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Comparative Study of Islamic Banking150

CHAPTER 6 Conclusion, Implications and Suggestions

Conclusion Suggestions Limitations and Future Research Contribution of the Study Practical Implications

Unique Status of the Study

Comparative Study of Islamic Banking151 Chapter 6

Conclusions, Implications and Suggestions

6.1

Conclusion

Financial services industry especially banking sector witnessed unprecedented growth during the last few years in every part of the world. Pakistani economy experienced an increase in the contribution of the banking sector towards GDP due to an expansion of the market and diversification of products/service to meet customers' expectations. A large number of new banks have started operations in Pakistan. Similarly, inception of Islamic banking operations in 2002 opened new avenues to exploit the opportunities. Islamic banks are getting popularity due to interest free products, risk sharing activities and strong ties with the religion. Islamic banks work as welfare organization to promote trade and economic activities in line with the instructions of Islam to provide a number of interest-free products/service.

The existence of Islamic and conventional banks in Pakistan created stiff competition among banks to attract and retain greater number of customers by the provision of quality services. This study examined the relationship among service quality, customer satisfaction and bank performance by comparing Islamic and conventional banks operating in Pakistan. The researcher developed and tested a model of service quality, customer satisfaction and bank performance in the light of existing literature.

Comparative Study of Islamic Banking152 It is concluded that there is significant difference in the perception of customers of Islamic banks about service quality on the basis of gender. While in case of conventional banks, there is no significant difference in the perception of male and female bank customers. The results show that there is strong direct and positive relationship between service quality and customer satisfaction in Pakistani banking sector. The magnitude of relationship between service quality and customer satisfaction is greater in Islamic banks as compared to conventional banks.

It is proved that service quality also influence the bank performance while there is weaker relationship between customer satisfaction and bank performance. However is found that that four dimensions of service quality i.e. tangibility, reliability, responsiveness and assurance have significant impact on service quality except empathy in case of Islamic banks. Similarly four dimension namely tangibility, reliability; responsiveness and empathy have significant impact on customer satisfaction in case of CB but assurance has no significant influence on customer satisfaction.

The study identified significant positive impact of service quality on customer satisfaction in case of CB but a gap is identified between customer satisfaction and bank performance in case of Islamic banks. The gap between customer satisfaction and performance of Islamic banks may be due to the lack of customer orientation. Islamic banks are more concerned towards expansion of their branch network instead of customer orientation. Finally, it is proved that customer satisfaction partially mediate the relationship between service quality and bank performance in Pakistan as shown by the

Comparative Study of Islamic Banking153 results of structural models. The results of proposed model reflect that customer satisfaction does not play the mediating role between service quality and performance of Islamic banks. On the other hand, customer satisfaction mediates the relationship between service quality and performance of conventional banks in Pakistan.

It is concluded that managers should improve the quality of services to retain their customers as satisfied customers for long-term benefits. Similarly, they should make arrangements to enhance awareness among customers and employees of banks for improvement of their products/services to enhance performance. Islamic banks should develop marketable products according to Islamic instructions to compete with conventional banks. The study has developed an understanding about the relationship among service quality, customer satisfaction and bank performance regarding Islamic and conventional bank in Pakistan.

6.2

Suggestions

This study examines the service quality, customer satisfaction and bank performance by comparing a number of selected Islamic and conventional banks in Pakistan. IB should enhance awareness regarding its products (services) to compete with CB for long term benefits and should introduce new products/services according to Shariah principles to attract greater number of customers. The results show that CS does not mediate the relationship between SQL and PRF in case of IB. So IB should focus on customer orientation to have satisfied customers to reduce the gap between CS and PRF.bankers

Comparative Study of Islamic Banking154 are required to develop a mechanism to evaluate their services in relation to customer satisfaction for corrective action by conducting surveys etc. Bankers should introduce new, diversified and marketable products to meet requirements of different segments of the economy as weak relationship between SQL and PRF is identified in this study. Bankers should improve their services by blending of traditional facilities and modern technology to meet customers expectation for better performance in future as service quality has strong positive effect on customer satisfaction. It is suggested that Islamic banks should create awareness among bank customers by attractive advertising tactics to attract greater number of customers. Islamic bank should actively introduce innovative products and services according to principles of Shariah. Islamic banks and conventional should improve quality of service to meet customer expectations for long term benefits. They are required to implement an effective mechanism to measure the customer satisfaction for corrective action.

Bankers should introduce new, diversified and marketable products to meet the requirements of the different segments of the economy. There is significant difference in the perception of male and female customers in case of IB. So bankers are should develop an effective strategy to attract female customers by meeting their specific requirements. They are required to introduce specific products to meet the expectations of different segments on the basis of gender, age, qualification etc. They should take initiatives for active participation of female customer due to remarkable potential as they represent 51% of total population. Bankers should improve their services by blending traditional

facilities and modern technology to meet customers expectation for better performance

Comparative Study of Islamic Banking155 in future as service quality has strong positive effect on customer satisfaction as evident from the results.

Conventional banks could be transformed towards Islamic banking practices to play a positive role for the welfare of the society to deal in profit and loss basis. IB is better than CB because Islamic Bank provide its products/services according to principles of Shariah. While conventional bank provides interest-oriented products/services that are strictly prohibited by Allah Almighty and His prophet Muhammad (Peace be Upon Him). Similarly, equity based contracts are highly recommended due to long term benefits towards economy and society (Wieltzman, 1984; Chapra, 1985). However, profit and loss based equity transactions stimulate investment and productive activities in the economy (Haque and Mirakhor, 1986; Arby, 2003). Bankers should patch up the service quality and customer satisfaction towards better performance of the banks especially in case of Islamic banks to gain substantial benefits.

6.3

Limitations and Future Research

This study has some limitations that might be addressed in future research. Firstly, subjective dimensions like open-internal process model, rational model and human relations model were used to measure the bank performance. On the other hand, objective measures such as profitability (ROE, ROI) and liquidity (Current Ratio, Acid-test Ratio) might be used to assess the influence of service quality and customer satisfaction on financial performance of the banks.

Comparative Study of Islamic Banking156

Secondly, regression analysis and PLS tools are used to test the proposed model. These techniques have certain limitations, as simple regression is unable to support the analysis of all paths at the same time and PLS also has some limitations. LISREL can investigate the relationship among constructs and variables of the model more appropriately, so this model might be tested by LISREL for further research. The scope of this study is limited to banking sector by comparing conventional and Islamic banks in Pakistan. Similar study may be carried out to compare the practices of conventional and Islamic Leasing companies and Insurance companies etc. The model should be tested in other services sectors to check the generalizability of the findings.

Finally, this study only considered the full fledged Islamic banks to compare with the conventional banks. The researcher does not include the Islamic bank branches (Stand alone Islamic banking branches-SAIBBS) of conventional banks for sake of precision. These branches may be taken for further research. Despite the limitations, the study makes a meaningful contribution in the literature with reference to Pakistan.

6.4

Contribution of the Study

This study contributes towards the body of knowledge to address the issues as identified in the knowledge gap. It contributes towards theoretical as well as practical fronts. Several countries especially Muslim countries have initiated Islamic banking practices along with conventional banking during last two decades that requires a study to compare

Comparative Study of Islamic Banking157 the both banking systems. The findings of the study are strong because it covers a large sample of 144 (72 IB and 72CB) bank branches to collect data from 1728 respondents to investigate the service quality, customer satisfaction and bank performance of selected Islamic and conventional banks in Pakistan. Similarly, sample was drawn from the 12 most populous cities of Pakistan from four provinces and capital territory to enhance generalizeability of the findings.

6.5

Theoretical and Practical Implications

This study has theoretical and practical implications for bank managers, policy makers and academicians. This study incorporated bank performance with service quality and customer satisfaction. It helps to enhance the understanding towards the relationship among service quality, customer satisfaction and bank performance regarding Islamic and conventional banks in Pakistan. There is lack of customer orientation as well as lack of awareness about customer rights. Bank managers should take quality initiatives to improve their products by considering demographic characteristics of the customers to retain them as satisfied customers for better performance.

The results showed that perception of customers of Islamic banks is greater than the perception of customer using service of conventional banks. Bankers are required to concentrate on different dimensions of service quality i.e. tangibility, reliability, responsiveness, assurance and empathy to improve their products/services to have satisfied customers. Similarly, banker dealing with Islamic banking should enhance the awareness about products/services by launching an effective marketing campaign. They

Comparative Study of Islamic Banking158 should also introduce new products and improve existing products/service by innovation according to principles of Shariah. On the other hand, conventional bankers should offer profit and loss based products/services to meet the expectation of bank customers in Pakistan, a country with population of more than 96% Muslims. They should also improve the services offered by their special branches offering Islamic banking products/services. The study could help the bankers to understand the bank customers for provision of better quality services to retain satisfied customer for better performance.

6.6

Unique Status of the Study

This study is unique in its nature due to a number of reasons. It focused on different dimensions of service quality and customer satisfaction in Pakistani banking sector. It incorporated bank performance with service quality and customer satisfaction. It compared Islamic banks with conventional bank with reference to selected constructs and variables. It addressed the customers and employees of selected banks for empirical investigation. The study examined the service quality, customer satisfaction and bank performance in Pakistani environment. It tested a local model of the SQL, CS and PRF by considering different constructs/variables empirically.