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Selection towards Islamic Banking among 2011 Kelantanese

Factors Selection of Islamic Banking towards Kelantanese Consumers preferences.

CHAPTER 1

1.0 INTRODUCTION Islamic banking is banking based on Islamic law (Shariah). It follows the Shariah, called fiqh muamalat (Islamic rules on transactions). The rules and practices of fiqh muamalat are based on the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma), analogy (qiyas) and personal reasoning (ijtihad). The first Islamic bank was established in Malaysia in 1983. In 1993, commercial banks, merchant banks and finance companies were allowed to offer Islamic banking products and services under the Islamic Banking Scheme (IBS banks). The IBS banks are required to ensure that the funds and activities of the Islamic banking transactions are separated from the conventional banking business.

Population of muslims is the biggest in the world, therefore Islamic banking system is highly demand especially in Islamic country for instances Malaysia, Pakistan, Sudan and many more.In Malaysia, Tabung Haji is the first banking institution that offer Islamic banking. Then Bank Islam Malaysia Berhad follow. After these two banks operated, conventional has provide their own for instance CIMB Islamic, RHB Islamic and others. Customers demand variety of product services such as loan, saving and investment , they really hope that their fund is managed parallel to the syariah of islam and not to against the law. Islamic banking services can promised confidence towards consumer in term of berkat. This is because muslims intend their fund to be managed in ethical ways. The Islamic Banking product has offered services similarly as conventional services. Islamic banks perform the same essential functions as banks do in the conventional system, except that the need for them to carry out their transactions in accordance with the rules and principles of Islam (Henry, 2004; Iqbal, 2007).Due to other conventional has their own Islamic system, it give a threat to the pure Islamic banking institution. Therefore Islamic banking institution such as Bank 1

Selection towards Islamic Banking among 2011 Kelantanese


Islam, Tabung Haji has greater competition in order to attract customers to mantain choosing them as financial institution. 1.1 BACKGROUND OF KELANTAN Kelantan is a state of Malaysia. Kota Bharu is a capital city of Kelantan. Kelantan is positioned in the north-east of Peninsular Malaysia. It is bordered by Narathiwat Province of Thailand to the north, Terengganu to the south-east, Perak to the west, and Pahang to the south. To the north-east of Kelantan is the South China Sea.Kelantan is located in the north-eastern corner of the peninsula, Kelantan, which is said to translate as the "Land of Lightning", is anagrarian state with lush paddy fields, rustic fishing villages and casuarina-lined beaches. Kelantan is home to some of the most ancient archaeological discoveries in Malaysia, including several prehistoric aboriginal settlements.
Rank Districts Population for year 2009 1 2 3 4 5 6 7 8 9 10 Kota Bharu Pasir Mas Tumpat Bachok Pasir Puteh Tanah Merah Kuala Krai Gua Musang Machang Jeli 496 600 206 400 168 600 138 200 130 700 130 000 117 800 100 400 98 700 46 700

Table 1 : Kelantanese population in each district in Kelantan

Selection towards Islamic Banking among 2011 Kelantanese


Above is the population of kelantanese for the year 2009. From the table we can see that Kota Bharu is the highest population. Thus it creates interest for the researcher to identify what is their factor of selection towards Islamic Banking. Affin Islamic Bank Al-Rajhi Bank BSN Perbankan Islam CIMB Islamic Kuwait Finance House Standard Chartered Islamic Banking Alliance Islamic Bank Citibank Islamic Banking Maybank Islamic Banking AmIslamic Bank Bank Islam EONCap Islamic Bank Hong Leong Islamic Bank Bank Muamalat HSBC Amanah OCBC Islamic Banking Public Bank Islamic Banking RHB Islamic Bank

Bank Rakyat Table 2 : List of licensed Islamic Banks in Malaysia Source : Bank Negara Malaysia 2011 1.1.2 ISLAMIC BANKING SERVICES

Due to Banking information, Islamic banking services simply explained as below : Wadiah means custody or safekeeping. In a Wadiah arrangement, you will Wadiah (Safekeeping) deposit cash or other assets in a bank for safekeeping. The bank guarantees the safety of the items kept by it. Mudharabah is a profit sharing arrangement between two parties, that is, an investor and the entrepreneur. The investor will supply the entrepreneur with funds for his business venture and gets a

Selection towards Islamic Banking among 2011 Kelantanese


return on the funds he puts into the Mudharabah (Profit sharing) business based on a profit sharing ratio that has been agreed earlier. The principle of Mudharabah can be applied to Islamic banking operations in 2 ways: between a bank (as the entrepreneur) and the capital provider, and between a bank (as capital provider) and the entrepreneur. Losses suffered shall be borne by the capital provider. This refers to the sale of goods where the Bai Bithaman Ajil BBA (Deferred payment sale) buyer pays the seller after the sale together with an agreed profit margin, either in one lump sum or by instalment. In the context of business and trade, Musyarakah refers to a partnership or a joint business venture to make profit. Profits made will be shared by the partners based on an agreed ratio which Musyarakah (Joint venture) may not be in the same proportion as the amount of investment made by the partners. However, losses incurred will be shared based on the ratio of funds invested by each partner. Ijarah Thumma Bai is normally used in financing consumer goods especially motor vehicles. There are two separate Ijarah Thumma Bai (Hire purchase) contracts involved: Ijarah contract (leasing/renting) and Bai contract (purchase).

Selection towards Islamic Banking among 2011 Kelantanese


This is a contract whereby a person (principal) asks another party to act on his behalf (as his agent) for a specific Wakalah (Agency) task. The person who takes on the task is an agent who will be paid a fee for his services. Under this arrangement, a loan is given for a fixed period on a goodwill basis and the borrower is only required to repay the Qard (Interest-free loan) amount borrowed. However, the borrower may, if he so wishes, pay an extra amount (without promising it) as a way to thank the lender. This refers to a payment made willingly in Hibah (Gift) return for a benefit received.

Table 3 : Islamic Bank services

1.2 PROBLEM STATEMENT Islamic Banking is growing rapidly over the past three decades. With Muslim population of the world today is estimated at about 1.5 billion, representing a sizeable 24 percent of the world population of 6.3 billion (Bursa Malaysia, 2005). This fact has stimulate the researcher to study what is the factors people select Islamic banking system as their choice. Based on Malaysian Islamic Finance web, achievements in the Malaysian Islamic Finance sector as at 2006 :The Malaysian Islamic banking sector has grown in size, diversity and importance over the past few years. In 2006, Islamic banking assets grew by 20.5%, to account for 12.2% of total banking system assets. The rapid rise in Islamic banking assets was supported by strong growth in Islamic financing activities at 12.3% (contributing to 13.2% of banking system lending). Meanwhile, Islamic deposits expanded by 18.2% to account for 12.2% of banking system deposits.

Selection towards Islamic Banking among 2011 Kelantanese


According to Business Times, Malaysia is poised to become one of the biggest Islamic financial hubs globally, thanks largely to the rising number of foreign players plus greater demand for Islamic financing under the country's ambitious Economic Transformation Plan (ETP). Islamic banking services are strictly comply to the syariah has giving confidence to the muslims to choose this system as their financial institution. Therefore in this research is trying to figure out what is the factors influence selection of Islamic Banking. This study is focused on kelantanese only because Kelantan is a state that tend to have high spirit of nationalism and Islamic believe (Hassan 2003). 1.3 RESEARCH OBJECTIVE 1. 3.1 Evaluate the main factors that determine the acceptance of Islamic banking to the kelantanese customers 1.3.2 To know why customers adopt Islamic banking services rather than conventional banking system 1.4 RESEARCH QUESTION 1.4.1 1.4.2 What is the main factors customers look for an Islamic banking services? To know whether strict compliance to Islamic syariah (religion) is influencing Islamic banking patronage factors. 1.4.3 1.4.4 To know whether service cost is influencing Islamic banking patronage factors To know whether convenience is influencing Islamic banking patronage factors.

1.5 THEORETICAL FRAMEWORK

Independent Variable

Strict compliance to Islamic syariah (Religion)


Dependent Variable

Service cost

Factors selection of Islamic Banking

Selection towards Islamic Banking among 2011 Kelantanese


Convenience

Figure 1 : Theoretical Framework Figure 1 shows the relationship among the Independent and dependent variables. There are three independent variable related to the dependent variable. Independent variable represents by strict compliance to Islamic syariah, Service cost and Convenience. While dependent variable represent Factors Selection of Islamic Banking towards Kelantanese Consumers preferences.

1.6 HYPOTHESES According to Sekaran, U., (2006), hypothesis can be defined as a logical conjectured relationship between two or more variables in the form of testable statement. Relationship are conjectured based on the network of associations established in the theoretical framework formulated for the research study. 1.6.1 Hypotheses 1

H1 : There is significant

relationship between strict compliance to Islamic syariah and

factors affecting customers to select Islamic banking

H0 : There is no significant relationship between strict compliance to Islamic syariah


and factors affecting customers to select Islamic banking 1.6.2 Hypothesis 2

H1 :There is significant relationship between Cost benefit and factors affecting


customers to select Islamic banking

H0 : There is no significant relationship between Cost benefit and factors affecting


customers to select Islamic banking 1.6.3 Hypotheses 3

H1 :There is significant relationship between Convenience and factors affecting


customers to select Islamic banking

Selection towards Islamic Banking among 2011 Kelantanese


H0: There is no significant relationship between Convenience and factors affecting
customers to select Islamic banking

1.7 SIGNIFICANT OF STUDY 1.7.1 To the religion of Islam Islamic banking system is ran based on syariah law of islam. Islamic banks fundamentally emerged to fulfill this basic need of Muslims to enjoy banking services in compliance with Islamic principles (Khan et al, 2008).

1.72 To the banking institution Islamic Bank institution can enhanced their performance by providing better and quality service in order to mantain loyalty among consumers. Islamic Bank also can variety their service in order to penetrate market in Kelantan. 1.7.3 To the government Malaysia is a country of islam. Therefore it is a good deed for the government to practice Islamic banking as system of financial. This system is demand by the muslims and non-muslims in Kelantan. It has spread to all corners of the globe and received wide acceptance by both Muslims and non-Muslims alike (Iqbal and Molyneux, 2005). The country/state also can enjoy profit due to the business practice. 1.7.4 To the public It is an opportunity for the customers to know more deep about Islamic services. They can enjoy the services because Islamic banking running within principle of Islam which is not practicing riba (Interest)

Selection towards Islamic Banking among 2011 Kelantanese


1.7.5 To the UiTM This research is done to fulfill the requirement of UiTM. Therefore, It can be refer for other student in further research.

1.8 DEFINITION OF TERM

1.8.1 Islamic Banking System of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest fees for loans of money (Riba, usury), for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply these principles toprivate or semi-private commercial institutions within the Muslim community.(Wikipedia, 2011)

1.8.2 Riba Riba means usury and is forbidden in Islamic economic jurisprudence fiqh. There are two types of riba discussed by Islamic jurists: an increase in capital without any services provided, which is prohibited by the Qur'an, and that prohibited in the Sunnah which comprises commodity exchanges in unequal quantities. (Wikipedia, 2011) 1.8.3 Sharia Sharia is the sacred law of Islam. Most Muslims believe Sharia is derived from two primary sources of Islamic law: the divine revelations set forth in the Qur'an, and the example set by the Islamic Prophet Muhammad in the sunnah. Fiqh jurisprudence interprets and extends the application of Sharia to questions not directly addressed 9

Selection towards Islamic Banking among 2011 Kelantanese


in the primary sources by includingsecondary sources. These secondary sources usually include the consensus of the religious scholarsembodied in ijma, and analogy from the Qur'an and Sunnah through qiyas. Shia jurists replace qiyas analogy with 'aql, reasoning. (Wikipedia, 2011)

1.8.4 Cost Benefit Cost-benefit analysis is a term that refers both to: helping to appraise, or assess, the case for a project, programme or policy proposal; and an approach to making economic decisions of any kind. (Wikipedia, 2011)

1.8.5 Gharar This means any element of absolute or excessive uncertainty in any business or a contract about the subject of contract or its price, or mere speculative risk. It has the potential to lead to undue loss to a party and unjustified enrichment of the other, which is prohibited. (Wikipedia, 2011)

1.9 LIMITATION OF THE STUDY

1.9.1 TIME CONSTRAINT The researcher only have 20 weeks in order to finish this research. The researcher have to divide time between practical training in Aman Razak Cartrade sdn bhd and to do research at the same time. Therefore it is hard to focus on research. 1.9.2 LACK OF EXPERIENT AND SKILL

The researcher has limited skill in collecting data and gather information needed. In addition researcher has to take time in learning AMOS software. Respondents for questionnaire are not committed enough to fulfil the form.

1.9.3

ACCURACY AND RELIABILITY INFO

It is hard to search literature review especially in Independent Variable of cost benefit. Some literature review is below year 2000.

1.9.4

PREVIOUS STUDY 10

Selection towards Islamic Banking among 2011 Kelantanese


It is hard to understand each journal that obtain in Emerald website. It is due to previous research is done by many type of researcher around the world. Therefore language barrier has occurred. The technique are different. Some of the research use secondary data but some of it are primary.

2.0 SCOPE OF STUDY Distribute questionnaire to Kumpulan Wang Simpanan Pekerja in Jalan Padang Garong, Kota Bharu, Suruhanjaya Syarikat Malaysia in Billion Mall, staff of Aman Razak Cartrade Mitsubishi in Jalan Pekeliling, Librarian and Student University Technology MARA. All respondents searched are currently using Islamic Banking.

CHAPTER 2

2.0 LITERATURE REVIEW


( Zaharuddin, 2007) found that the key difference is that Islamic banking is based on Shariah foundation while the conventional banking does not. (Khir et all, 2008) found that Islamic bank recognized customers as a partner rather than a borrower or debtor as practiced in conventional banking. The act of a bank to obtain any benefits without bearing the liability of a transaction will be considered as Haram or prohibited in Islam (Haron & Ahmad, 2000). Conventional bank operate differently with Islamic. Conventional bank charges and receives fixed or floating interest rate for the financing and deposits. Moreover, The bank will only provide financing to borrower on an interest basis (Khir, et all, 2008).

From the research Why do Malaysian customers patronise Islamic Banks that is written by Asyraf Wajdi Dusuki that is published on 2007 figure out that over the past three decades, Islamic banking has emerged as one of the fastest growing industries. 11

Selection towards Islamic Banking among 2011 Kelantanese


It has spread to all corners of the globe and received wide acceptance by both Muslims and non-Muslims alike (Iqbal and Molyneux, 2005). In addition, Islamic Banking has been established since 1963 in Egypt in the city of Ghamr as an experiment to cater the needs of the Muslim populations in relation to their religious obligations (Al-Omar & Abdel-Haq, 1996). In Gerrard and Cunninghams (1997) study, 25% of the respondents pointed religion as the first factor to choose an Islamic bank. However, they found no difference between Muslims and non-Muslims on bank selection criterion. In a study conducted by Haron et al. (1994), the authors reported that almost 100 percent of Muslims and 75 percent of non-Muslims in their study were aware of the existence of Islamic bank. Therefore, this research is trying to figure out what criteria Kelantanese (Musim and non muslim) customers look for an Islamic bank.

Author

Research

Year published

Selection criteria of Bank

Asyraf Wajdi Dusuki and Nurdianawati Irwani Abdullah

Why do Malaysian customers patronise Islamic Banks

2007

1)cost and benefits 2)service delivery 3)confidentiality 4)size & reputation of the bank 5)Convenience (location and ample parking space) 6)Friends and families influences 7)Friendliness of personnel

Islamic Banking: Maran Marimuthu Chan Wai Jing et all Selection Criteria and Implications

2010

1)Cost/Benefit 2)Convenience 3)Service Delivery 4)Friends and Relative influence 5)Religious factors 12

Selection towards Islamic Banking among 2011 Kelantanese


6)Size and reputation 7)Staff factors 8)Mass media advertising Ahasanul Haque Jamil Osman et all Factor Influences Selection of Islamic Banking: A Study on Malaysian Customer Preferences Mohammed Almossawi Bank selection criteria employed by college students in Bahrain: an empirical analysis 2001 1)Convenient ATM locations 2)Availability of ATM in several locations 3)Bank's reputation 4)24 hours availability of ATM services 5)Available parking space nearby. 2009 1)Quality of Services 2)Confidence in bank 3)Social and religious perspective 4)Availability of services

Kamal Naser Ahmad Jamal Khalid Al-Khatib

Islamic banking: a study of customer satisfaction and preferences in Jordan

1999

1)Convenience 2)Friends' recommendations 3)Reputation of bank 4)Availability of credit 5)Competitive interest rates 6) Friendliness of bank staff 7)Service charges, 8)Adequate banking hours, 9)Availability of ATM, 10)Quality of services 13

Selection towards Islamic Banking among 2011 Kelantanese


on checking accounts Table 4 : Customers main selection criteria in Islamic Banking

2.1 STRICT COMPLIANCE TO ISLAMIC SYARIAH.

Based on research Clients of conventional and Islamic banks in Bahrain (2009) religious belief is as a motive to choose to bank with Islamic banks was described by Omer (1992) in a survey of Muslims in the UK at a time when Islamic products were offered by conventional banks through their Islamic windows. The findings of that study were echoed by the results reported by Hejazy (1995) who found that 98.8 percent of the clients of Islamic banks in Egypt were Muslims, while 54.3 percent of the clients of conventional banks were Christians. In Bahrain, Metawa and Almossawi (1998) found that the religious factor was among the most important factors in determining selection of the banks by Bahrainis. In a study by Al-Sultan (1999) it was found that Kuwaitis consider religious belief to be one of the important criteria for selecting their banks. These results are supported by those reported by Naser et al. (1999) who studied the selection criteria used by banks consumers in Jordan .Today, most muslims deal with Islamic banking system due to confidence that this institution run the fund ethically.

From the research Why do Malaysian customers patronise Islamic banks (2006), the authors described that In the UK, the concern for ethical investment and socially responsible financial firm has become increasingly popular since the mid-1970s. As explained by OBrien (2001); Snider et al., (2003) and Benson et al., (2006);Corporate Social Responsibility (CSR) and ethical investment have been considered as premier factors important for choosing an Islamic bank. Following Islamic syariah in managing all the transaction is the principle of Islamic institution. Islamic banks fundamentally emerged to fulfill this basic need of Muslims to enjoy banking services in compliance with Islamic principles (Khan et al, 2008).

From the research of Banking behaviour of Islamic Bank customers : perspectives and implications , Metawa and Almossawi (1998) found Shari`ah-based principles as the single most important factor for choosing Islamic banks. Accordingly, the many 14

Selection towards Islamic Banking among 2011 Kelantanese


prohibitions (e.g. interest, gambling, excessive risks, etc.) 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).

From the research Islamic Banking: Selection Criteria and Implications the authors described that principle of syariah prohibit riba exercise in transaction. Riba is any interest or predetermined payment over and above the actual amount of principle is strongly prohibited by the Quran and the Sunnah (Maran 2010). Karsten (1982) explains that Riba is prohibited because it reinforces the tendency for wealth to accumulate in the hands of a few, and thereby diminishes human beings to concern their fellow men. Islamic bank promote profit sharing. Profit sharing is two or more parties pool their sources for investment and share the investment profit and loss (Chong and Liu, 2005).

Second principle, is prohibition of gharar. Gharar is generally translated as risk, hazard or uncertainty. In other word gharar means gambling. It implied Gharar as deception based on the absence of knowledge or the unlikelihood of delivery with the prospect of causing harm (Maran 2010). Metwally (2006) also argues that Gharar are speculative transactions which are harmful to society. Then, any operation should transact in an ethical way. Accordingly, Islamic banks cannot finance any project which conflict with the moral value system of Islam 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 (Ahmad, 2000).

2.2 COST BENEFIT From the research Islamic Banking and Finance:Is it complementing or competing the conventional banks (2006), the authors stated that Islamic banking formerly has to close down in 1967 due to political pressure, but the idea and concept of the interest free banking had caught up with a number of leaders in the Muslim world that lead to the establishment of various interest free banks like The Nasser Social Bank (AlSuwaidi, 1994).

The second selection criterion is cost and benefit. In the research of Islamic Banking : Selection criteria and implication (2010). Khazeh and Decker (1992) identified interest rates as one of the top five determinants factors that influenced the banking 15

Selection towards Islamic Banking among 2011 Kelantanese


decision among 1198 of business school alumni of Salisbury state university in Maryland. In addition, the authors stated that Gerrad and Cunningham (1997) also found that profit or interest rate served as a reason for people maintaining their relationship with Islamic banks. Similarly, Islamic banks in Sudan never reward their current account holders, but a bulk of their funds is supplied through these facilities in light of the Islamic principles (Haron and Noraffifah, 2000). Availability of financial advice at free of cost (Iqbal and Mirakhor, 1987) was branded as essential features.

Along with religious background, customers want a good use of their investment. They want the best cost-benefit tradeoff, branches and ATMs in convenient location, faster transaction processing, caring employees, good financial advices from managers etc (Erol and El-Bdour, 1989; Erol et al., 1990; Omer, 1992; Haron et al., 1994; Gerrard and Cunningham, 1997; Mettawa and Almossawi, 1998; Naser et al., 1999; Ahmad and Haron, 2002; Abbas et al., 2003).

A study was conducted in (1989) by Erol and El-Bdour on Jordan customers. They tried to find the attitude of Jordanian people towards interest free banking.Ultimately they got that religion is not the main factor for the selection of financial institution, but in fact there are some other factors too which are influencing the decision criteria of the customers and in this regard the main factor is the level of profitability, that is, returns on their investment ( Erol and El-Bdour, 1989).

2.3 CONVENIENCE Many studies, including those of Reed (1972), Riggall (1979) and Kaynak and Kucukemiroglu (1992) found that locational convenience was of paramount importance. Convenience include factors such as convenient working hours of ATMs, convenient branch locations and wide branch network convenience, location being near home or work (Haron et al., 1994). Kaynak and Whiteley (1999) observed that the convenience of a bank was a primary motivation for customers in selecting a specific institution. Riggall (1980) in his survey on 250 newcomers to a community in the United States of America also found that convenience of location to both home and work appeared to be the most influential factor for bank selection by newcomers. It was also found that pricing and convenience were the main reasons for selecting a new bank or switching banks (Mokhlis., Hazimah., & Salleh, 2008). Gerrerd and 16

Selection towards Islamic Banking among 2011 Kelantanese


Cunningham (1997) found that parking space and interior facilitiesare important while considering satisfaction issues for customers. Customers want to perform transactions when, where, and how they choose. It is because they want to minimise transaction costs and time (Cohen et al., 2006).

Gerrard and Cunningham (2001) found that convenience factors were of paramount importance in banking selection criteria as compared to other factors based on their survey conducted on conventional banking customers in Bahrain and Singapore respectively (Almossawi, 2001)

Based on research Bank Patronage Factors of Muslim and Non-Muslim Customers the authors stated that Riggall (1980) surveyed 250 customers who had just opened accounts six months before, and found that location was cited as the key factor in selecting a bank. location was cited as the key factor in selecting a bank. Evans (1979) investigated the influence of situation on an individuals choice of a bank. He divided selection criteria into two factors, i.e. service factors and situational factors. Factors such as near and convenient location, waiting line, pressure owing to time, depositing and withdrawing money, loan transactions, and portfolio services were considered situational factors, whereas factors such as free chequing service, adequate drive-in service, and accurate bank statement service were considered as service factors. The findings showed that each of the factors had not indicated the same degree of importance in influencing an individuals behaviour in his/her selection of a bank.

Author/s Saad A. Metawa Mohammed Almossawi

Methodology 1)Use self-administered questionnaires. 2)Done 15 questionnaires for pilot survey test 3)400 questionnaires distributed but only 300 retrieved.( Bahrain Islamic & Faisal Islamic Bank ).

Findings Most important criterion is 1)Adherence to Islamic principles 2)Rate of return 3)Recommendations made by family and friends. 4)Convenience of location 17

Selection towards Islamic Banking among 2011 Kelantanese


was found to be the least important criterion . Ahasanul Haque, Jamil Osman Ahmad Zaki Hj Ismail A Logit model is employed to anticipate the effects of the explanatory variables. Significant relationship between 1)customer perception 2)service quality, 3)social 4)Religious perspective 5)Availability of services. 1)Sample of 450 Maran Marimuthu Chan Wai Jing Lim Phei Gie Low Pey Mun Tan Yew Ping. respondents in Klang Valley. 2)Used a non-probability sampling. 3)Uses nominal & ordinal measurement scales and thus, a non-parametric approach is adopted for statistical testing Insignificant 1) Ethnic background 2) Religion Philip Gerrard J. Barton Cunningham 1)Used a sample of Singapore's undergraduates which response between engineering courses and nonengineering. 2) Seven bank selection dimensions were identified. More significant differences for engineering undergraduates compared non-engineering undergraduates. 1)Appearances 2)Services provision 3)People influences 4)Non-people Influences 5)Convenience 6)Electronic services 7)Secure feeling Significant relationships with the acceptance of Islamic Banking : 1)Cost-benefits 2)Service delivery 3)Convenience 4)Friends/relatives influence

Asyraf Wajdi Dusuki

1)Used primary data

Other factors 18

Selection towards Islamic Banking among 2011 Kelantanese


Nurdianawati Irwani Abdullah collected by selfadministered questionnaires 2)Sample of 750 respondents from 4 different regions in Malaysia. 3)Used Friedman Test. 4)An exploratory factor analysis is employed. Nana Owusu-Frimpong 1)225 multiple choice questionnaires filled in during customer interviews inside 50 bank branches 2)Informal telephone interview with six senior bank managers in Ghana Insignificant : 1)Convenient location 2) Efficient service 3) Courteous employees 4) Friendly employees Jasim Al-Ajmi, Hameeda Abo Hussain Nadhem AlSaleh 1)Conducted in 2)1,000 questionnaires distributed. Descriptive statistics and nonparametric statistics (Mann-Whitney and Kruskal-Wallis tests) are reported. Mohammed Almossawi 1)Sample - 1,000 students from University of Bahrain aged 19-24 (45 % male & 55% female). 2)Relied on 30 selection factors extracted from relevant literature,personal Students' bank selection that significant are: 1)Bank's reputation 2)Availability of parking space 3)Friendliness of bank personnel 19 3 most important criteria : 1)Islamic religious belief 2)Social responsibility 3)Cost benefit Significant : 1)Efficient service, 2)understanding 3)High rate of interest perceived to be important include 1)Good social responsibility practices 2)Convenience 3)Product price.

Selection towards Islamic Banking among 2011 Kelantanese


experience & interviews with some bank officials and college students. Ahmed Audu Maiyaki 1)Used multi-stage sampling procedure 2)Total of 417 retail bank customers were selected 3) Used 5-point rating scale Likert-type. 3) Used SPSS software and Microsoft office excel Great influence in customers choice of banks : 1)Size of bank total asset 2) Availability of large branch network Insignificant : 1) Attractive loan 4)Availability and location of ATM.

Table 5 : Research methodology and finding each journal

CHAPTER 3 3.0 RESEARCH METHODOLOGY 3.1 RESEARCH DESIGN 3.1.1 Population Population is refers to the entire group of people, events or things of interest that researcher wishes to investigate. Thus the target population of the study is defined as personal consumer of Islamic Bank within Kota Bharu, Kelantan . The questionnaires being answered by staff in Syarikat Suruhan Jaya Malaysia, staff Aman Razak Cartrade Mitsubishi, staff of Employees Provident Fund (EPF) consumers of CIMB and AMIslamic Bank, Librarian of UiTM and student of UiTM. 3.3.2 Sample size Sampling is process of using a small number of items or part of larger population to make conclusion about the whole population. The sample of this study is consumers of Islamic Bank within Kota Bharu. A sample of 100 respondent have been 20

Selection towards Islamic Banking among 2011 Kelantanese


distributed. But only 96 questionnaires have been retrieved. Therefore this research will be carried on 96 questionnaires. The respondent include male and female. For this purpose of research, primary data is the main sources. The questionnaire have 3 section which is demographic profile, public opinion towards Islamic Bank, and questions under the three independent variable (which is strict compliance to Islamic syariah, convenience and cost benefit) and dependent variable. The data obtain from the questionnaires will be inserted to Statistical Packaged for the social sciences (SPSS) application version 16.0 and regressed by AMOS 16.0 software. Multiple Linear Regression Analysis is regression extended from the simple linear regression analysis. In this analysis, the variables analyzed to examine the simultaneous effects of the several independent variables towards dependent variables. In simple linear regression analysis, the model typically stated in the form :

Y = + 1 X 1 +

Y = + 1 X1 + 2 X2 + 3 X3 + =constant 1 X1 2 X2 3 X3 = regression coefficient = estimator error


In respect on this research, the estimated model is as follows : Factors selection = + Religion + Convenience + Cost Benefit + of Islamic Banking

3.2 INSTRUMENT

21

Selection towards Islamic Banking among 2011 Kelantanese


This research is based on empirical study and it is a primary data. Respondents that involve in this study is the kelantanese users of the Islamic banking. A sample size of 100 respondents of Kelantanese in Kota Bharu city were considered in this study. The questionnaire is divided into 3 sections.The first section which is section A was designed to gather information about the samples personal, demographic and economic characteristics. The second section is section B. This section asked about the public opinion towards Islamic Banking. There are 5 questions asked within this section.Next section is section C.The three independent variables were rated by the respondents using a ten-point likert scalling. The ten-point Likert-type scale, ranging from Strongly Agree to Strongly Disagree, how they viewed a series of factors in selecting a Islamic bank. Likert style is choosed in order to give easiness to the respondents. Questionnaires distributed by face to face and e-mail. Pilot survey is done to 15 respondents in order to detect the level of understanding when answering the questionnaire. Any mistake that occurred in questionnaire has been repaired. The 100 new questionnaires were distribute then. The data then inserted in SPSS and being regressed by AMOS software.

3.3 DATA COLLECTION

3.3.1 Source of Secondary data

3.3.1.1 Internet From the Internet the researcher managed to find a lot of information about the study. From the link of website, researcher can find specific information about Islamic Banking just by clicks. For example surfing emerald for searching online journal and Google translate to interpret complicated English words Other than that, researcher also can know deeper about the subject researched. 3.3.1.2 Article and Journal

22

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Researcher has reviewed the research that have been done by the senior from previous semesters. Their finding has helped the researcher to know better how to construct a research. Article in the magazines also helping due to Islamic Banking services is the current news today. 3.4 DATA ANALYSIS 3.4.1 Descriptive Analysis

It is used to analyse the background as well as the respondents profiles pertaining to their evaluation of consumers buying behaviour towards car. The common measures such as the total, frequency and cumulative percentage are used to analyse the data gathered through the questionnaires.

3.4.2 REGRESSION ANALYSIS

It is an analysis for the relationship between dependent variable and one or more independent variable. By using this analysis, it will show how much a variance in the dependent variable is possible to be explained by the independent variable. This study used simple linear regression.

CHAPTER 4

4.0 FINDING AND ANALYSIS

Classification of respondents reply

Frequency

Percentage (%)

Number of questions distributed Number of questions

100

100%

96

96%

23

Selection towards Islamic Banking among 2011 Kelantanese


collected None retrieved Unusable copies due to incomplete Usable copies 90 90% 4 6 4% 6%

Table 6 : Data Status

In this chapter, the result is obtained via SPSS and AMOS software. Via SPSS, respondents demographic profile, public opinion, t-test, R-square and Durbin Watson are analysed. Via AMOS path diagram for each Independent variable is analyzed. In addition, a schematic diagram for the whole model is obtained. Each diagram has been provided with the Baseline Comparisons which indicate The Comparative Fit Index (CFI), The Incremental Fit Index (IFI), The Tucker-Lewis Index (TLI). CFI, IFI, and TLI result will shown the status of the model whether they are fit or not.

4.1 SECTION A : RESULT OF RESPONDENTS DEMOGRAPHIC PROFILE.

Cumulative Frequency Valid male female Total 35 55 90 Percent 38.9 61.1 100.0 Valid Percent 38.9 61.1 100.0 Percent 38.9 100.0

Table 7 : Respondents gender


24

Selection towards Islamic Banking among 2011 Kelantanese


After the questionnaires distributed, the respondent are mainly female which is 55 persons compare to only 35 respondents which is male.

Cumulative Frequency Valid 20 and below 21 - 30 years 31- 40 years 41 years and above Total 3 52 16 19 90 Percent 3.3 57.8 17.8 21.1 100.0 Valid Percent 3.3 57.8 17.8 21.1 100.0 Percent 3.3 61.1 78.9 100.0

Table 8 : Respondents Age Table above showed respondents age. The majority age of respondents is in the range of 21 to 30 years old. 19 respondents are in the range of 41 years old and above. Next, 16 respondents are between 31 to 40 years old. Only 3 respondents that are in age 20 years and below.

Cumulative Frequency Valid malay chinese indian Total 84 3 3 90 Percent 93.3 3.3 3.3 100.0 Valid Percent 93.3 3.3 3.3 100.0 Percent 93.3 96.7 100.0

Table 9 : Respondents race

25

Selection towards Islamic Banking among 2011 Kelantanese


Table above showed respondents race. Most of the respondents are Malay which is 84 respondents. 3 of the respondents are Chinese and Indian respectively.

Cumulative Frequency Valid pmr/srp spm/stpm diploma/degree postgraduate Total 1 26 60 3 90 Percent 1.1 28.9 66.7 3.3 100.0 Valid Percent 1.1 28.9 66.7 3.3 100.0 Percent 1.1 30.0 96.7 100.0

Table 10 : Respondents level of education Table above showed respondents education. Most of consumers of Islamic Banking are having Diploma or Degree which is 60 of them. 26 respondents are having SPM or STPM. 3 respondents are postgraduate. Only 1 respondent is having PMR or SRP.

Cumulative Frequency Valid student self employed government sector private sector unemployed 43 3 20 23 1 Percent 47.8 3.3 22.2 25.6 1.1 Valid Percent 47.8 3.3 22.2 25.6 1.1 Percent 47.8 51.1 73.3 98.9 100.0

26

Selection towards Islamic Banking among 2011 Kelantanese

Cumulative Frequency Valid student self employed government sector private sector unemployed Total 43 3 20 23 1 90 Percent 47.8 3.3 22.2 25.6 1.1 100.0 Valid Percent 47.8 3.3 22.2 25.6 1.1 100.0 Percent 47.8 51.1 73.3 98.9 100.0

Table 11 : Respondents occupation The table above showed respondents occupation. 43 of the respondents are student in UiTM. 23 of the respondents are working in private sector. 20 respondents are working in government sector. 3 of the respondents are self employed. Only 1 respondent is unemployed.

Cumulative Frequency Valid rm1000 and below rm1001 - rm2500 rm2501 - rm4000 rm4001 - rm5500 rm5501 and above no income Total 2 18 13 9 5 43 90 Percent 2.2 20.0 14.4 10.0 5.6 47.8 100.0 Valid Percent 2.2 20.0 14.4 10.0 5.6 47.8 100.0 Percent 2.2 22.2 36.7 46.7 52.2 100.0

Table 12 : Respondents level of income The table above showed respondents household income per month. So researcher can conclude that 43 respondents are having no income because they are still studying in university. Meanwhile, they are 18 respondents who are earning RM1000 and below per month.Then, 13 respondents earning in the range of RM2501 to RM4000. Moreover, 9 of the respondent received salary in the range of RM4001 to RM5500.
27

Selection towards Islamic Banking among 2011 Kelantanese


Finally, only 5 of the respondent that have income in the range of RM5501 and above per month.

Cumulative Frequency Valid 1-2 islamic banking 3-4 islamic banking 5-6 islamic banking Total 66 22 2 90 Percent 73.3 24.4 2.2 100.0 Valid Percent 73.3 24.4 2.2 100.0 Percent 73.3 97.8 100.0

Table 13 : Number of Islamic banking usage by respondents The table above showed how many Islamic Banking that a respondent used. Majority of respondents which is 66 persons who used 1 to 2 Islamic Banking. Meanwhile, 22 of the respondents are using 3 to 4 Islamic Banking. Only 2 respondents used more than 4 Islamic Banking which is in the range of 5 to 6.

Cumulative Frequency Valid 1-2 services 3-4 services 5-6 services Total 71 18 1 90 Percent 78.9 20.0 1.1 100.0 Valid Percent 78.9 20.0 1.1 100.0 Percent 78.9 98.9 100.0

Table 14 : Number of services used in Islamic Bank by respondents The above table is showing how many services that consumers consumed for example saving account, current account, hire purchase, and many more. Therefore, 71 respondents which is majority of them are using 1 to 2 services. Meanwhile, 18 respondents are using 3 to 4 services. Only 1 respondent used 5 to 6 services.

28

Selection towards Islamic Banking among 2011 Kelantanese

Cumulative Frequency Valid 1 year and below 1 - 5 years 6 - 10 years 10 years above Total 5 44 15 26 90 Percent 5.6 48.9 16.7 28.9 100.0 Valid Percent 5.6 48.9 16.7 28.9 100.0 Percent 5.6 54.4 71.1 100.0

Table 15 : Respondents duration of relationship within Islamic Banking The table above showed the relationship duration between consumers and Islamic Banking. Duration of 1 to 5 years is the most chosen by 44 respondents. Meanwhile, 26 respondents are having relationship with Islamic Bank within 10 years and above. 15 respondents has consumed Islamic Banking for 6 to 10 years. Then, only 5 respondents who consumed Islamic Banking 1 year and below.
4.2 SECTION B : RESPONDENTS OPINION TOWARDS ISLAMIC BANKING

Cumulative Frequency Valid strictly religion economics both religion and economics no opinion Total 10 9 64 7 90 Percent 11.1 10.0 71.1 7.8 100.0 Valid Percent 11.1 10.0 71.1 7.8 100.0 Percent 11.1 21.1 92.2 100.0

Table 16 : Reasons why respondents choose Islamic Banking From the table above, most of the respondents agree that they choosed Islamic Banking for both religion and economics. However there are 10 respondents choosed

29

Selection towards Islamic Banking among 2011 Kelantanese


Islamic Banking due to strictly religion reason. 9 respondents marked for economics and there are 7 respondents who have no opinion for selecting Islamic Banking.

Cumulative Frequency Valid very good potential good potential some potential Total 44 35 11 90 Percent 48.9 38.9 12.2 100.0 Valid Percent 48.9 38.9 12.2 100.0 Percent 48.9 87.8 100.0

Table 17 : Respondents opinion towards Islamic Banking potential Table above showed respondents opinion about potential of Islamic Banking. 44 respondents agree that Islamic Banking have a very good potential to be widen. Meanwhile, 35 of the respondents marked for good potential for Islamic Banking. 11 respondents think that Islamic Banking have some potential to be established advancely.

Cumulative Frequency Valid absolutely true true partly true untrue Total 24 55 9 2 90 Percent 26.7 61.1 10.0 2.2 100.0 Valid Percent 26.7 61.1 10.0 2.2 100.0 Percent 26.7 87.8 97.8 100.0

Table 18 : Respondents opinion towards different name in highlighting services Table above show respondents opinion towards different name in highlighting the product of Islamic Banking. The result show that 24 respondents marked for absolutely true. 55 respondents marked for true. Meanwhile 9 respondents marked for partly true and 2 respondents marked for untrue.

30

Selection towards Islamic Banking among 2011 Kelantanese

Cumulative Frequency Valid more than enough enough just enough not enough not enough at all Total 4 45 28 12 1 90 Percent 4.4 50.0 31.1 13.3 1.1 100.0 Valid Percent 4.4 50.0 31.1 13.3 1.1 100.0 Percent 4.4 54.4 85.6 98.9 100.0

Table 19 : Respondents opinion towards marketing done for Islamic Banking Table above showed product marketing done by Islamic Banking. 45 respondents found that marketing done for Islamic Banking is enough. 28 respondents found that it just enough.12 respondents thought that product marketing for Islamic Banking is not enough. 4 respondents marked for more than enough. Only 1 person marked for not enough at all.

Cumulative Frequency Valid perception that islamic banking for muslims lack of understanding and information lack of product varieties lack of investment opportunities higher commisions and fees 20 Percent 22.2 Valid Percent 22.2 Percent 22.2

34 16 3 4

37.8 17.8 3.3 4.4

37.8 17.8 3.3 4.4

60.0 77.8 81.1 85.6

31

Selection towards Islamic Banking among 2011 Kelantanese


insufficient branch and network lack of financial counselling Total 8 5 90 8.9 5.6 100.0 8.9 5.6 100.0 94.4 100.0

Table 20 : Respondents opinion towards major weaknesses toward Islamic Banking


Table above showed major weaknesses of Islamic banking today. Respondents are allowed to mark one weakness only. The majority of 34 respondents think that consumers still lack of understanding and information toward Islamic Banking. 20 respondents agreed that perception towards Islamic Banking are only for Muslims. Meanwhile, out of 90,16 respondents felt that Islamic Banking has lack of product varieties. Next, 8 respondents found out that Islamic Banking has insufficient branch network. 5 respondents felt that Islamic Banking has lack of financial counselling. Then, 4 respondents felt that Islamic Banking charged higher commission and fee. Finally, 3 respondents felt that Islamic Banking has lack of investment opportunity.

4.3 T-VALUE Degree of freedom = n k 1 n : number of observation k : number of Independent Variable = 90 - 3 - 1 = 86 From the statistical table, t-table is 2.000
a

Coefficients

Standardized Unstandardized Coefficients Model 1 (Constant) R C B B 1.342 .746 .058 .035 Std. Error .510 .075 .101 .086 .789 .050 .037 Coefficients Beta t 2.631 9.904 .574 .406 Sig. .010 .000 .567 .686

32

Selection towards Islamic Banking among 2011 Kelantanese


Coefficients
a

Standardized Unstandardized Coefficients Model 1 (Constant) R C B a. Dependent Variable: S B 1.342 .746 .058 .035 Std. Error .510 .075 .101 .086 .789 .050 .037 Coefficients Beta t 2.631 9.904 .574 .406 Sig. .010 .000 .567 .686

Table 21 : T-value of each variable


C R C B : 2.631 > t-table = Significant : 9.904 > t-table = Significant : 0.574 < t-table = Insignificant : 0.406 < t-table = Insignificant

4.4 COEFFICIENT OF DITERMINATION

Model Summary Adjusted R Model 1 R .848


a

Std. Error of the Estimate Durbin-Watson 1.962

R Square .718

Square .709

.78539

a. Predictors: (Constant), B, R, C b. Dependent Variable: S

Table 22: R-square of the model Coefficient of Determination or denoted by R2 is the common measure of the goodness of fit. The values of R2 provide a measure in the dependent variable Y that can be explained by the change in the independent variable X. The valued R2 from the table above is equal to 0.718 or 71.8%. It means only 71.8% of the variation in dependent variable that of Factors selection of Islamic Banking is explained by the strict compliance to Islamic Syariah, Convenience, and Cost benefit. The other 28.2%

33

Selection towards Islamic Banking among 2011 Kelantanese


of the dependent variable cannot be explained by this independent variables and it may be explained by other factors. 4.5 DURBIN WATSON
Model Summary Model 1
b

Durbin-Watson 1.962
a

Table 23 : Durbin Watson of the model Durbin Watson is measured through the range from 1.5 to 2.5, which is normally considered as the best value. It also measures the correct model used in the study. Based on the table, the result indicates that Durbin Watson is equal to . It means that model used by the researcher is considered as strong and correct. The Independent variable which is religion, convenience and cost benefit are considered as correct model in analyzing the dependent variable which is Factors selection of Islamic Banking.

4.6 CONFIRMATION FACTOR ANALYSIS

Dependent Variable : Factors Selection of Islamic Banking towards Kelantanese

e1

e2

e3

e4

e5

e6

e7

e8

interest clean

fixed
.73 .72

ribaperformance same
.71 .79 .86 .59 .88 .72

offers satisfaction

SS

34

Selection towards Islamic Banking among 2011 Kelantanese


Figure 2 : Construct Selection with 8 measuring items Figure 2 shows construct selection that has 8 measuring items that. 1 factor loading is below than 0.6. Therefore, 1 measuring item will be drop from the measurement model.

e1

e2

e3

e4

e5

e7

e8

interest clean fixed

riba performance
.81 .84 .86 .72

offers satisfaction

.73 .73 .74

SS

Figure 3 : Construct Selection with 7 measuring items Figure 2 shows construct Selection that has 7 measuring items.All factor loadings for construct Selection are above 0.6, thus all measuring items for potential are retained in the measurement model.

35

Selection towards Islamic Banking among 2011 Kelantanese


.42 .26 .02 .41 .27 .39

e1

e2

e3

e4

e5

e7

e8

interest clean fixed

riba performance
.75 .79 .80 .69

offers satisfaction

.76 .75 .73

SS

Figure 4 : The measurement model after draw covariance (double headed arrows) added.

Model Default model Saturated model Independence model

NFI Delta1 .946 1.000 .000

RFI rho1 .858

IFI Delta2 .964 1.000

TLI rho2 .901

CFI .962 1.000

.000

.000

.000

.000

Table 24 : Baseline Comparisons for dependent variable The Incremental Fit Index (IFI) proposed by Bollen 1989b According to Bollen (1989b), IFI values close to 1 indicate the measurement model is a very good fit to the data. In this case, IFI index is 0.964 The Comparative Fit Index (CFI) proposed by Bentler (1990)

According to Bentler (1990), CFI values close to 1 indicate a very good fit. In this case, CFI index is 0.962 36

Selection towards Islamic Banking among 2011 Kelantanese


Therefore, the measurement model is a very good fit to the data at hand. Independent Variable : Strict compliance to Islamic Syariah (Religion)

e1

e2

e3

e4

e5

e6

e7

e8

principles none islamicservices profitsharing uncertainties shariahbased zakatandsadaqah quranandsunnah


.88 .64 .76 .69 .80 .87 .79 .83

RR

Figure 5 : Construct Religion with 8 measuring items

Figure 5 shows construct Religion that has 8 measuring items. All factor loadings for construct Religion are above 0.6, thus all measuring items for potential are retained in the measurement model

37

Selection towards Islamic Banking among 2011 Kelantanese


.48 .60 .55

e1

e2

e3

e4

e5

e6

e7

e8

principles none islamicservices profitsharing uncertainties shariahbased zakatandsadaqah quranandsunnah


.88 .57 .70 .62 .80 .90 .79 .85

RR

Figure 6 : The factor loading for each item in construct religion Figure 6 shows 1 factor loading is below 0.6.Therefore, 1 measuring item will be drop from the measurement model. Draw covariance (double headed arrows) was added due to modification indices for e2, e3, e4 is greater than 15.

e1
1

e3
1

e4
1

e5
1

e6
1

e7
1

e8
1

principles

islamicservices profitsharing uncertainties shariahbased zakatandsadaqah quranandsunnah


1

RR

Figure 7 : Construct Religion with 7 measuring items 38

Selection towards Islamic Banking among 2011 Kelantanese


Figure 7 shows that all factor loadings for construct Selection are above 0.6, thus all measuring items for potential are retained in the measurement model.

Model Default model Saturated model Independence model

NFI Delta1 .944 1.000 .000

RFI rho1 .909 .000

IFI Delta2 .970 1.000 .000

TLI rho2 .950 .000

CFI .969 1.000 .000

Table 25 : Baseline Comparisons for Independent variable 1

The Incremental Fit Index (IFI) proposed by Bollen 1989b According to Bollen (1989b), IFI values close to 1 indicate the measurement model is a very good fit to the data. In this case, IFI index is 0.970 The Comparative Fit Index (CFI) proposed by Bentler (1990)

According to Bentler (1990), CFI values close to 1 indicate a very good fit. In this case, CFI index is 0.969 Therefore, the measurement model is a very good fit to the data at hand.

Independent Variable : Convenience


e1 e2 e3 e4 e5 e6 e7 e8 e9 e10 e11

parking internet reputation dressing design communication safe


.52 .59 .77 .75 .64 .81 .67 .38

near accessadequate 24hours


.37 .56 .70

CC

Figure 7 : Construct convenience has 11 measuring items

39

Selection towards Islamic Banking among 2011 Kelantanese


.51 .57 .44

e1

e2

e3

e4

e5

e6

e7

e8

e9

e10

e11

parking internet reputation dressing design communication safe


.45 .56 .78 .76 .64 .84 .67 .32

near accessadequate 24hours


.30 .52 .71

CC

Figure 8 : The factor loading for each item in construct Convenience Figure 8 shows 5 factor loading is below 0.6. Therefore, 5 measuring item will be drop from the measurement model. Draw covariance (double headed arrows) was added due to modification indices for e1, e2, e8, e9, e10 are greater than 15.

e3
1

e4
1

e5
1

e6
1

e7
1

e11
1

reputation dressingdesign communication safe

24hours

CC

Figure 9 : Construct Convenience has 6 measuring items Figure 9 shows that all factor loadings for construct Convenience are above 0.6, thus all measuring items for potential are retained in the measurement model.

40

Selection towards Islamic Banking among 2011 Kelantanese


Model Saturated model Independence model NFI Delta1 1.000 .000 .000 RFI rho1 IFI Delta2 1.000 .000 .000 TLI rho2 CFI 1.000 .000

Table 26 : Baseline Comparisons for Independent variable 2

The Incremental Fit Index (IFI) proposed by Bollen 1989b According to Bollen (1989b), IFI values close to 1 indicate the measurement model is a very good fit to the data. In this case, IFI index is 1.000 The Comparative Fit Index (CFI) proposed by Bentler (1990)

According to Bentler (1990), CFI values close to 1 indicate a very good fit. In this case, CFI index is 1.000 Therefore, the measurement model is a very good fit to the data at hand.

Independent Variable : Cost Benefit

e1

e2

e3

e4

e5

e6

e7

riskandreturn fees islamicinterest consideration costly riskdiversifiation satisfaction


.78 .73 .78 .80 .75 .82 .77

CB

Figure 10 : Construct convenience has 7 measuring items

41

Selection towards Islamic Banking among 2011 Kelantanese

.52

e1

e2

e3

e4

e5

e6

e7

riskandreturn fees islamicinterest consideration costly riskdiversifiation satisfaction


.76 .74 .80 .82 .68 .77 .79

CB

Figure 11 : The factor loading for each item in construct Cost Benefit Figure 11 Shows 7 factor loading is above 0.6, thus all measuring items for cost benefit are retained in the measurement model. Draw covariance (double headed arrows) was added due to modification indices for e5 and e6 are greater than 15.

Model Default model Saturated model Independence model

NFI Delta1 .918 1.000 .000

RFI rho1 .867 .000

IFI Delta2 .947 1.000 .000

TLI rho2 .913 .000

CFI .946 1.000 .000

Table 27 : Baseline Comparisons for Independent variable 3 The Incremental Fit Index (IFI) proposed by Bollen 1989b According to Bollen (1989b), IFI values close to 1 indicate the measurement model is a very good fit to the data. In this case, IFI index is 0.947 The Comparative Fit Index (CFI) proposed by Bentler (1990)

42

Selection towards Islamic Banking among 2011 Kelantanese


According to Bentler (1990), CFI values close to 1 indicate a very good fit. In this case, CFI index is 0.946 Therefore, the measurement model is a very good fit to the data at hand.

e14 e15 e16 e17 e18 e19 e20


1 1 1 1 1 1 1

principles islamicservices profitsharing uncertainties shariahbased zakatandsadaqah quranandsunnah


1

RR

e8
1

e9
1

e10 e11 e12 e13


1 1 1 1

e1
1

e2
1

e3
1

e4
1

e5
1

e6
1

e7
1

reputation dressing design communication safe24hours


1

interestclean fixed riba performance offers satisfaction


1

CC SS
1

e28 e21
1

e22
1

e23
1

e24
1

e25
1

e26
1

e27
1

riskandreturn fees islamicinterest consideration costly riskdiversifiation satisfaction


1

CB

Figure 12 : Schematic Diagram of The Study

43

Selection towards Islamic Banking among 2011 Kelantanese

Model Default model Saturated model Independence model

NFI Delta1 .737 1.000 .000

RFI rho1 .702

IFI Delta2 .849 1.000

TLI rho2 .825

CFI .845 1.000

.000

.000

.000

.000

Table 28 : Baseline Comparisons for the whole model The Incremental Fit Index (IFI) proposed by Bollen 1989b

According to Bollen (1989b), IFI values close to 1 indicate the measurement model is a very good fit to the data. In this case, IFI index is 0.849 The Tucker-Lewis Index (TLI) proposed by Bentler and Bonett (1980) The Comparative Fit Index (CFI) proposed by Bentler (1990)

According to Bentler and Bonett (1980), TLI values close to 1 indicate a very good fit. In this case, the TLI Index is 0.825 The Comparative Fit Index (CFI) proposed by Bentler (1990)

Acording to Bentler (1990),CFI values close to 1 indicate a very good fit. In this case, CFI index is 0.845.

Therefore, the measurement model is a very good fit to the data at hand.

44

Selection towards Islamic Banking among 2011 Kelantanese

CHAPTER 5.0

5.1 CONCLUSION

Selection <--- Religion Selection <--- Costbenefit Selection <--- Convenience

Estimate S.E. C.R. P .790 .140 5.641 *** .133 .077 1.733 .083 -.150 .106 -1.414 .157

Table 29 : Regression weight

5.1.1 Hypotheses 1 Religion has a significant and direct influence on factors selection of Islamic banking towards Kelantanese consumers.

Variables

PATH

Variables

Beta Estimate

Standard Error .140

Critical Region 5.641

P-value

Selection

<---

Religion

.790

***

Since the p-value is significant, the null hypotheses is rejected. Hence, the above hypotheses is supported. The study concludes that religion has a significant and direct influence on Factors selection towards Kelantanese consumers .

It can be supported from the research done by Metawa and Almossawi (1998) where they found that the religious factor was among the most important factors in determining selection of the banks by Bahrainis.

In addition, Surveying for 206 bank customers in Jordan, Naser, Jamal and Al-Khatib (1999) found similar results. 70% of the respondents identified religion as the reason for choosing Islamic banking. 45

Selection towards Islamic Banking among 2011 Kelantanese

5.1.2 Hypotheses 2 Cost Benefit has insignificant and direct influence on factors selection of Islamic Banking towards Kelantanese consumers.

Variables

PATH

Variables

Beta Estimate

Standard Error .077

Critical Region 1.733

P-value

Selection

<---

Costbenefit .133

.083

Since the p-value is not significant, the null hypotheses is fail to be rejected. Hence, the above hypotheses is not supported. The study concludes that Cost Benefit has an insignificant and direct influences on Factors selection of Islamic Banking towards Kelantanese consumers.

Based on Mamun Rashid research, The cost of banking should be carefully considered. The depositors show less interest with higher cost of bank operation involves. The cost of information, cost of accessibility to bank service through transportation and other means, and average transaction charges are the important variables responsible for additional customer dissatisfaction. Since, Islamic banks depend on possible profitability from investment and the return to the depositors depend on future possibility; it is difficult for the depositors to initiate a decision to bank with Islamic banks. So, lowering of direct charges for banking, information, compensating balances etc. would communicate satisfactory input to the depositors and increase possibility of investment.

Based on Audu Maiyaki research,similarly, attractive loan charged by banks was found to be insignificant among the factors that are important in bank selection in Nigeria. This could perhaps be justified based on religious grounds. Generally,

46

Selection towards Islamic Banking among 2011 Kelantanese


Muslim customers of bank do not care much about the loans offered by banks. According to Muslim belief, interest based loans are not allowed (Sedeghi, 2008). Gerrard and Cunningham (1997) replicated Haron et al.s (1994) study in Singapore and found that Muslims, in contrast to non-Muslims, had a different attitude towards Islamic banking. Similar to Malaysians the Singaporeans, both Muslims and nonMuslims, did not differ in their bank selection criteria. However, some statistically significant differences were noted. For example, Muslims placed relatively lower importance on the need to be paid a high rate of interest on their savings. 5.1.3 Hypotheses 3 Convenience has insignificant and direct influence on factors selection of Islamic Banking towards Kelantanese consumers.

Variables

PATH

Variables

Beta Estimate

Standard Error .106

Critical Region -1.414

P-value

Selection

<---

Convenience -.150

.157

Since the p-value is not significant, the null hypotheses is fail to be rejected. Hence, the above hypotheses is not supported. The study concludes that Cost Benefit has an insignificant and direct influences on Factors selection of Islamic Banking towards Kelantanese consumers.

Thus, it can be supported with the research done by Sudin Harun and Norafifah Ahmad. Convenient location, or location being near home or office, which was found to be important in earlier researches (Kaynak, 1986; Laroche et al., 1986; and Riggall, 1980), is found to be unimportant in this research. This can probably be explained by the clustered location and hence equivalent convenience of all banks in the cities sampled.

Hypotheses H1

Hypotheses statement

Result

Religion has a significant and direct influence on Supported factors selection of Islamic banking towards Kelantanese consumers

H2

Cost Benefit has a significant and direct Not Supported influence on factors selection of Islamic Banking 47

Selection towards Islamic Banking among 2011 Kelantanese


towards Kelantanese consumers. H3 Convenience has a significant and direct influence on factors selection of Islamic Banking towards Kelantanese consumers. Not Supported

Table 30 : Result of hypotheses

5.1 RECOMMENDATION

5.1.1 To Public Public should choose Islamic Banking because it is a new and unique financial services that offers transparent services operation. In addition, it is an advantage to Muslims because Islamic Banking emphasize religion regulation for example limitation of riba, gharar or any uncertainties in investment. 5.1.2 To Islamic Banking Islamic Banking should promote their services more in order to educate consumers about what is actually Islamic Banking been doing. It is due to consumers are lack of understanding and information towards Islamic concept. After consumers aware of the services, Islamic Banking should create Interest among them so that they will choose to consume the Islamic services. Lowering fees and prices would give good impression by the consumers. At the same time, mantain the banking operation towards Islamic Syariah because it offers confidence by the consumers especially Muslims. Cooperation with the mass media in advertising more deep about Islamic banking concept would give good impact. It is due financial services are intangible. Letting public know where are the Islamic Bank current branch is necessary because they need to get updated with that. Participation of the both public and private universities in the banking sector could offer more input (e.g. designing Islamic financial instruments) for the growth of the Islamic banking.(Metawa).

5.1.3 To Government 48

Selection towards Islamic Banking among 2011 Kelantanese


Government should encourage Islamic Banking industries by providing more capital injection. In addition, another substantial issue, which requires attention, is the need to intensify public education and awareness towards the distinctive characteristics of Islamic banks and how it may profitably suit the interest of customers in their financial dealings. Islamic banks have the potential of being marketed to various segments of customers extending beyond those who are concerned with the legitimacy of the facility from Islamic point of view and those who seek for service quality, convenience and efficient transactions. Consumer education programmes are therefore crucial if they are to increase the level of consumer awareness about the unique characteristics of Islamic banking and its wide-range of financial products offered.

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Business Times . (2008) . Retrieved January 10 , 2011 , from http://www.btimes.com.my/Current_News/BTIMES/articles/20081201152232/Articl e/

Business Times . (2009) . Retrieved January 10 , 2011 , from http://www.btimes.com.my/Current_News/BTIMES/articles/lang18/Article/

Business Times . (2010) . Retrieved January 10, 2011 ,from http://www.btimes.com.my/Current_News/BTIMES/articles/20101216110823/ Article/index_html

Business Times . (2010) . Retrieved April 4, 2011 ,from http://www.btimes.com.my/Current_News/BTIMES/articles/MONVIEW4/Article /index_html Malaysian Islamic Finance web . (2007) . Retrieved January 12 , 2009 , from http://www.malaysianislamicfinance.com/monthly/archives/31March/page5.ph p

Bank Negara Malaysia (2011), List of Licensed Banking Institutions in Malaysia, Kuala Lumpur (Malaysia).

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Selection towards Islamic Banking among 2011 Kelantanese


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