects to the society as a whole. However, issues have arisen from the emergence of Islamic banking, saying that Islamic banking is costlier than the conventional banks. It is not in the matter of cost but it is a righteous act as explained in the verse below.Wealth and children are the adornment of the life in this world. But the good righteous deeds (five compulsory prayers, deeds of obedience towards Allah, remembrance of Allah with glorification, praises and thanks, etc.), that last, are better rewarded by your Lord and better in respect of hope. (Al-Kahf, 18: 46) 1.1History of Islamic Banking

Early Beginning of Islamic Banking

The history of Islamic banking system as a financial institution only starts to make its impact to the modern banking system with the emergence of two small private Islamic banks in two different places that is in Pakistan in the 1950s and also in Egypt in 1963. The emergence of Islamic banking in Egypt started in a small town named Mit Ghamr in 1963 which only lasted until 1967, by which time there were nine such banks in the country. The institution was founded and the operation that took the form of a saving bank based on profit-sharing was done underground because fears of being labeled as a manifestation of Islamic fundamentalism, which was anathema to the government in power. However, it is also in Egypt that took place of the arrival of new era in Islamic finance with the establishment of the Nasser Social Bank by the Government of Egypt in 1971. Since then, the 1970s witnessed the emergence of several Islamic banks in various Muslim countries such as the Philippine Amanah bank in 1973, the Dubai Islamic Bank in 1975, the Kuwait House, the Faisal Islamic Bank of Sudan, and the Faisal Islamic Bank of Egypt, all in 1977, the Bahrain Islamic Bank in 1979, and the Qatar Islamic Bank in 1981 (Ariff 1988, Wilson 1995, Edward 1999). The Islamic Development Bank was established in 1975 and it plays an important role to the establishment of other Islamic banks in various Muslim countries (Haiwad, 2008). Islamic Development Bank was founded during the first conference of Finance Minister of the Organization of the Islamic Conference (OIC) and basically the members of Islamic Development Bank is also the members of the Organization of the Islamic Conference. The purpose of its establishment is to foster the economic development and social progress of member countries and Muslim communities individually as well as jointly in accordance with the principles of Shariah.

Evolution and Development of Islamic Banking and Finance; A Report by BNM Special Session on Islamic Finance and Financial Stability Report (Zeti, 2010)

Islamic banking and finance evolve rapidly throughout the decades since its first establishment from a fringe industry into an industry that encompasses of banking, insurance and capital market globally. The landscape of Islamic finance also transform into more diverse and extensive range of financial products and services.The evolution in the development regarding the Islamic banking and finance started since 1970s, where during that period Islamic banking serves mostly only in retail banking to its Muslims customers in their respective countries. But however, Islamic banking develops more financial products and services throughout every decade. In the 1980s, Islamic banking started to shift its services towards investment banking, commercial banking, Islamic Insurance (Takaful), and also project finance and syndication. While in 1990s, services such as equity funds, leasing and Islamic securitization were introduced. Equities are open as an asset class to the Islamic investors which gives them the ability to invest in equities. This is because of the approval by the Islamic Fiqh Academy in Jeddah where it is a major legal body in the Muslims world. While in the contemporary years, services such as advanced treasury services, balance sheet management, and innovative asset management are then introduced. The development of Islamic banking can be seen in the expansion of Islamic finance assets where the global Islamic finance assets are estimated to be approximately USD1.0 trillion in 2009, where 82% of the amount is the Islamic banking assets. The Islamic finance assets also have grown at an impressive CAGR of 14.1% from USD150 billion in the mid-1990s to about USD1.0 trillion in 2009. The asset expansion also maintained the 28% annual compound growth achieved in the recent 3 years, 2009 until 2012. While in comparison, asset growth of worlds top 1000 conventional banks slumped to 6.8% during this period of time.The interest in adopting Islamic banking and finance also shows positive growth globally. This can be seen where countries such as France, United Kingdom, Germany, South Korea, Japan, Hong Kong, and Australia are starting to offer Islamic finance products and services to their respective country. This however shows us the strong interest towards Islamic banking from Non-Muslim countries.Besides that, the evolution and development can be seen in the Sukuk market and also the Takaful market. The Sukuk market expanded rapidly since 2001, where the global Sukuk outstanding reached the USD100 billion mark in 2009 with USD23.3 billion worth of issuances. While the Takaful market, are expected to grow by 15% to 20% annually and estimated to reach US$14.4 billion by 2010. Shariah-compliant funds also show positive and strong growth where it expands at the rate of 15% to 20% per annum. The total of Islamic funds at the end of 2009 are amounted to US$52.3 billion and the total number of Islamic funds increased from 200 in 2003 to 671 as at the end of 2009. The largest composition of Islamic fund is in the form of equities. This shows that the Islamic fund management industry has vast potential to contribute to the growth of Islamic finance. Besides that, there are a few of development that have been done in terms of financial infrastructure in order to maintain its financial stability and standards. The institutions that have been established are the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), and the International Islamic Liquidity Management Corporation (IILM). 1.2 Islamic Banking in Malaysia

The first form of Islamic banking activities was started around September 1963 when the Perbadanan Wang Simpanan Bakal-Bakal Haji (PWSBH) was established by the government. PWSBH was established in order to be an institution for the Muslims to save their money as a preparation to perform Haj in Makkah. Later on 1969, PWSBH merge with the Pejabat Urusan Haji to form a Pilgrims Management and Fund Board where it is known now as the Lembaga Tabung Haji. There are several types of financing modes known as the Mudarabah (profit and sharing), Musharakah (joint venture), and Ijara (leasing) during that era in order to invest the savings of the local Muslims who intent to perform pilgrim (Hajj). The financing modes utilize by the Lemabaga Tabung Haji is under the guidance of the National Fatwah Committee of Malaysia. The initial call to propose the form of Islamic Banking was made in 1980, in a seminar held in the National University of Malaysia. In the seminar, a resolution was made on requesting the government to pass a special law in order to setup an Islamic bank in Malaysia. Aziz (2001) stated that, the government responds positively on the request by forming a committee known as the National Steering Committee in 1981 to study legal, religious and operational aspects of setting up an Islamic bank. In 1983, the blue print of a modern Islamic banking system was established by the committee. With the establishment of the blue print, it enabled the government to establish an Islamic financial institution and to issue non-interest bearing investment certificates.In 1993, conventional banks, merchant banks and finance companies start to offer Islamic banking products and also services under the Islamic Banking Schemes (IBS). In order to maintain the ethics and principles of Shariah, conventional banks who offer Islamic products and services must ensure to separate the funds and activities of the Islamic banking transactions from the non Islamic banking business.The first Islamic bank in Malaysia was the Bank Islam Malaysia Berhad (BIMB). It was established in the year of 1983 under the Islamic banking Act. Bank Negara Malaysia introduced the Interest-Free Banking Scheme in March 1993 where the concept of Islamic banking starts to take place in Malaysia. The purpose of the introduction of this scheme is to allow the existing of conventional banks together produced Islamic products and services (Yap.P.L, 2009). While in 1999, the Islamic banking Scheme was established that also include the interest-free banking system and full-fledged Islamic banks involved in operating Islamic financial products and services. The second Islamic bank in Malaysia, Bank Muamalat Malaysia Berhad (BMMB) was established and starts to commence its operations on 1 October 1999. There were 2 full-fledged Islamic banks and 17 commercial banks offering Islamic window in 2000. While there were 11 full-fledged Islamic banks, 8 commercial banks offering Islamic window, 4 Islamic investment banks and 5 development institutions offering Islamic banking and products in July 2007. The rapid growth of Malaysia Islamic banks participation was because of the liberalization policy by the Malaysian government. Foreign Islamic finance institution, such as the Al-Rajhi Banking and Investment Corporation, Kuwait Finance House and the Islamic Financial Consortium also starts to enter the Islamic banking industry in Malaysia because of the opportunity and the policy that was introduced by the Malaysian government. 1.3 Principles and Characteristics of Islamic Banking System

There are two fundamental principles adopted by Islamic banking. The two fundamental principles are Islamic banking should help in achieving the socio-economic objectives of an Islamic society and it should be conducted without transgressing any injunctions of the Shariah principles (Ahmad, 2003). Aziz (2002), stated that the elements that must be inherent to Islamic banking are the nature of the business of Islamic banking confines its activities to that which is supported by an underlying productive activity where all financial transactions must be accompanied by the genuine trade and also business related transaction. Islamic banking also must not only operates under similar robust prudential regulatory, supervisory and legal framework that is applied to conventional banking institutions but also this is reinforced by further by the Shariah framework. The very basic principles under the Shariah framework are the prohibition of Riba (interest) and also Gharar (ambiguity and injustice). The characteristics of Islamic banking system are explained in Table 1 while in Table 2, explains the differences between conventional banking and Islamic banking.

Table 1: A Summary of the Characteristics of Islamic Banking System

Characteristics

Islamic Banking System

Business FrameworkBased on Shariah laws Shariah scholars ensure adherence to Islamic laws and provide guidance.

Balance between moral and material requirement / EthicsThe requirement to finance physical assets which banks usually take ownership of before reseale reduced over extension of credit.

Equity financing/sharing with risk to capital and stake takingAvailable. Enables several parties, including the Islamic bank to provide equity capital to a project or venture. Losses are shared venture. Losses are shared on the basis of equity participation while profits are shared on a pre-agreed ratio. Management of the enterprise can be in one of several forms depending on whether the financing is through Mudarabah, Musharakah , etc.

Profit and Loss SharingAll transactions are based on this principle.Returns are variable, dependent on bankperformance and not guaranteed. But the risks aremanaged to ensure better returns than deposit accounts. Consumers can participate in the profit upside i.e. in a more equitable way than receiving a predetermined return.

Prohibition of GhararTransactions deemed Gharar are prohibited. Gharar demotes varying degrees of deception pertaining to the price and quality of goods received by a party at the expense of the other. Derivatives trading e.g. options are considered as having elements of Gharar.

Table 2: The differences between Islamic banking and conventional banking

Conventional BankingIslamic Banking

Its function and operations are based fully on man-made principles.Its functions and operations follow the Quran and the Sunnah as much as possible.

In its investment product, the investor is promised a fixed rate. In reality, it is a riba-based loan activity.In its investment product, an Islamic bank promotes the sharing risk and profit between investor and investment fund manager. There is no fixed profit promised. Division of profit is based on real profit.

Aiming for profit without religious or moral boundaries.Aiming for profit that adheres to Islamic discipline that is limited to that which benefit society

Aiming for profit without religious or moral boundaries.Aiming for profit that adheres to Islamic discipline that is limited to that which benefits society.

Ignores zakat.Pays zakat as it is a social responsibility fulfilled by Islamic bans.

The retail loan product applies the system of giving out loans with multiplied interest.Its retail product utilizes the trading or renting of an asset, and not the loan contract.

Charging a compounding penalty on a loan if there is a late payment.Charges compensation for any late payment, but it does not go toward the banks earnings. Instead, it is channeled directly to charity.

The main priority is to protect the banks interest; no priority is given to ensure equity development.Emphasize projects that benefit society. The main aim is to ensure equity development.

Loans given by conventional banks are simple, no asset required. Their concept is money breeds money.Money is not generated through loans. Thus any loan should have an underlying asset.

Evaluation stresses on the ability of the borrower to pay off the loan. Not much attention is given to the progress of the customers project.Evaluation also stresses on the potential or viability, performance and prospect of the project that is being financed.

Earn revenue from fixed interest charged to the customer.Profit according to the concept of sharing profit-loss; the bank gives more attention on investing in project development.

The bank-customer relationship: loan lender and borrower.The bank-customer relationship: seller, buyer or partner.

Source: (Rahman, 2008)

1.4 Islamic Banking Concepts

There are 9 common Islamic banking concepts based on the Shariah principle ranging from Wadiah (safekeeping), Mudharabah (profit sharing), Bai Bithaman Ajil (deferred payment sale), Murabahah (cost plus), Musyarakah (joint venture), Ijarah Thumma Bai`(hire purchase), Wakalah (agency), Qard (interest-free loan), and Hibah (gift).

The Islamic banking concepts are explained below in Table 2.

Table 3: Islamic Banking Concepts

ConceptsExplanation

Wadiah Yad Dhamanah (savings with guarantee)Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.

Mudharabah (profit-sharing)Refers to an agreement made between a capital provider and another party (entrepreneur), to enable the entrepreneur to carry out business projects, based on a profit sharing basis, of a pre-agreed ratio. In the case of losses, the losses are borne by the provider of the funds.

Musyarakah (joint venture)Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.

Murabahah (cost plus)Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale.

Bai Bithaman Ajil (deferred payment sale)Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.

Bai al-Dayn (debt trading)Refers to debt financing, i.e. the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Only documents evidencing real debts arising from bona fide merchant transactions can be traded.

Bai al-InahThe financier sells an asset to the customer on a deferred payment and then the financier immediately repurchases the asset for cash at a discount.

Al-Ijarah Thumma al-Bai (leasing and subsequently purchase)Refers to a Al-Ijarah (leasing/renting) contract to be followed by Al-Bai (purchase) contract. Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price.

Ijarah (leasing)Refers to an arrangement under which the lessor leases equipment, building or other facility to a client at an agreed rental against a fixed charge, as agreed by both parties.

Qardhul Hassan (benevolent loan)Refers to an interest free loan. The borrower is only required to repay the principal amount borrowed, but he may pay an extra amount at his absolute discretion, as a token of appreciation.

Bai as-Salam (future delivery)Refers to an agreement whereby payment is made in advance for delivery of specified goods in the future.

Bai al-Istijrar (supply contract)Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment

Kafalah (guarantee)Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties.

Rahnu (collateralised borrowing)Refers to an arrangement whereby a valuable asset is placed as collateral for debt. The collateral may be disposed in the event of default.

Wakalah (nominating another person to act)Refers to a situation, where a person nominates another person to act on his behalf.

Hiwalah (remittance)Refers to a transfer of funds/debt from the depositors/debtors account to the receivers/creditors account whereby a commission may be charged for such service.

Sarf (foreign exchange)Refers to the buying and selling of foreign currencies.

Ujr (fee)Refers to commissions or fees charged for services.

Hibah (gift)Refers to gifts award voluntarily in return for loan given.

Source: (Hairun, 2004)

1.5 Justification

Islamic banking and finance evolve rapidly throughout the decades since its first establishment from a fringe industry into an industry that encompasses of banking, insurance and capital market globally. The landscape of Islamic finance also transform into more diverse and extensive range of financial products and services.The significance and importance of this research paper is to make contribution to the development of the Islamic financial institution locally and also globally, to introduce Labuan International Business and Financial Centre as one of the Islamic Financial hub globally, to identify the risk management faced by Islamic banking and finance, and also to ensure the resilience and stability of the Islamic financial system. This research paper aims to uncover the behavioral aspects of Malaysian towards Islamic banking. Information obtained from this study can be used to help and assist Islamic banking to enlarge their customer based.

1.6Research Problem Statement and QuestionsWilson (1995) stated that Islamic banking is no longer regarded as a business entity striving only to fulfill the religious obligations of the Muslim community, but more significantly, as a business that is ineluctably in need for winning over customers whilst retaining the old ones. It is very important for Islamic banking to know the importance of customers perceptions towards the Shariah framework and also Islamic banking in terms of factors such as service quality to secure customers loyalty towards them. Islamic banking also must provide education and increase awareness regarding the framework of Shariah principles and information on Islamic banking to public because most of the Malaysian customers are not aware with the Shariah principles, having limited knowledge on the framework and the operations of Islamic banking, and also having different perception on Islamic banking. From the previous study, the problem statement can be identified where the factors that could lead to the customers behavior are the level of education of population regarding the concept of Islamic banking, the knowledge of the Shariah principle and framework, the importance of Islamic banking development to compete with other financial institution globally and also locally, and also the banking selection criteria such as customers service, service delivery, confidentiality, size and reputation of the bank, and convenience that could lead to the intention in dealing with Islamic banking besides level of awareness towards Shariah principles and Islamic banking.The study sought to answer the following questions:1) What is the relationship between the awareness towards Shariah principles used in Islamic bank and the intention of local people to deal with Islamic bank?2) What is the degree of awareness among the local people regarding the Shariah principle used by Islamic bank?3) What is the level of intention among the locals people in dealing with Islamic banking?4) What is the ranking of various bank selection criteria as perceived by the local people?

1.7Objective of StudyIn general, this research is conducted in order to explore the factors that influence Malaysian customers behavior in adopting Islamic bank products and services. Furthermore, this study aims to achieve the following specific objectives:-

1. To determine relationship between awareness towards Shariah principles used in Islamic bank and the intention of locals to deal with Islamic bank.

2. To establish the level of awareness in relation to the Shariah among the Muslims.

3. To establish the level of awareness in relation to the Shariah among the non-Muslims.

4. To establish the intention among the Muslims in dealing with Islamic banks.

5. To establish the intention among the non-Muslims in dealing with Islamic banks.

6. To uncover the ranking of various bank selection criteria among the Muslims.

7. To uncover the ranking of various bank selection criteria among the non-Muslims.

1.8Organization of Research Project

The purpose of this research project is delivering the initial research of the topic which is the factors that influence Malaysian customers behavior in adopting Islamic bank services until we determine the end results and findings. It covers five chapter ranging from chapter one until chapter five.

Chapter One IntroductionThis chapter covers mostly on the background and the root of causes of the study. In this chapter, they are seven sub chapters ranging from the history of Islamic Banking, Islamic banking in Malaysia, Islamic banking development in Malaysia, the characteristics of Islamic banking system, justification, problem statement, objective of the study and lastly the organization of the study

Chapter Two Literature ReviewThis chapter covers mainly about the proof of reading of literature review that is relevant to the topic of factors that influence Malaysian customers behavior in adopting Islamic bank products and services.

Chapter Three MethodologyThis chapter will cover the research method being implied throughout the study consisting of the framework, variables and preliminary data analysis techniques. In this chapter, it also covers the hypothesis for testing and describing the sampling procedures for the research.Chapter Four Data AnalysisIn this chapter, it will cover the analysis of the whole data acquired which are equipped with the graphical figures.Chapter Five Conclusions This chapter will cover the summary and conclusions describing the total finding and future utilization of the research.

CHAPTER TWOLITERATURE REVIEW

Introduction

This chapter is employed for the critical assessment of the research framework, hypotheses and the research method in the chosen published in related to this study. Any further findings and additional information which is deemed usable will be incorporated throughout the study itself. All the elements of possible dependent variable, independent variable, mediating variable, and moderating variable will be elaborated thoroughly in this literature review with a close focus upon each an every elements. A brief discussion regarding the factors that influence Malaysian customers behavior in adopting Islamic bank products and services.

2.1Shariah Principles/ Framework of Islamic Banking

Ahmad (2000), Chapra (2000), Warde (2000), Henry and Wilson (2004), Iqbal and Molyneux (2005), Iqbal and Mirakhor (2007) examined that based from many Islamic banking literature, Islamic banking have different approach in dealing with financial transaction although Islamic banks have similar functions to conventional banks. Mirakhor (2000) and Warde (2000) also stated that Islamic banking have different and unique features compared to the conventional banking where Islamic banking strives for a just, fair and balanced society as envisioned by the Islamic economics. There are also lot prohibitions such as interest, gambling, excessive risks and few more to mention are to provide a level playing field to protect the interests and benefits of all parties involved in market transactions and to promote social harmony (Ahmad, 2000; Chapra, 2000). The elements of injustice (Gharar) also can be seen in the practice of interest (Riba) by the conventional banking system where the issuance of the loans made by the customers must be paid to the conventional banks irrespective of the outcomes of their business. This also can be seen where the interest-bearing contracts can be unjust to the lenders especially when their returns on deposits, which have been channeled by the banks to the entrepreneurs, do not commensurate with the actual performance of the investment (Lewis and Algaud, 2000; Iqbal and Molyneux 2005). Ahmad (2000) and Iqbal and Molyneux (2005) also state that the framework of Islamic banking is also based on the principle of brotherhood and cooperation where it consists of a system of equity sharing and stake taking. This will however will promote sharing and cooperation among the provider of funds (investor) and the user of funds (entrepreneur). Besides that, as a system grounded on ethical and moral framework of the Islamic law of Shariah, Islamic banking is also characterized by ethical norms and social commitments (Ahmad, 2000; Mirakhor, 2000; Warde, 2000). Chapra (1992) also states that there is a moral filter based on the definitions of halal (permissible) and haram (prohibited and undesirable) operating at different levels, carving the conscience of entrepreneur and firm, promoting a positive social climate for society, and providing an expedient legal framework. Ahmad (2000) also stated that Islamic banks are prohibited from financing any project such as financing a brewery factory, a casino a night club or any other activity clearly prohibited by Islam or known to be detrimental to society which could be a conflict with the moral value system of Islam. The products and services provided by Islamic banking in Malaysia are listed below in Table 4, 5, 6, 7 and 8.

Table 4: Islamic Banking Products and Services in Malaysia (Deposit)

Products / ServicesApplicable Concepts

Savings account-iWadiah/Mudharabah

Current account-iWadiah/Mudharabah

General investment account-iMudharabah

Special investment account-iMudharabah

Specific investment account-iMudharabah

Source: (Hairun, 2004)

Table 5: Islamic Banking Products and Services in Malaysia (Retail Financing)

Products / ServicesApplicable Concepts

Cash line facility-iBai' Bithaman Ajil / Murabahah

Computer financing-iBai' al-Inah / Murabahah

Education financing-iBai' Bithaman Ajil / Bai' al-Inah

Hire purchase-iAl-Ijarah Thumma al Bai'

Home / House financing-iBai' Bithaman Ajil

Land financing-iBai' Bithaman Ajil

Leasing-iIjarah

Pawn broking-iAr-Rahnu

Personal financing-iBai' Bithaman Ajil / Bai' al-Inah / Murabahah

Plant & machinery financing-iAl-Ijarah Thumma al-Bai'

Project financing-iBai' Bithaman Ajil

Property financing-iBai' Bithaman Ajil

Share financing facility-iBai' Bithaman Ajil / Mudharabah / Musyarakah

Shop house financing-iBai' Bithaman Ajil

Sundry financing-iBai' Bithaman Ajil

Umrah & visitation financing-iBai' Bithaman Ajil

Unit trust financing-iBai' Bithaman Ajil / Mudharabah / Musyarakah

Working capital financing-iMurabahah

Source: (Hairun, 2004)

Table 6: Islamic Banking Products and Services in Malaysia (Card Services)

Products / ServicesApplicable Concepts

Charge card-iQardul Hasan

Credit card-iBai' al-Inah

Source: (Hairun, 2004)

Table 7: Islamic Banking Products and Services in Malaysia (Trade Finance)

Products / ServicesApplicable Concepts

Accepted bills-iMurabahah

Bank guarantee-iKafalah

Export credit refinancing-iMurabahah

Letter of credit-iWakalah / Murabahah / Musyarakah

Shipping guarantee-iKafalah

Trust receipt-iMurabahah

Source: (Hairun, 2004)

Table 8: Islamic Banking Products and Services in Malaysia (Banking Services)

Products / ServicesApplicable Concepts

Stock broking services Ujr

TT / Funds Transfer Ujr

Travellers' Cheques Ujr

Demand Draft Ujr

Cashiers' Order Ujr

Standing Instruction Ujr

ATM Service Ujr

Telebanking Ujr

Source: (Hairun, 2004)

2.2Impact of Interest Rate

Rosly (1999) had provides the theoretical explanation of the impact of interest rate changes on Islamic bank performance in the dual system. He emphasizes that Islamic banks are exposed to interest rate risks and the root cause of this phenomenon is where the profit rate (financing rate) is fixed. Rosly explains that when interest rates are rising, the base lending rate (BLR) and rates of return on deposits of the conventional bank would change accordingly to changes in the market interest rate. As a result, the profit margin of the conventional bank will not be affected. However, the Islamic bank cannot increase the rate of returns on its deposits because the profit margin is fixed. As a consequence, Islamic deposits give lower returns. The substitution effect comes into play where depositors prefer the conventional banks. On the asset side, customers may find that the installments for existing financing are relatively cheaper than the existing conventional loans during times of rising interest rates. Hence profit motivated customers would choose Islamic loans financing if they expect interest rates to rise in future. Hence, the demand for Islamic loans financing would rise. However, the Islamic bank may not be able to fulfill this increased demand for loans financing due to the fall in total deposits. As supported by Short (1979), in the case of falling market interest rates, the conventional bank is able to adjust both the deposit and base lending rates downwards hence maintaining its profit margin. It is interesting to note that the Islamic bank would also reduce the rates of return on deposits in line with the conventional deposit rates. Since the profit rate of Islamic loans financing is fixed, it is rational for the Islamic bank to lower the deposit rates hence widening its profit margin. In the case of Islamic financing, because existing Islamic loans profit rates remain fixed customers would find that existing Islamic loans financing is relatively more costly than existing conventional loans. If customers expect the market interest rate to decline further, they would prefer conventional loans rather than Islamic loans financing. Hence, the demand for conventional loan increases while the demand for Islamic loans financing falls. The above explanation theoretically shows that any changes in the market interest rate would, on the asset side, lead to a substitution effect between Islamic and conventional bank financing. It is recognized that the root of this problem is the structural weakness of the fixed Islamic loans rate mechanism. Hence overdependence on fixed interest rate financing by the Islamic bank has limited the banks ability to compete with the conventional bank.

2.3Banking Selection Criteria

There are various differences between the Muslims and non-Muslims regarding the factors in the bank selection criteria in Malaysia. Basically, factors that are used to measure customers selection criteria can be seen in features such as cost and benefits of products offered, service delivery (fast and efficient), confidentiality, size and reputation of the bank, convenience (location and spacious parking space), friends and families influences and friendliness of personnel (Erol and El-bdour, 1989; Erol et al., 1990; Omer, 1992; Haron et al., 1994; Gerrard and Cunningham, 1997; Metawa and Almossawi, 1998; Naser et al., 1999; Ahmad and Haron, 2002; Abbas et al., 2003). Besides that, Metawa and Almossawi (1998) have been discussing in their writings that the factor of religion also plays an important role and criteria for the selection of Islamic banking services.Islamic banking is normally known because of its Islamic-compatible formulation as one of its major factors in the banking selection criteria. But however, based on the previous empirical studies found that, the factor of religion is not the major criteria for the section of Islamic banking institutions or services. Many studies and research found that factors such as cost and benefits, service delivery, size and reputation of the banks, convenience and friendliness of bank personnel are the important factors for the customers in making their selection in adopting Islamic banks services and products. Table 9 provides the summary of the customers selection criteria based on the banking selection criteria on Islamic banking and table 10 provides the list of Islamic banks in Malaysia.

Table 9: Summary of Customers Selection Criteria Based

Source: Dusuki and Abdullah, 2006

Table 10: List of Islamic Banks in Malaysia

NameOwnership

Affin Islamic Bank BerhadLocal

Al Rajhi Banking & Investment Corporation (Malaysia) BerhadForeign

Alliance Islamic Bank BerhadLocal

AmIslamic Bank BerhadLocal

Asian Finance Bank BerhadForeign

Bank Islam Malaysia BerhadLocal

Bank Muamalat Malaysia BerhadLocal

CIMB Islamic Bank BerhadLocal

EONCAP Islamic Bank BerhadLocal

Hong Leong Islamic Bank BerhadLocal

HSBC Amanah Malaysia BerhadForeign

Kuwait Finance House (Malaysia) BerhadForeign

Maybank Islamic BerhadLocal

OCBC Al-Amin Bank BerhadForeign

Public Islamic Bank BerhadLocal

RHB Islamic Bank BerhadLocal

Standard Chartered Saadiq BerhadForeign

Source: BNM.gov.my, 2009

2.4Intention towards Dealing with Islamic Banking and Finance

In the theory of planned behavior by Ajzen (1985), the creator of the model himself again created an analysis based on the theory which described the usefulness of the model in the intention and behavior environment. Intentions of performing various behaviours have been said to originated firmly from an individuals attitude and perceive behavioural control. However, the likeliness of each an every intention subsided by an individual might also varies when it comes to actual behavior been performed. Other than that, further usability of the theory of planned behavior could also be achieved in various other segments like the subjective norms and perceived behavioural control.Figure 1: Theory of Planned Behaviour

Source: people.umass.edu, 2010

Summary

The beginning of the chapter starts with a discussion on the Shariah principle and framework embrace by Islamic bank. This was followed by a discussion on possible factors that have been identified to influence the customers behaviour in adopting Islamic bank products and services. This discussion is supported with empirical evidence and literature reviews where available. After the preceding analysis of the selected studies of a similar nature, there is a need for a stronger research framework that would assist in developing better testable hypotheses to explain the relationship between the awareness towards framework of Islamic bank and the intention to deal with Islamic bank. In addition, improvements could be made in the research method and research design, which would be incorporated in this study. The following Chapter 3 explains the theoretical linkages that can be related to this study. It also describes in details the research method and design employed in this study. CHAPTER THREERESEARCH METHOD

IntroductionIn this chapter, matters concerning the research method of this study are elaborated thoroughly. The chapter started with discussion of the research framework in this study. It includes the identification and definition of dependent and independent variables, and moderating variables which appear in the research method. This is followed by explanation on the formulation of the research hypotheses which are tested in this study. This chapter also discusses the questionnaire design, data collection procedure, identification of population and selection of final sample. Lastly, it exposes statistical technique to be employed in testing the formulated hypotheses, subsequently answering the research problems.

3.1Research Framework and Design

The main objective of this research is to study the behavior of people towards Islamic banking in the country. In order to achieve the objective and to accomplish this research, there are three aspects that should be taken in the research framework. The three aspects are:1) The degree of awareness towards the principle of Islamic bank2) The ranking of various bank selection criteria3) The degree of intention to deal with the Islamic bankThe study aim of this research is to determine the relationship between the levels of awareness towards the Shariah principles used in the Islamic bank and the degree of intention of local people in Malaysia to deal with Islamic bank. The moderating variable of this study can be specified as the impact of religion between the aspects of the awareness towards the Shariah principle of Islamic bank and the intention to deal with Islamic bank.

Theoretical Framework

Figure 2: Research framework of the intention to deal with Islamic Banking affected by awareness towards Shariah principles of Islamic Banking

Awareness towards the shariah principles of Islamic bankingReligion

The intention to deal with Islamic banking

Customers behaviour in adopting Islamic banking

3.2Description of Variables

In this part, the measurements of independent variables, dependent variables, and the moderating variables will be defined thoroughly.

3.2.1Independent Variables

Independent variables can be defined as the variables can be manipulated through many factors such as demographical factor, level of education, and many more where these variables could affect the result of the dependent variables. The independent variable for this research is the degree of awareness towards Shariah principles used by the Islamic bank.

3.2.2Dependent Variables

Dependent variables can be defined as the primary interest of the researcher in measuring the impact of the independent variables. The sole dependent variable for this research is the intention of people in Malaysia to deal with Islamic bank.

3.2.3Moderating Variables

Moderating variables can be count as the third variables that affect the relationship between two variables, independent and dependent variables. Moderating variables is very important where it can make a big impact on the weight, the direction and also the strength between the two variables. In this study, the moderating variable is the presence of the religion factor where it could modify the original relationship between independent and dependent variables which this could affect the behavior of the intention in dealing with Islamic bank.

3.3Hypothesis of Study

Based from the theoretical framework developed, the hypothesis of the research is structured according to the variables that were involved. The development of the hypothesis includes the aspects that are concerned with the key factors that influence the Malaysian customers behavior in adopting Islamic bank services.

Hypothesis OneH1a:The degree of awareness towards the principles of Islamic bank is positively related to the intention to deal with Islamic bank.H1b:The degree of awareness towards the principles of Islamic bank is negatively related to the intention to deal with Islamic bank.

Hypothesis TwoH2a:There is a significant difference between Muslims and Non Muslims in terms of awareness towards Shariah principles used in Islamic bank.H2b:There is no significant difference between Muslims and Non Muslims in terms of awareness towards Shariah principles used in Islamic bank. Hypothesis ThreeH3s:There is a significant difference between Muslims and Non Muslims towards the intention to deal with Islamic bank.H3b:There is no significant difference between Muslims and Non Muslims towards the intention to deal with Islamic bank.Hypothesis FourH4a:There is a significant between Muslims and Non Muslims in the ranking of various bank selection criteria.H4b:There is no significant between Muslims and Non Muslims in the ranking of various bank selection criteria.

3.4Sampling Procedure and Sampling Method

Sekaran (2003) stated that, population is defined as an entire group of people, events or anything in that nature which the researcher desire to explore. It is the group whom the researcher is able to gather data in order to make conclusions. In this research, the population consists of Malaysian customers that adopt to the Islamic bank services here in Malaysia. The customers will be chosen as the respondents in order to meet the objectives of this research. In order to collect the data for this study, questionnaires will be administered at a given places mainly at various Islamic banks around the country. The population in Malaysia is quite unique where there are many types of ethnic groups, religions and also different kind of languages used in the country. The respondents/customers however will be divided into two types of sub groups in order to ensure the research accuracy. The reliability of an evaluation indicates the extent to which it is without bias or error free and hence ensures the consistency magnitudes across time and across the various items in the instrument. The respondents that are divided into the two sub groups can be specified as:

1) Muslims2) Non Muslims

To achieve balance collected data between these two groups, the questionnaires administered will be based on the ratio between these two sub groups in Malaysia. The statistics data regarding the population in Malaysia is shown in Table 11.

Table 11: Religions in MalaysiaReligionsPopulation Percentage

Muslims60.4 %

Buddhist19.2 %

Christian9.1 %

Hindu6.3 %

Confucianism, Taoism, and other traditional Chinese religions2.6 %

Unknown1.5 %

None0.8 %

Source: CIA.gov, 2000Based on the statistic data in Table 11, we can analyse that the ratio between the Muslims and the Non Muslims are 60/40. The total sample of this study is a sample of 400 respondents in Malaysia. So, the questionnaires administered will be based on the ratio in order to collect balance data and sample both Muslims respondents and Non Muslims respondents. The questionnaires also will be administered at the four most populated cities in Malaysia which is Kuala Lumpur, Pulau Pinang, Johor and Kelantan.The sampling method that will be used in this research is the simple random sampling. Sekaran (2003) stated that simple random sampling design is the best fitted when generalizability of the findings to the whole population is the objective of the study. This research opts to use this type of sampling method because it is easy to be done and the design is non-bias towards the population sample. The total sample size of this study is a sample of a 400 respondents is because as stated by Sekaran (2003), the population size of this study is more than 1000000 so the sample size that must be determine is at least 384 respondents and rounding up the figure for the research to a sample of 400 respondents.

3.5Sources of Data and Data Collection Procedure

There are two types of major sources of data in this research, which is known as the primary and secondary data. Primary data refers to the information or data gathered for research from the actual site of occurrence. While secondary data refers to the information gathered from sources that are already existing (Sekaran, 2003). The examples of primary data is administering questionnaires to individual, observing and also by interviewing an individual while examples for secondary data is published journals, government publications, company records, industries analysis offered by the web sites, internet and media. These sources of data however would enhance the effectiveness of the research study. In order to obtain the primary data, collection method via questionnaire will be used. Questionnaires will be hand out to all identified respondents at certain Islamic bank branches which can be considered as the customers that adopt Islamic bank services and products. According to (Andreoni, Errand and Feinstein, 1998), this type of survey method is considered appropriate because it can include various socio-economic, demographic and attitudinal variables. There are some processes will be done after the process of handing out the questionnaires to the respondents ends. The processes are filtering the received survey questionnaires, so incomplete respond can be excluded from the analysis. Then, information and data obtained from the completed survey questionnaire will be analysed using the statistical tool.3.6Questionnaire Design

The questionnaire design will be adapted from other researches that are related to this type of research. This is because it is more reliable and more related to this research.

3.7Data Analysis

A range of data analysis techniques is used in this study. The hypotheses testing can achieve by choosing the appropriate menus of the software program, or to test each of the hypotheses using the relevant statistical test. Therefore the method of analysis of this study can test using the t-test and correlation analysis. The results of these tests will determine whether or not the hypotheses are substantiated. This data has been analysed by using the Statistical Package for the Social Sciences (SPSS) version 17.0 software.There are a few stages in analyzing the data that we need to conduct in order to transform the raw data into useful data. The first stage is to conduct the descriptive test, where in this stage the raw data will be transformed into the form that would provide information and data that describe a set of factors in a situation. The purpose is to examine the description of each variable and summarizes demographic profiles of respondents. In this stage, the descriptive analysis such as the mean, median, maximum, minimum can be presented. The descriptive analysis also derived information of skewness, kurtosis and also graphs that this however can assist the normality testing.The next stage is to conduct the normality test. The purpose of conducting the normality test is to determine whether the variable is normally distributed or not. The residuals from a linear regression model can be figured out by one of the application of the normality test. The study is also going to measure the correlation and multicollinearity of the variables. Pearson correlation analysis and spearmans rank order correlation is going to be applied in this test. Correlation analysis indicates the strength and direction of a linear relationship between two variables; however it does not establish causality. The correlation coefficient ranges from -1 to +1, where a value close to zero is no correlation. The existence of a high degree of linear correlation among two or more variables is called multicollinearity. In the presence of multicollinearity, it causes difficulty to assess the effect of the independent variables on the dependent variable in a multiple regression mode. Test of multicollinearity is to check correlation among predictor variables and it is exists when these conditions exist (i) correlation coefficient predictor variables is equal or greater than 0.8, (ii) variance inflationary factor (VIF) is more than 1.0 and (iii) tolerance (TOL) is less than 0.1.The final analysis is the individual hypothesis testing. This test assists in answering each single research question which will be represented under the research objective. This analysis will provide a degree of positive or negative correlation with its own significance level. The independent sample t test is to compare the means of a variable between two independent groups, for instance gender (female and male). The ANOVA test is to compare the means of three of more groups such as job title (first line management, middle management and top management) or the fund sized being managed.

Summary

In this chapter, various elements of research method and the research designs that took place will be explain briefly. This would gives description and better understanding on how the study will be conducted and the thorough analytical method where the whole elements took place.

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