MBR RESEARCH PROJECT ON

The factors of employee switching from conventional banking to Islamic banking system

SUBMITTED BY SHUMAIL IFTIKHAR (MBA-55277)

SUBMITTED TO

Sir QAZI SALMAN

SUBMISSION DATE 15TH August 2012

Factors of Employee switching from conventional Banking to Islamic Banking

ACKNOWLEDGEMENT

First of all I would like to thanks to almighty ALLAH that he gave me the strength and courage to complete this report. I have putted our best to complete this report. It is honor for me to write a report on Factors of employee switching from conventional to Islamic Banking system.

Secondly, I am also thankful to my beloved parents that they are supporting me financially and morally as a result we are studying in this reputed university.

I am also thankful to my instructor: Sir Qazi Salman for his constant support, guidance and supervision, which enable me to successfully achieved my task and finally come up with this report.

August 15, 2012 SHUMAIL IFTIKHAR (55277)

Factors of Employee switching from conventional Banking to Islamic Banking

TABLE OF CONTENTS
ABSTRACT.4 INTRODUCTION.4 OBJECTIVE OF STUDY.5 LITERATURE REVIEW..6 PROBLEM STATEMENT..8 METHODOLOGY....8 POPULATION.8 SAMPLING TECHNIQUE..8 SAMPLE SIZE DETERMINATION.9 HYPOTHESIS9 FINDINGS OF THE PROJECT..9 QUESTIONNAIRE10 CONCLUSION13 RECOMMENDATIONS...13 REFERENCES..14

Factors of Employee switching from conventional Banking to Islamic Banking

Abstract:
Islamic banking sector is rapidly increasing in Karachi. There has been a large-scale growth in the sector Islamic banking during the last twenty years. Islamic banking is now one of the worlds fastest growing economic sectors, comprising over 300 institutions in over 75 countries. Now every conventional bank has its Islamic banking branches in different areas. Recently Standard Chartered bank has also opened its Islamic banking branch, named as Standard chartered SAADIQ. Similarly HBL, MCB, Bank AL-FALAH has also opened their Islamic banking branches. Consequently, this creates a tough competition among conventional & Islamic banking. As a result of which, most of the employees are switching from conventional to Islamic banking. So, the purpose of this study is to investigate about factors of employee switching from conventional to Islamic banking. The objective of this study is to identify the reasons of employee switching behavior and the key motivation factors of employee switching from conventional to Islamic. This research study also focuses on the significance of Islamic banking. KEYWORDS: Employee switching, Islamic Banking, Conventional Banking, Switching behavior.

Introduction:
The topic fascinated me the most to work on as a research project assignment is Factors of employee switching from Conventional Banking to Islamic Banking system I found my interest more vibrant in working on it and I am pleased to share it with you. A Bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. Banks are performing multiple functions for different sectors of the economy. Banks' activities can be includes retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities etc. However, some are owned by government, or are non-profit organizations .There is rapid growth in a banking field especially in the Islamic banking sector. Islamic banking started functioning in 1970s. Islamic banking is now one of the worlds fastest growing economic sectors comprising over 300 institutions in over 75 countries. Today almost every conventional bank has its one Islamic banking branch. The reason behind this change is the strong demand from a large number of Muslims for sharia-compliant financial services and transactions. Now Islamic banking has a significant share in the global financial market. The key element of Islamic banking is not just the interest-free receipt and use of funds. One of the most important elements of Islamic banking or finance is the concept of profit- and loss-sharing. Based on the Profit- and loss-sharing principles, there are various types of Islamic financial instruments available in the market. Some of the instrument Besides this rapid growth of Islamic banking, its also seen that not only customers but employees are also switching from conventional to Islamic banking systems. Employees are now more motivated to do jobs in Islamic banks in accordance with the Islamic banking principles. In todays scenario we can see a major shift towards Islamization. Customers, people, employees,
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Factors of Employee switching from conventional Banking to Islamic Banking

they all are aware of the fact that Islam has forbidden interest and it is considered as Haram. Meaning or a definition of Islamic banking system is self explanatory and shows the significance & relevance of Islamic system: A banking institution which conducts all its operations conforms to Shariah, without involving itself and its clients in Riba (interest) in any way. The second definition incorporates the both aspects of banking and Shariah on an equal Proportion, as Islamic bank has to fulfill two basic requirements. Firstly, its operations must Be based strictly on Islamic principles and secondly it must perform the functions of a sound Banking system. Islamic banks invest our money in Halal investments. The argument of Halal &
Haram is not new; many people still feel that Islamic Banking is not giving purely Islamic services etc. But point is that why employees are choosing Islamic Banking system although the no. of conventional banks is much more than the no. of Islamic banks. But still the growth rate of Islamic banks is higher than the conventional banks. The lust for more profits cant inspire and motivate Muslims into

Islamization of banking. It is the kind of sprit that we dont want to spread. If we seriously look at the principles of divine banking system that are stated in our Holy Quran so it reveals that Islam doesnt allow any kind of Riba( interest) on money. Economic growth is the main transmission channel for development. Islam does not contradict growth; it promotes sustainable development & growth. There are so many factors involved in employee switching from one organization to another such as job satisfaction level, salary package, work environment etc. It is envisaged that the rate of interest on deposits does not matter to the majority of Muslim individuals. They prefer the legitimate or permissible return on their investments. No matter this return is high or low as compare to conventional banks interest rates. There are many leading Islamic banks in Karachi which are growing with rapid pace. One of the largest leading Islamic bank is MEEZAN Bank which has now more than 300 branches. Its been awarded as the best Islamic Financial institution by Global Finance Magazine. Many employees are moving towards Meezan Bank and wish to be work as a part of Islamic financial institution. The aim of my research is to investigate the reasons behind employee switching towards Islamic Banking system. Now-a-days the Islamic banking is rapidly increasing in all over Pakistan. State Bank of Pakistan ordered all conventional banks to open their Islamic Banking branches. And through my survey I came to know that the conventional banks Islamic branch has more customers and employees are also very motivated to do work at Islamic Branch. With the help of this research I will come to a finding that what are the key factors of employee switching towards Islamic banking. The result of this research will be on actual fact and figures that Islamic banks and conventional banks will provide.

The Study Objective:

The purpose of my research study is to identify the factors of employee switching from conventional banking to Islamic banking system. To evaluate the perception of employees in conventional as well as Islamic banks towards importance of Islamic banking. I have used four variables for this study. These variables include job satisfaction level, employee turnover, incentives, and Islamic banking principles.
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Factors of Employee switching from conventional Banking to Islamic Banking

Literature review:Nowadays, there is an intense competition between Islamic & conventional Banking industry. There are over 300 Islamic banking institutions all over the world. The rapid increase and growth in Islamic banking results in employee switching from conventional to Islamic banking, which affects the conventional banking. The issue of employees switching from conventional to Islamic banking has been well studied. The author found various studies in which researchers have studied this issue in detail and researchers also discuss various aspects of factors of employee switching from one organization to another. Research in this area has followed several avenues. Henry Ongori (Ongori, 2007)research was based on the factors of employee turnover, effects of employee turnover and also gave some strategies on How to minimize employee switching from one organization to another? Most of the studies are focus on the causes of employee turnover but this research was concerned with the sources of employee turnover. Chendrayan Chendroyaperumal & N.Bhuvanadevi (Chendroyaperumal, may 12, 2010) their study deals with the importance of employee retention and effects of employee turnover. Their main focus was on the employee retention because in their view employee switching not only reduces the human capital in an organization but also decreases the organizational productivity. Several researches addressed the problem of employee turnover. Another research concerned mainly with the factors of employee turnover (factors effecting employee motivation, 13,july 2009) the study deals with the factors affecting the levels of employee motivation in organization. In this study, employee motivation consider as an inner force that drives individuals to accomplish personal and organizational goals. (Employee Turnover , April 1,2012) The study focuses on the after effects of employee turnover in an organization. Including the costs in terms of financial aspects as well as costs associated with customer retention. It is clear that employee turnover is very costly to organizations and as noted in the introduction of this study employee turnover rates are as high as 23.4% in some industries, which demonstrates a very large financial cost to these organizations. (Job Satisfaction and Employee Turnover) The study evaluates the causes of employee turnover and job satisfaction level of employees. It deals with the correlation between high job satisfaction and low employee turnover. (Zheng WeiBo1*, 27th july 2010) The objective of this study is to review and Evaluate the works of scholars and chart a clear roadmap through research in core employee retention. The main content of this study focus on this complexity, and proposes a more effective mediated-route retention model based on the social capital theory in following contexts. Social capital may be defined as the trust (standard), relation, value sharing and behavior mode, network, cooperation, common commitments and understanding between the organization and the individuals. (AHM Shamsuzzoha) The study deals with the factors of organizations productivity. The author discussed productivity as an essential component of any business or organization. And the employee turnover is among one of the important components of an organizations productivity. The impact of employee switching or turnover is a serious issue and its seriously noticed by the senior management of any organization. The research is based on the actual reasons of employee switching and its long term damaging effects on the productivity and growth of an organization.

Factors of Employee switching from conventional Banking to Islamic Banking

(Zeynep Ton, january-feburary 2008) Several researches addressed the problem of employee switching. Zeynep Ton worked on the issue of employee switching on operating performance. The aspect of management on which the author focused is Process conformance, the extent to which managers aim to reduce variation in store operations in accordance with a set of prescribed standards for task performance. The author determined the magnitude and direction of Turnovers effect on operating performance of an organization. (Abdul Rahman, June 2008) This research study provides an analytical review of turnover intention among the IT professionals and the factors that significantly contribute to it. It has been strongly assumed that job satisfaction and organizational commitment are predictors of turnover intention, as suggested by Karsh, Booske & Sainfort (2005). The author examines the relationship between job satisfaction level and employee turnover retention in an organization. Several authors conducted researches related to the issue of employee switching and its effects. In this paper, I present an issue of employee switching factors from one organization to another. The focus of my research is on the significance of Islamic Banking system and employee motivation towards the Islamic banking. Also focus on the significance of Islamic banking system. Because in todays scenario employees and customers are more concerned about the issues of Halal & Haram and interest based income. Being a Muslim we should avoid taking or giving interest. Banking principles should be in accordance with the Holy quran.

Factors of Employee switching from conventional Banking to Islamic Banking

Problem Statement:
There are many factors included in the causes of employee switching one organization to another but it is seen that many employees are now moving towards Islamic Banking system. There is a noticeable change seen in the growth of Islamic banking and employee shifting towards Islamic banking. The question arises why employees are more motivated to do job in Islamic Banks instead of keep performing their job services in conventional banks? To investigate the answer of this question or problem I am conducting this research.

METHOD:
The research population includes 25 employees in two Islamic banks as well as 25 employees in two conventional banks. The total research sample is of 50 employees. The Islamic banks include Meezan Bank, Burj Bank and the conventional banks include MCB and UBL.A simple random sampling method was used to conduct my research in which 25 questionnaires were distributed to employees of Meezan Bank and Burj Bank and 25 questionnaires were distributed to employees of MCB and UBL. Out of total 50 questionnaires 40 were returned (Those which are completely filled by the employees). I also conducted interviews from the senior officers of Islamic and conventional Banks to collect the relevant data. The data was analyzed using (SPSS) 12.0.

Population of the Research Project:

The research population includes 25 employees in two Islamic banks as well as 25 employees in two conventional banks. The total research population is of 50 employees.

Sampling Technique
Sampling technique for my aforementioned project is Simple Random Sampling which is a probability technique. I have selected simple random sampling because of time constraints, and only 2 conventional banks and 2 Islamic Banks comes under my research theme.

Factors of Employee switching from conventional Banking to Islamic Banking

Sample Size Determination

In my research project the sample which is drawn from the simple random sampling is MEEZAN Bank & MCB Bank as they are one of the highly growing banks in the banking sector. I will collect the information from secondary sources. Due to time constrain it would not be possible to focus on more banks.

Hypothesis:
For the testing of employee switching Ho: 1=0 (Islamic banking growth has no effect on employee switching) H1: 10 (Islamic banking growth has an effect on employee switching)

Findings
A total sample of 50 bankers was involved in this study. 75% of them were male officers while the rest were female officers. Out of total 50 employees 5 employees were senior officers of Islamic Bank and conventional bank. The majority of the officers in both Islamic & conventional banks were from operations department while some of them are cash officers & CSO (customer service officers). I conducted a telephone interview from senior officers of conventional banks and Islamic banks to know about their perception about factors of employee switching. The first thing concerns with the knowledge of the bankers regarding the employee switching behavior. 80% of respondents were strongly agreed that employees are moving towards Islamic banking system. Because Islamic banking is totally Riba (interest) free and this is prohibited in Islam. While the transactions of conventional banks are based on Riba (interest), and it is still practiced in conventional banking system. The mean result for this question is 85% which shows that the average respondents gave a positive response to this statement. The second question tests the significance of Islamic banking system. The senior officers of Conventional banks and Islamic banks were strongly agreed that the growth in the Islamic banking is sector is very rapidly increasing. Its also analyzed that not only employees but customers also now getting indulged in the concepts of Halal & Haram income. Thats why the trend of Islamic banking is increasing in Karachi. The third question evaluated the demotivation factors of employee switching from conventional towards Islamic banking. The main factors which influenced employees to switch towards Islamic banking are the salary package, bonuses and incentives given to them. The pay scale of employees in Islamic banks is higher than the employees in conventional banks. Another factor is the products and services offered in Conventional banks are expensive than that of Islamic banks.

Factors of Employee switching from conventional Banking to Islamic Banking

QUESTIONAIRE:
Name: Designation: Bank:

1. Which banking system do you prefer? Islamic Banking Conventional Banking

2. Your Age comes in which bracket? Below 18 36-50 Above 65 18-35 50-65

3. Your gender? Male Female

4. Your profession? Student Employee Housewife Labor Business Men Jobless

5. Your Education? Below Middle High School Graduate PhD Middle College Master

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Factors of Employee switching from conventional Banking to Islamic Banking

6. Which banking system influences you to work? Islamic Conventional

7. Are you satisfied with your job? Yes No

(If no then give the reason) 8. If you have given the opportunity to work in a banking system of your choice so which system you prefer? Also give reason Islamic banking system Conventional Banking system

9. What motivates you to stick to the organization in which you are working? Pay scale Work environment

Incentives

Other

10. In your opinion does banking in Pakistan should run on the Islamic principles of Shariah?

Yes

No

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Factors of Employee switching from conventional Banking to Islamic Banking

Please rate the following banks according to your likeness (1=Max. & 5=Min): RATING SCALE 1 Meezan Bnak Burj Bank Dubai Islamic Bank Mcb UBL HBL FAYSAL Bank 2 3 4 5 no rating

11. If you like them, what is the reason of liking? I. Yes They are leading banks? No

II. Yes

They have high market share? No

III. Yes

They are running according to the principles of Shariah? No

THANKS FOR YOUR COOPERATION AND GIVING US YOUR PRECIOUS TIME

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Factors of Employee switching from conventional Banking to Islamic Banking

CONCLUSION:
After analyzing and interpreting the data following conclusion have been drawn: The research was conducted to identify the factors of employee switching towards the Islamic Banking system and the significance of Islamic Banking system in a Muslim country. The findings showed that most of the employees are now willing switches their banks i.e. instead of conventional banks they are switching towards Islamic banks. However, employees in Islamic Banks are satisfied with their job and banking system because Islamic Banking is running in accordance with the Principles of Shariah. As stated in our Holy Quran. Its also investigated that many junior officers in conventional banks are not satisfied with their jobs and waiting for an opportunity in Islamic Banks. As far as factors are concerned behind the increase in employee switching or employee turnover, so findings evaluated that there is a difference in pay scales of employees working in Islamic Banks and employees in Conventional Banks. Another main factor of employee switching is the issue of Halal income & Haram income. According to the Islamic teachings Interest (RIBA) is strongly prohibited in Islam.

Recommendations:
The research topic can be taken in future for the variables which are not used in my research report. I have only identified the factors of employee switching from conventional Banking to Islamic Banking. It is suggested for the next research to explore the customers perception about Islamic banking. Due to the time constraint I couldnt conduct more comprehensive research. So next time when research in this area is conducted it is better to do more detailed and comprehensive research.

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Factors of Employee switching from conventional Banking to Islamic Banking

Bibliography
Abdul Rahman, S. M. (June 2008). Measuring Turnover Intention. International Review of Business Research Papers , 55. AHM Shamsuzzoha, M. R. (n.d.). Employee Turnover-a Study of its Causes and Effects. Employee Turnover . (April 1,2012). business(Human resources). Job Satisfaction and Employee Turnover. (n.d.). April 2008 . Ongori, H. (2007). employee turnover. African Journal of Business Management pp. 049-054, June 2007 . Zeynep Ton, R. S. (january-feburary 2008). Managing the Impact of Employee Turnover on performance. Organization Science. Zheng WeiBo1*, S. K. (27th july 2010). A critical review of employee turnover model. African Journal of Business Management .

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