Attitudes and Perceptions towards Islamic Banking

International Journal of Arts and Sciences 3(13): 453-485 (2010)

CD-ROM. ISSN: 1944-6934 © InternationalJournal.org

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Attitudes and Perceptions towards Islamic Banking among Muslims and Non-Muslims in Malaysia: Implications for Marketing to Baby Boomers and X-Generation Mark Loo, Concordia University College of Alberta, Canada Abstract: The financial crisis that started in the West in 2008 has prompted Islamic Banking proponents to renew their claim that Islamic Banking is superior to conventional banking. While Islamic Banking is a lesser known banking system in the West, its potential cannot be under-estimated in view of the fast expanding Muslim population in many developed European cities. For a viable worldwide Islamic Banking system, marketers need to measure acceptance among non-Muslims. This paper explores the differences in attitude and perception towards Islamic Banking between Muslims and non-Muslims. Malaysia is an ideal case study where the population is 60% Muslim but the nation’s wealth lies disproportionately with the non-Muslims. A total of 200 Malaysians comprising 100 Muslims and 100 non-Muslims were interviewed, each with an equal number of Baby Boomers and X-Generation. The results show Muslims as supportive of Islamic Banking while non-Muslims view Islamic Banking as relevant primarily to Muslims. However, among non-Muslims, the X-Generation has a more favourable perception towards Islamic Banking than Baby Boomers. This study provides implications for marketing to non-Muslims and recommendations for future research in Islamic Banking. Keywords: Islamic Banking, Malaysia, Non-Muslims, Generations INTRODUCTION Political and business leaders at the Fifth World Islamic Economic Forum in Jakarta in March 2009 praised the Islamic financial institutions’ resilience against recession citing their refrain from investing in “toxic assets” (Synovitz, 2009). The interest in Islamic banking reached a new height when the Turkish media reported that the Daily Vatican newspaper, ‘L’ Osservatore Romano encouraged banks to study the ethical rules of Islamic finance to restore confidence amongst their clients (World Bulletin, March 2009). One of the strongest proponents of Islamic banking is Malaysia, a multiracial country ruled by Malays who are Muslims by birth. Five years after gaining independence, the Malaysian government initiated the Lembaga Tabung Haji or Pilgrimage Fund Board to help Muslims save for pilgrimage to Mecca. By 1983, the first Islamic bank was established and by 1993, commercial banks, merchant banks and finance companies were allowed to offer Islamic banking products under the Islamic banking Scheme. In June 2005, Dow Jones of New York and RHB Securities of Kuala Lumpur united to launch a new “Islamic Malaysia Index,” a



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collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia or Islamic laws based criteria (Islamic Banking in Malaysia, March 2009). Malaysia has been serious in promoting itself as a leading centre of Islamic studies and research. The International Centre for Education in Islamic Finance (INCEIF) was established in 2006 and boasts an international faculty and student body from over 40 countries pursuing Islamic finance studies from certificate to PhD. The International Shariah Research Academy was established in 2008 to conduct applied Islamic legal research on financial issues (Aziz, 2008). The growth of Islamic banking in Malaysia can be attributed to the rise of Islamic consciousness. Affluence has enabled more pilgrimages to Mecca and financed Muslim youth to study Islam in the Arab countries. Back from the founding cities of Islam, these Muslims desire to implement all aspects of Islamic lifestyle, including Islamic banking. Forming 60% of the population, Muslims are a significant market for Islamic banking products. Islamic banking prohibits riba or interest. It pays the investor profit-sharing dividends and offers borrowers fixed repayment rates. Conventional interest rates are deemed not “halal” or legitimate by Islamic laws (Kamus Perwira, 1998:451). The Islamic Banking Act came into effect on April 7, 1983. However, promotion of Islamic banking had been slow until the mid-90s. Banking on the fear of imminent rise in interest rate with the economy recovering, Islamic banks began aggressive promotion on their fixed repayment rates for mortgages. With the aim to transform Malaysia into a leading Islamic banking centre (The Star, May 04 2002), Islamic banks have stepped up marketing campaigns to include non-Muslim market segments. Speaking at the Fifth World Islamic Economic Forum in 2009, the then Prime Minister Abdullah Badawi announced that Malaysia aims for 30% of banking assets under Islamic management from the current 12% (Islamic Finance in a Changing World, 2009). Owing to the highly competitive environment, Islamic banks need to study customer perceptions to help them market their products effectively (Haron, Ahmad and Planisek, 1994; Dusuki and Abdullah, 2006; Thambiah, Nathan and Eze, 2008). This study aims to investigate the perceptions of Muslims and non-Muslims towards Islamic banking, and specifically, the differences between the X-Generation (X-Gen hereafter) and Baby Boomers, both being market segments of higher value in terms of loans, savings and investments compared with other generation categories.



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LITERATURE REVIEW There has been considerable development in Islamic banking research in the last decade. This development seems to heed Dar and Presley’s (1999) suggestion that Islamic banking writers would gain from adopting the empirical approach of Western economic literature. In their article “Islamic Finance: A Western Perspective,” Dar and Presley (1999) argued that (1) Islamic writers have implicitly assumed that prohibition of interest is unique to Islamic literature, (2) Islamic scholars should exploit the wealth of supportive argument in Western literature rather than develop their literature in isolation, and (3) Islamic writers need an empirical approach like their western counterparts. Interest free loans were practised pre-Islam among Jews and Christians, and later advocated by socialists and economists. The Old Testament, in Deuteronomy, teaches interest free loans to the poor (Stein, 1956) and the Judeo-Christian thought views loans with interest as doing little for economic brotherhood (Maloney, 1971). The Old Testament was the key influence on Jewish and Christian opposition to interest, and may have been the original reason for the Koran’s dismissal of usury since the three religions share the same belief in the God of Abraham (Dar & Presley, 1999). Apart from religion, socialists condemned interest as encouraging a “parasitical existence” (Brunner, 1937). There is a wealth of supportive argument in Western literature for Islamic scholars to exploit as western economists have identified linkages between interest rates and macroeconomic instabilities which afflict most capitalist economies, such as, inflation, unemployment and negative growth (Mill, 1826; Smith, 1904; Keynes, 1931; Fisher, 1933; Wicksell, 1935; Hayek, 1933, 1939; Minsky, 1977; Greenwald and Stiglitz, 1988; Bernante and Gertler, 1990). The abundant western literature that supports interest free loans should encourage Islamic scholars to take an empirical approach. Western economies have their foundation in classical economics based on a perfect world but they have progressed by accepting uncertainty and imperfection, and testing empirically economic theories. Islamic theory describes “how people, groups or governments should act in a perfect Islamic community” and the reality is that people do not act in this manner, and empirical testing is needed to understand how Muslims behave in the real world towards Islamic Banking. Islamic banking studies are largely conducted among Muslims and to a smaller extent among non-Muslims. Erol and El-Bdour (1989) and Erol, Kaynak and El-Bdour (1990) are among the earliest known researchers who identified three key selection criteria for Islamic banks: fast and efficient services, reputation and confidentiality. Religious motivation was not a primary criterion.



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However, Metawa and Almossawi (1998) and Naser, Jamal and Al-Khatib (1999) found adherence to Islamic tenets the primary criterion for selecting Islamic banks in Bahrain and Jordan. Likewise Kader (1993, 1995) and Osman et al. (2009), Othman and Owen (2001, 2002), and Wakhid and Efrita (2007) share the same findings in their studies in Malaysia, Kuwait and Indonesia respectively. Dusuki and Abdullah (2006) explained that Islamic bankers can no longer depend on promoting the Islamic factor but also service quality. Their survey among 750 respondents found the three most important factors were competence, friendliness and customer service quality. Comparative Islamic Banking Studies among Muslims and Non-Muslims Haron, Ahmad and Planisek (1994) compared Muslim and non-Muslim commercial bank customers in Malaysia and found no significant differences in patronage factors. Both ranked fast and efficient service, speed of transactions and friendliness of bank personnel as the three most important factors. Gerrard and Cunningham (1997) studied Islamic banking in Singapore with a sample of 29 Muslims and 161 non-Muslims. If no profit were distributed, 21% Muslim and 67% non-Muslim respondents would withdraw their deposits. Ahmad and Haron (2002) criticized that Gerrard and Cunningham’s (1997) study lacked measurement of intention to use Islamic banking. They conducted a study on perceptions of Malaysian corporate customers towards Islamic Banking. Their survey among 45 respondents comprising 20% Muslims and 80% non-Muslims showed Islamic banking products were not popular among corporate customers. Bley and Kuehn (2004) studied 667 business graduate and undergraduate students’ knowledge and perception of conventional and Islamic finance in the United Arab Emirates (UAE). Non-Muslim students viewed Islamic finance as inherently appealing to Muslims, and did not perceive Islamic finance as provider of superior products. Overall, studies related to Islamic banking in Malaysia have largely focused on patronage factors (Thambiah et al., 2008). Recent studies indicate a deeper need to investigate the importance of marketing Islamic banking, reinforcing Al-Haran’s (1995) proposition for market research to determine a viable Islamic economic system. Islam banking should no longer be regarded as a business entity striving to fulfil the religious obligations but as a viable business that can win over customers (Dusuki & Abdullah, 2006)



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Ahasanul, Jamil and Ahmad (2007) found a significant relationship between race and perception towards Islamic banking, signalling a need to understand non-Muslim ethnic groups. Fazlan and Mohammad’s (2007) study reinforces this need when their study showed that adoption of Islamic banking is influenced by two major factors: perceived innovation attributes and consumer characteristics. There are three other studies related to perceived innovation attributes and consumer characteristics. Yusof (1999) found profit motivation and social desirability as key factors impacting consumer adoption of Islamic banking in Singapore where non-Muslims form 85% of the population and Muslims 15%. Bley and Kuehn’s (2004) study in UAE showed although Muslim students indicated better knowledge and deeper interest in Islamic banking, they preferred conventional banking concurring with Omer’s (1992) study among Muslims in UK. Gerrard and Cunningham’s (1997) study in Singapore found 41.4% of Muslim respondents would deposit an unexpectedly acquired substantial sum of money in Islamic banks, but half of them would withdraw and transfer all deposits to another bank if no profit is announced, much like non-Muslims who deposit with banks that guarantee a return. Gerrard and Cunningham’s (1997) study stressed the significance of customer awareness, product knowledge and informative advertising campaigns. The need to create awareness, enhance product knowledge and improve promotional campaigns is supported by Haron et al. (1994), Bley and Kuehn (2004), Dusuki and Abdullah (2006) and Thambiah et al. (2007) to combat growing competition from both Islamic and conventional banking products. While the literature is still developing, existing literature show most of the Islamic banking studies in dominantly Muslim countries have focused on patronage factors, while studies in countries with a large non-Muslim population, such as Malaysia and Singapore, considered the banking needs of non-Muslims, especially when non-Muslims hold the lion’s share of economic wealth. This study seeks to add to the rare literature related to Islamic banking in the South East Asia. It examines the differences in attitudes and perceptions of Muslims and non-Muslims in multi-racial and multi-religion Malaysia where Muslims represent 60% and non-Muslims 40% of the population. With the non-Muslims, primarily the Chinese, forming the economic backbone, it is important that Islamic banks assess their level of success in attracting non-Muslims. The most unique contribution of this study is that it investigates the attitudes and perceptions between Baby Boomers and X-Gen among Muslims and non-Muslims. This study rectifies the weaknesses of earlier studies:



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1. It examines the intention to do business with Islamic banking that Gerrard and Cunningham’s (1997) study failed to include.

2. It provides a Muslim sample size of over 30 respondents for empirical testing that the earlier studies by Gerrard and Cunningham (1997), and Ahmad and Haron (2002) lacked.

3. It ensures sample respondents who are well exposed to Islamic banking unlike the “customers (who) did not have any banking relationship with the Islamic bank” in Haron et al.’s (1994) study.

HYPOTHESES From the above literature, comparative studies between Muslims and non-Muslims can be categorised as related to bank selection criteria (Bley and Kuehn, 2004; Ahmad and Haron, 2002; Gerrard and Cunningham, 1997; Haron et al., 1994), knowledge dimensions (Ahmad and Haron, 2002; Gerrard and Cunningham, 1997; Haron et al., 1994), attitudes (Gerrard and Cunningham, 1997), personal opinions (Ahmad and Haron, 2002) and preferences (Bley and Kuehn, 2004). These dimensions of knowledge, attitudes, opinions and preferences reflect the attitudinal components of cognitive (knowledge), affective (feeling or perception) and conative (intention to use) dimensions (Schiffman and Kanuk, 2004). In this study, the cognitive or knowledge dimensions are the “attractive factors of Islamic banking” and “understanding of Islamic banking” as shown in Table 1. The affective or feeling dimensions are the perceived “disadvantage of Islamic banking,” “promotional influence on attitude change,” “conflict with religious belief” and “future prospect of Islamic banking.” The conative or intention to use dimension is reflected in “willingness to do business with Islamic banks.”

Table 1: Components and Dimensions of Study Attitudinal Component Dimension Hypotheses (H) Cognitive ( Knowledge) 1. Attractive factors of Islamic Banking (IB) H1

2. Understanding of IB H2 Affective (Feeling)

3. Disadvantage in IB H3a, H3b 4. Promotional influence on Attitude

Change H4

5. Conflict with religious belief H5 6. Prospect of IB H6a, H6b

Conative (Intention to Use) 7. Willingness to do business with IB H7a, H7b The hypotheses for each of the seven areas are listed below.



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Cognitive or Knowledge Dimensions 1. Attractive Factors of Islamic Banking Research studies have indicated Islamic principle as the key factor among Muslims for selecting Islamic banking (Metawa and Almossawi, 1998; Naser et al., 1999; Osman et al., 2009). The Malaysian government’s efforts in the last two decades to achieve an Islamic state have intensified the Muslims’ fervour to practise Islamic tenets and Islamic banking allows them to bank the halal way. As for non-Muslims, products and services which yield a profitable return is the main motivator (Gerrard & Cunningham, 1997; Bley & Kuehn, 2004). Hence: H1. The most attractive factor that draws Muslims to Islamic banking is Religion while the

most attractive factor that draws non-Muslims is Product and Services. 2. Understanding of Islamic Banking Since independence, the Malaysian government has continuously defined Muslim and non-Muslim activities and privileges. For example, halal (similar to kosher) or non-halal signage segregates Muslims from non-Muslims. The Malay, synonymously Muslim, is accorded special privileges such as discounts for home purchase, university placements and employment in government sectors. The government’s protest in January 2010 that Allah is exclusively the Muslim’s reference to God (although this reference pre-dates Islam among Jews, Christians and other faiths in many countries) has further entrenched the perception that Islamic related activities are exclusively Muslim. This protest has sparked off the burning of about 10 churches and a Sikh temple. Non-Muslims are advised to refrain from involving in Islamic matters as they are viewed as abusing that which is sacred to Muslims. Hence, non-Muslims are expected to have a weak understanding on the concept of Islamic banking than Muslims. H2. Muslims have a strong understanding and non-Muslims a weak understanding of the

concept of Islamic banking. Affective (Feeling) 3. Disadvantage in Islamic Banking Past studies have shown that non-Muslims view conventional banking superior to Islamic banking (Bley & Kuehn, 2004; Ahamad & Haron, 2002). Although Islamic banks may offer lower fixed repayment rates for loans to compete with conventional banks, there is a fear that they may not sustain their business. As for savings, conventional banks assure a fixed interest rate while Islamic banks’ dividends depend on profitability, casting an uncertainty on return. This uncertainty may be viewed as a disadvantage by non-Muslims.



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H3a. Non-Muslims would perceive a disadvantage with Islamic banking while Muslims would not perceive a disadvantage.

Perceptual differences among non-Muslims are expected. While most Baby-Boomers received education in English and less taught about Islam in school, X-Gen started school when Malay became the official medium of education and Islam a compulsory course in university. Hence, more Baby Boomers are expected to perceive a disadvantage with Islamic banking compared to X-Gen among the non-Muslims. H3b. Among non-Muslims, Baby Boomers will perceive a disadvantage with Islamic banking

more than the X-Gen. 4. Promotional influence on attitudinal change Past studies in dominantly Muslim countries where Islamic banking is prevalent showed that non-Muslims view conventional banking as superior (Bley and Kuehn, 2004). Despite aggressive campaigns in the last decade that Islamic banking is for everyone, non-Muslims generally view Islamic banking as for Muslims resulting from the government’s regulations to segregate space, activities and employment for Muslims. Informal interviews with non-Muslims indicate a vague idea in how Islamic banking operates and a disinterest to understand it. Further, assured return on savings is the main goal of non-Muslims and non-guaranteed returns in Islamic banking is viewed as unattractive. Hence, little change is expected in attitude of non-Muslims towards Islamic banking despite a decade of promotional efforts. H4. There will be little change in attitude of non-Muslims towards Islamic banking despite

promotional campaigns. 5. Conflict with religious beliefs The Chinese and Indians are largely Taoist-Buddhist and Hindus respectively, and being multi-god worshippers, they are open to other faiths, including Islam. Thus, conflict with religious beliefs is not expected to be a significant hindrance. When it comes to banking, profitable returns on investment is the key motivator for non-Muslims, not religion (Gerrard and Cunningham, 1997; Ahmad and Haron, 2002). H5. Islamic banking will not conflict with religious beliefs of non-Muslims.



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6. Prospect of Islamic Banking Muslims are naturally pro-Islam in all aspects of practices including banking (Metawa & Almossawi 1998; Naser et al., 1999; Bley & Kuehn, 2004: Thambiah et al., 2008; Osman et al., 2009), while non-Muslims do not concern themselves with whether Islamic banking will succeed or not. They are unlikely patrons but may use Islamic banks when the benefits are rewarding. At the moment, Islamic banking has not yielded consistently higher returns than conventional banks. Further, the poor performance of Malay-owned financial institutions affects non-Muslims who associate Malays with Islam. Muslims are expected to see stronger prospect of Islamic banking compared to non-Muslims. H6a. Muslims see a stronger prospect of Islamic banking than non-Muslims. Among non-Muslims, the X-Gen is expected to adopt a more open mind towards Islamic banking being more exposed to Islamic studies, culture and practices. Hence, they will view Islamic banking as having stronger prospect compared to Baby Boomers. H6b. Among non-Muslims, the X-Gen sees a stronger prospect of Islamic banking than Baby

Boomers. Co native (Intention to use) 7. Willingness to do business with Islamic Banking. Since independence, the Malaysian government has been broadcasting Islam prayer several times a day, hosting the annual international Koran reading competition and initiating the Islamic Financial Services Board to promote Islamic banking worldwide. With the constant drive to make Malaysia an Islamic country, Muslims are expected to support and use Islamic banking. However, non-Muslims are expected to view Islamic banking as only relevant to the Muslims’ obligation. Hence: H7a. Muslims are more willing to do business with Islamic banking than non-Muslims. The Baby Boomers were schooled when English was a preferred medium and Islam was rarely taught. On the other hand, the X-Gen are educated in the Malay medium and more exposed to the Islamic faith. Baby Boomers generally own homes and they are more likely to invest than borrow loans, and a bank that guarantees interest is preferred. The X-Gen has a greater need to borrow loans for car and home purchase and thus, they are deemed more willing to do business with Islamic banking than Baby Boomers. H7b. X-Gen is more willing than Baby Boomers to do business with Islamic banking.



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METHODOLOGY This study is probably the first known attempt to compare attitudinal and perceptual differences between Baby Boomers and X-Gen towards the concept of Islamic banking among Muslims and non-Muslims. Sample: A total of 200 people were surveyed via personal interviews in the Klang Valley, the financial hub of Malaysia where they are exposed to the heavy and aggressive promotion of Islamic banking, finance and insurance by the government and commercial banks. The sample of 200 comprised 100 Muslims and 100 Non-Muslims with 50 X-Gen and 50 Baby Boomers in each group. Baby Boomers were born between 1946 and 1964 and X-Gen between 1965 and 1980 (Hawkins et al., 2004). Baby Boomers are generally in the higher income categories that make them prime banking targets. The X-Gen are active income earners and they have higher financial needs such as a larger house and education savings for their growing children. The sample size is shown in the table below.

Table 2: Sample based on Age Group and Religion Age Group and Religion X-Gen Baby Boomers Total

Muslims 50 50 100 Non-Muslims 50 50 100

Total 100 100 200

Place of Interview: A formal structured survey was carried out at the premises of conventional banks that offered Islamic banking products and two Islamic banks - Bank Islam and Bank Muamalat. Instrument: An initial questionnaire was developed through informal interviews with Muslims, non-Muslims and bank officers. It was pre-tested and refined to seven quantitative questions covering the cognitive (knowledge), affective (feeling) and conative (intention to use) dimensions discussed earlier. The measurements include close-ended “yes” and “no” answers as well as factor and scaled categories. The seven questions are listed as following:



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Cognitive (Knowledge) Measurements Q1. What factors would attract you to Islamic banking? Religion, Products and Services,

Availability of Outlets, Reliability and Other Factors (please specify). Q2. “I understand the concept of Islamic banking.” Please tick one of the following: Strongly

Agree, Agree, Disagree, Strongly Disagree. Affective (Feeling) Measurements Q3. Is there any disadvantage with Islamic banking? Yes, No Q4. Have the Islamic Banks been effective in changing the attitude of non-Muslims towards

Islamic banking? Yes, No. Q5. “Investing with Islamic banking conflicts with my religious beliefs.” Please tick one of the following: Strongly Agree, Agree, Neutral, Disagree, Strongly Disagree. Q6. What do you see as the prospect of Islamic banking in Malaysia? Please tick the

following: Strong, Average, Weak. Conative (Intention to Use) Measurement Q7. Are you willing to do business with Islamic banking? Yes, No. FINDINGS The detailed results of this survey are shown in Appendices 1 to 3. Appendix 1 shows the responses between Muslims and non-Muslims, Appendix 2 shows the differences in percentages and Appendix 3 compares the responses by generation. The key findings related to the hypotheses are presented in the following. Cognitive (Knowledge) Measurements 1. Attractive Factors of Islamic Banking Q.1. What factors would attract you to Islamic banking: Religion, Products and Services,

Availability of Outlets and Reliability.



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Table 3: Factors that attract Muslims and Non-Muslims to Islamic Banking Rank Muslim Non-Muslim 1. 85% Religion 64% Products and Services 2 73% Products and services 62% Other Factors 3 69% Reliability 15% Reliability 4 58% Other Factors 14% Availability of Outlets 5. 53% Availability of Outlets 2% Religion The table above shows that Muslim respondents ranked Religion (85%) as the most important factor, followed by Products and Services (73%), Reliability (69%), Other Factors (4) and Availability of Outlets (53%) throughout the country. Non-Muslims ranked Products and Services (64%) as the most important, followed by Other Factors (62%), Reliability (15%), Availability of Outlets (14%) and Religion (2%). Other Factors that non-Muslims cited include word-of-mouth recommendation, automated teller machines, electronic fund transfer, electronic data interchange and e-business, the latest offerings in the banking industry. The findings support hypothesis H1 that the most attractive factor that draws Muslims is Religion while the most attractive factor for non-Muslims is Product and Services. 2. Understanding Concept of Islamic Banking Q.2. “I understand the concept of Islamic banking?” Please tick the following boxes: Strongly

Agree, Agree, Disagree, Strongly Disagree.

Table 4: Understanding Concept of Islamic Banking Responses Muslims Non-Muslims

Strongly Agree 79% 5% Agree 21% 9%

Disagree 0% 81% Strongly Disagree 0% 5%

Total 100% 100% The table above shows in total 100% of Muslims agree they understand the concept of Islamic banking, with 79% Strongly Agree and 21% Agree. As for non-Muslims, only 14% agree with 5% Strongly Agree and 9% Agree. However, 86% non-Muslims disagree, with 81% Disagree and 5% Strongly Disagree. This means, despite heavy advertising campaigns targeted at non-Muslims, the non-Muslims still do not understand the concept of Islamic banking. The findings support hypothesis H2 that Muslims have a strong understanding while non-Muslims have a weak understanding of the concept of Islamic banking.



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Affective (Feeling) Measurements 3. Perception on Disadvantage of Islamic Banking Q.3. Is there any disadvantage with Islamic banking?

Table 5a: Is there any disadvantage with Islamic Banking?

Perception of Disadvantage Muslim/non-Muslim M M NM NM Generation XG BB XG BB Yes 4% 6% 48% 72% No 96% 94% 52% 28% Total 100% 100% 100% 100% Among Muslims, an average 5% perceive a disadvantage while 95% do not see any disadvantage. Among non-Muslims, an average 60% perceive a disadvantage while 40% perceive no disadvantage. While there is an insignificant difference in perception Yes or No between Muslim X-Gen and Baby Boomers, there is a distinct difference between the two generation categories among non-Muslims: 48% X-Gen versus 72% Baby Boomers in the Yes category, and 52% X-Gen versus 28% Baby Boomer in the No category. The difference between X-Gen and Baby Boomer in the No category is worth further examination as the number of X-Gen respondents is nearly twice that of Baby Boomer. The graphs below show the difference between Muslim and non-Muslim Baby Boomers and X-Generation.

Non-MuslimMuslim

Religion

50

40

30

20

10

0

Coun

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Perception of the Disadvantage of Islamic Banking Among Baby-Boomers

YesNo

Disadvantage



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Non-MuslimMuslim

Religion

50

40

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Coun

tPerception of Disadvantage of Islamic Banking Among X-Gen

YesNo

Disadvantage

A chi-square test was conducted and the results show a significant relationship between religion and perception of disadvantage of Islamic banking. Non-Muslim Baby Boomers and X-Gen perceive a disadvantage in Islamic banking more significantly than Muslim Baby Boomers and X-Gen. .

Table 5b: Chi-Square Tests on Perception of Disadvantage Generation Exact Sig (2-sided) Baby Boomer Fisher’s Exact Test .000 X-Gen Fisher’s Exact Test .000 a Computed only for a 2x2 table b 0 cells (.0%) have expected count less than 5. The minimum expected count is 19.50. c 0 cells (.0%) have expected count less than 5. The minimum expected count is 13.00

The findings support hypothesis H3a that non-Muslims perceive a disadvantage with Islamic banking more significantly than Muslims in both Baby Boomer and X-Gen age categories. The graphs below compare the responses of Baby Boomers and X-Gen between Muslim and non-Muslim groups. The difference in perception between X-Gen and Baby Boomers among Muslims is almost non-existent.



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Non-MuslimMuslim

Religion

100

80

60

40

20

0

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Those That Perceive No Disadvantage with Islamic Banking

X-GenBaby-BoomerGeneration

Non-MuslimMuslim

Religion

80

60

40

20

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Coun

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Those That Perceive A Disadvantage With Islamic Banking

X-GenBaby-BoomerGeneration

A chi-square test was conducted and the results show a significant relationship between religion and perceived disadvantage. There is a significant difference between non-Muslim Baby Boomers and X-Gen in No Disadvantage. However, there is no significant difference between non-Muslim Baby Boomers and X-Gen in Yes Disadvantage. The lack of significant difference could be attributed to an insufficient number of respondents among the Muslims as can be seen in the footnote of the chi-square table that the expected count was less than 5.



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Table 5b: Chi-Square Tests on Perception of Disadvantage Disadvantage Exact Sig (2-sided) No Fisher’s Exact Test 0.032 Yes Fisher’s Exact Test 0.726 a Computed only for a 2x2 table b 0 cells (.0%) have expected count less than 5. The minimum expected count is 36.28. c 1 cells (25.0%) have expected count less than 5. The minimum expected count is 4.45. The findings support hypothesis H3b that among non-Muslims, Baby Boomers will perceive a disadvantage with Islamic Banking more than X-Gen. 4. Attitudinal Change as a result of aggressive promotion Q4. Have the Islamic Banks been effective in changing the attitude of non-Muslims towards

usage of Islamic banking?

Table 6a: Effectiveness of Islamic Banks in Changing Attitude of non-Muslims towards Usage of Islamic Banking

Responses Muslims Non-Muslims Yes 46% 8% No 54% 92% Total 100% 100% While non-Muslims responded with an overwhelming “No” (92%) over “Yes” (8%), it is interesting to note that slightly more than half of the Muslim respondents said “No” (54%). The results suggest that even Muslims feel that the Islamic banking promotion has been ineffective. Appendices 2 and 3 show no indication of significant differences between X-Gen and Baby Boomer within both Muslim and non-Muslim groups. The diagram below compares graphically the responses between Muslims and non-Muslims, and it would seem to suggest a significant difference between Muslims and non-Muslims.



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Non-MuslimMuslim

Religion

100

80

60

40

20

0

Coun

t

Effectiveness of Changing Attitudes of Non-Muslims to the Usage of Islamic Banks

YesNo

Effectiveness

A chi-square test was conducted and the results show a significant relationship between religion and perceived effectiveness. There is a significant difference between Muslims and non-Muslims in their perception towards the effectiveness of Islamic banks in changing the attitude of non-Muslims. Overall, nearly all the non-Muslims (92%) feel the advertising campaigns have been ineffective and half the Muslim respondents (52%) agreed.

Table 6b: Chi-Square Tests on Promotional Effectiveness of Islam Banking in

Changing Attitude of non-Muslims towards Usage of Islamic Banks Effectiveness of Islamic banks in changing attitude of non-Muslims Exact Sig (2-sided) Fisher’s Exact Test 0.000 a Computed only for a 2x2 table b 0 cells (.0%) have expected count less than 5. The minimum expected count is 27.00. The findings support hypothesis H4 that there was little change in attitude of non-Muslims towards Islamic banking despite aggressive promotional campaigns. 4. Conflict with religious beliefs

Q.5. “Investing with Islamic banking does not conflict with my religious beliefs.” Please tick

the following: Strongly Agree, Agree, Neutral, Disagree, Strongly Disagree



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Table 7: Perception of Non-Muslims on Conflict in Religious Beliefs with Islamic Banking Responses Non-Muslims

Strongly Agree 11% Agree 61%

Neutral 23% Disagree 3%

Strongly Disagree 2% Total 100%

Appendix 2 shows 100% of Muslim respondents agree that Islamic banking does not conflict with their religious belief. Thus, the relevant findings in this section are findings among non-Muslims. The table above shows that 72% non-Muslims (11% Strongly Agree and 61% Agree) feel that Islamic banking does not conflict with their religious beliefs, 23% Neutral, and 5% feel it does (2% Strongly Disagree and 3% Disagree). Thus, over two-thirds of non-Muslims agreed Islamic banking does not conflict with their religious belief.

The findings support hypothesis H5 that Islamic banking does not conflict with the religious beliefs of non-Muslims. 6. Prospect of Islamic Banking Q.6. What do you see as the prospect of Islamic banking in Malaysia? Please tick the

following: Strong, Average, Weak

Table 8: Perception of the Prospect of Islamic Banking in Malaysia Responses Muslims Non-Muslims

X-Gen Baby Boomer X-Gen Baby Boomer No. % No. % No. % No. %

Strong 39 78 36 72 16 32 4 8 Average 8 16 10 20 22 44 30 60 Weak 3 6 4 8 12 24 16 32 Total 50 100 50 100 50 100 50 100



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An average 75% of Muslims, comprising 78% X-Gen and 72% Baby Boomers, see the prospect of Islamic banking as Strong. An average 20% of non-Muslims view likewise comprising 32% X-Gen and 8% Baby Boomers. However, the majority of responses among non-Muslims are in the Average category with an average 52%, comprising 60% of Baby Boomers and 44% of X-Gen. Overall, the non-Muslims are highest in the Average category with 52%, followed by 28% Weak and 20% Strong. The findings support hypothesis H6a that Muslims see a stronger prospect of Islamic banking than non-Muslims. While one-third (32%) of the X-Gen see the prospect as Strong, only 8% of Baby Boomers view it similarly. This means X-Gen is four times higher than Baby Boomer in their perception that Islamic banking has a Strong future. The findings support hypothesis H6b that non-Muslim X-Gen sees a stronger prospect of Islamic banking than non-Muslim Baby Boomers. Conative (Intention to use) Measurement 7. Willingness to do business with Islamic Banking Q.7. Are you willing to do business with Islamic banking?

Table 9: Willingness to Do Business with Islamic Banking

Religion X-Gen Baby Boomers Yes No Yes No

Muslims 88% 12% 96% 4% Non-Muslims 36% 64% 14% 86%

The table shows Muslims are more willing to do business with Islamic banking than non-Muslims. With 88% of X-Gen and 96% of Baby Boomers indicating Yes, Muslims are overwhelmingly supportive of Islamic banking. On the other hand, non-Muslims are less willing to do business with Islamic banks with 64% of X-Gen and 86% of Baby Boomers indicating No. The graphs below show the difference in responses between the religion and generation categories.



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X-GenBaby Boomer

Generation

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Willingness To Do Business With Islamic Banks Among Muslims

YESNO

Willing

The diagram above suggests no potential significant difference between Muslim Baby Boomers and X-Gen in their willingness to do business with Islamic banks.

X-GenBaby Boomer

Generation

50

40

30

20

10

0

Coun

t

Willingness To Do Business With Islamic Banks Among Non-Muslims

YESNO

Willing

The diagram above suggests a potential significant difference between non-Muslim Baby Boomers and X-Gen in their willingness to do business with Islamic banks.



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A chi-square test was conducted and the results show no significant difference between Muslim Baby Boomers and X-Gen. However, there is a significant difference between non-Muslim Baby Boomers and X-Gen in their willingness to do business with Islamic banks.

Table 12a: Chi-Square Tests on Willingness to do business with Islamic Banks

Religion Exact Sig (2-sided) Muslim Fisher’s Exact Test 0.269 Non-Muslim Fisher’s Exact Test 0.020 a Computed only for a 2x2 table b 2 cells (50.0%) have expected count less than 5. The minimum expected count is 4.00. c 0 cells (.0%) have expected count less than 5. The minimum expected count is 12.50 The findings support hypothesis H7a that Muslims are significantly more willing to do business with Islamic banking than non-Muslims, and H7b that X-Gen is significantly more willing than Baby Boomers to do business with Islamic banking. Summary There is a significant relationship between religion and generation categories in the perception of Disadvantage. There is a significant difference in perception of disadvantage between X-Gen Muslims and X-Gen non-Muslims, and similarly between Baby Boomer Muslims and Baby Boomer non-Muslims. In short, non-Muslims view Islamic banking with a disadvantage more significantly than Muslims. There is a significant relationship between religion and perception of promotional effectiveness of Islamic banking in changing attitude of non-Muslims to the usage of Islamic banks. There is a significant difference between Muslims and non-Muslims in their view towards promotional effectiveness. Non-Muslims rate promotional effectiveness significantly higher in ineffectiveness than Muslims. There are two significant differences between non-Muslim X-Gen and Baby Boomers: 1. Baby Boomers perceived a disadvantage with Islamic banking significantly higher than X-

Gen. 2. X-Gen is significantly more willing than Baby Boomers to do business with Islamic banks. DISCUSSION In planning marketing strategies to Muslims, adherence to Islamic tenets remain the main motivator for Muslims to use Islamic banking, thus supporting studies by Metawa and Almossawi (1998), Naser et al. (1999), Bley and Kuehn (2004) and Osman et al. (2009). As for



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non-Muslims, marketers have to emphasize profitable products and services comparable or superior to conventional banking (Anderson et. al, 1976; Tan & Chua, 1976; Javalgi et. al., 1989; Laroche et. al, 1986). The key challenge would be designing strategies to attract non-Muslims to Islamic banking especially when they hold the dominant share of the nation’s financial wealth. If the Islamic banks aim to target non-Muslims, they need to exploit two key findings from this survey:

1. Non-Muslims view Islamic banking as a disadvantage. 2. X-Gen is an easier market to win than Baby Boomers.

There are at least three areas for Islamic banks to improve as shown in Figure 1:

Figure 1:3Ps Affecting Attitude and Perception of Islamic Banking

ATTITUDE &PERCEPTION

PEOPLEPROMOTION

PRODUCT

Let’s discuss each of the 3Ps with reference to Diagram 1. 1. Product While the X-Gen is an easier target, it is the Baby Boomers who have money to invest and Islamic banks need money from savers to lend to borrowers. Islamic bank officers revealed that non-Muslims are more inclined towards financing (borrowing) than deposit (saving) products. This means Islamic bank marketers need to devise attractive loan packages for X-Gen and investment products for Baby Boomers. The claim that Islamic banking assets are toxic free is subject to dispute. According to Professor El Gamal, the Chair of Islamic Economic, Finance and Management at Rice University in Houston, Texas, Islamic banks share equal responsibility in the financial crisis as they did not provide true Islamic banking products but merely gave an Islamic name to products of commercial banks to attract clients who did not want to deal in interest. These products go through the same investment channels as commercial banks, such as securitisation, Sukouk or bonds, and Murabaha or interest (Aziz, 2009). 2. Promotion The Islamic banking concept needs a clear positioning. Islamic banking is positioned as “halal” banking to the Muslim and as a better loan with “save more, pay less” to the “greedy non-



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Muslim.” In a multiracial and multi-religion country like Malaysia, the inconsistent positioning is likened to a holy alliance with Muslims and an unholy alliance with greedy non-Muslims. The proliferation and prolificacy of Islamic accounts with pious but alien-sounding names such as Wadiah, Mudharabah, Ijraa, Umrah and Murabah can be quite confusing to the non-Muslim. Muslims and banking staff are generally incapable of explaining the differences adequately to the non-Muslims. Gerrard and Cunningham (1997) and Bley and Kuehn (2004) have emphasized the need for better consumer education. Islamic banking promotional materials need to speak customers’ language. Bank Islam uses Jawi (ancient Malay script), in their brochures and application forms, which non-Muslims are unable to read and understand. 3. People The overwhelming number of Muslim staff in full-fledged Islamic banks reinforces the belief that Islamic products are meant solely for Muslims. Islam is associated with Malays, and Malays are associated with government service, where inefficiency and lack of motivation is well known. The inefficiency and low productivity of Islamic banking staff are among the reasons that turn even Muslims to conventional banking. Islamic banks are perceived to lack professional business orientation. During the course of interviewing at Islamic banks, many customers came in families. Islamic banking personnel seem to treat customers as “buddies” who accept inefficiencies rather than customers who demand fast, attentive services. Segregation between genders may make non-Muslim women feel discriminated although Islamic banking officials said the reason was to protect women from misbehaving men. LIMITATIONS AND IMPLICATIONS While this study uncovers the degree of favourableness towards Islamic banking, it does not measure the accuracy of knowledge regarding Islamic banking. From the above research, Muslims support Islamic banking primarily because of their religious faith. However, neither the respondents nor the Islamic banking staffs were able to articulate the benefits of Islamic banking or explain the differentiation among the many Islamic accounts. Although the sample size for Muslim X-Gen and Baby Boomers at 50 is well above the 30 rule compared to Gerrard and Cunningham (1997) and Ahmad and Haron’s (2002) studies, it was still



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not large enough to enable significant testing of differences. The tests indicated there were cells of less than 5 respondents such as 2 X-Gen and 3 Baby Boomers for the Yes Disadvantage in Islamic banking. A larger sample size of 100 for each generation category may help provide more significant findings. With regards to generational studies, research should be extended to the emerging workforce among the Y-Generation to further investigate comparison studies of practical significance to Islamic bank marketers. Would there be significant differences among Baby Boomers, X-Gen and Y-Gen in their attitude towards Islamic banking? With the national language being Malay and Malay synonymous with Islam, would there be a difference between Malays and other races in attitude and perception towards Islamic banking. Would there be a difference in attitude between graduates from private universities that use English as medium of instruction and graduates from public universities that use Malay as the instructional medium? Finally, there should be research to examine the validity of Islamic products as truly halal or simply given Islamic branding to products of commercial banks (Aziz, 2009). These studies will do well to serve the nation of Malaysia that has “set standards for best banking practices…” since 2002 to “…preserve the confidence and integrity of the (Islamic) system, and pave the way for its global development.” (The Star, May 04, 2002).

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Appendix 1: Responses among Muslims and Non-Muslims What factors would attract you to Islamic Banking Religion M NM Religion 85 2 Products & Services 73 64 Reliability 69 15 Other Factors 58 62 Availability of Outlets 53 28 Understanding Concept of Islamic Banking Religion M NM Strong 79 5 Average 21 9 Weak 0 81 Very Weak 0 5

100 100

Islamic Banking is a disadvantage Religion M NM

Yes 5 60 No 95 40

100 100

Promotional Effectiveness in Changing Attitude of Non-Muslims Religion M NM Yes 46 8 No 54 92

100 100

No Culture Conflict with Religious Belief Religion M NM

Strongly Agree 100 11 Agree 0 61 Neutral 0 23 Disagree 0 3 Strongly Disagree 0 2

100 100

Prospect of Islamic Banking in Malaysia Religion M NM Strong 75 20 Average 18 52 Weak 7 28

100 100

Willingness to do business with Islamic Banking Religion M NM



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Yes 92 25 No 8 75

100 100



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Appendix 2: Responses among Muslims and Non-Muslims in Percentages (%) Q1. What factors would attract you to Islamic Banking? Muslim/non-Muslim M M NM NM Generation XG BB XG BB Religion 84% 86% 2% 2% Products & Services 80% 66% 68% 60% Reliability 70% 68% 12% 18% Other Factors 60% 56% 60% 64% Availability of Outlets 54% 52% 28% 28%

Q2. Understanding Concept of Islamic Banking Muslim/non-Muslim M M NM NM Generation XG BB XG BB Strongly Agree 78% 80% 8% 2% Agree 22% 20% 12% 6% Disagree 0% 0% 80% 82% Strongly Disagree 0% 0% 0% 10% Total 100% 100% 100% 100%

Q3. Perception of Disadvantage Muslim/non-Muslim M M NM NM Generation XG BB XG BB Yes 4% 6% 48% 72% No 96% 94% 52% 28% Total 100% 100% 100% 100%

Q4. Promotional Effectiveness in Changing Attitude of Non-Muslims Muslim/non-Muslim M M NM NM Generation XG BB XG BB Yes 40% 52% 12% 4% No 60% 48% 88% 96% Total 100% 100% 100% 100%

Q5. No Culture Conflict with Religious Belief Muslim/non-Muslim M M NM NM Generation XG BB XG BB Strongly Agree 100% 100% 18% 4% Agree 0% 0% 64% 58% Neutral 0% 0% 18% 28% Disagree 0% 0% 0% 6% Strongly Disagree 0% 0% 0% 4% 100% 100% 100% 100%

Q6. Prospect of Islamic Banking in Malaysia Muslim/non-Muslim M M NM NM Generation XG BB XG BB Strong 78% 72% 32% 8% Average 16% 20% 44% 60% Weak 6% 8% 24% 32% Total 100% 100% 100% 100%

Q7. Willingness to do business with Islamic Banking Muslim/non-Muslim M M NM NM Generation XG BB XG BB



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Yes 88% 96% 36% 14% No 12% 4% 64% 86% Total 50 50 50 50



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Appendix 3: Comparison by Generation Categories

Q1. What factors would attract you to Islamic Banking? Muslim/non-Muslim M NM M NM Generation XG XG BB BB Religion 84% 2% 86% 2% Products & Services 80% 68% 66% 60% Reliability 70% 12% 68% 18% Other Factors 60% 60% 56% 64% Availability of Outlets 54% 28% 52% 28%

Q2. Understanding Concept of Islamic Banking Muslim/non-Muslim M NM M NM Generation XG XG BB BB Strongly Agree 78% 8% 80% 2% Agree 22% 12% 20% 6% Disagree 0% 80% 0% 82% Strongly Disagree 0% 0% 0% 10% Total 100% 100% 100% 100%

Q3. Perception of Disadvantage Muslim/non-Muslim M NM M NM Generation XG XG BB BB Yes 4% 48% 6% 72% No 2% 52% 94% 28% Total 6% 100% 100% 100%

Q4. Promotional Effectiveness in Changing Attitude of Non-Muslims Muslim/non-Muslim M NM M NM Generation XG XG BB BB Yes 40% 12% 52% 4% No 60% 88% 48% 96% Total 100% 100% 100% 100%

Q5. No Culture Conflict with Religious Belief Muslim/non-Muslim M NM M NM Generation XG XG BB BB Strongly Agree 100% 18% 100% 4% Agree 0% 64% 0% 58% Neutral 0% 18% 0% 28% Disagree 0% 0% 0% 6% Strongly Disagree 0% 0% 0% 4% 100% 100% 100% 100% Q6. Prospect of Islamic Banking in Malaysia Muslim/non-Muslim M NM M NM Generation XG XG BB BB Strong 78% 32% 72% 8% Average 16% 44% 20% 60% Weak 6% 24% 8% 32% Total 100% 100% 100% 100% Q7. Willingness to do business with Islamic Banking Muslim/non-Muslim M NM M NM Generation XG XG BB BB



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Yes 88% 36% 96% 14% No 12% 64% 4% 86% Total 100% 100% 100% 100%

Economy & Finance

Attitudes and Perceptions towards Islamic Banking