Essay: Islamic Finance and Its Impact on Customer Satisfaction

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ABSTRACT

Islamic finance has been fully grown systematically and in prominence. it\’s currently wide called a viable different to traditional, thought finance. However, this ascension has been performed per sharia law beneath the restricted convenience of risk management tools, the framework of governance and regulative standards with the Islamic banking or Islamic financial set-up and its impact on client satisfaction.

This analysis seeks to assess the state of each performance and development of the Islamic financial set-up and its impact on client satisfaction.

It investigates the analysis through a spread of strategies equivalent to quantitative portfolio creation and economic science modeling of diversification edges, theoretical development of management tool and analysis of semi-structured interviews on the perceptions of however governance and regulative standards have an effect on each the performance and money innovation at intervals Islamic finance and its impact on client satisfaction.

The results has given during this study offer strong arguments for the inclusion of Islamic indices at intervals typical portfolios each from a performance and diversification point of view therefore vindicating the viability of Islamic finance not solely as an investment possibility however conjointly its impact on client satisfaction possibility.

Moreover, the analysis highlights the constructing of Islamic money product through sharia law rules. The analysis conjointly underlines the accord of market participants behind central regulative standards to reinforce stable and continual growth and development of the Islamic financial set-up.

Finally this analysis tries to look at Islamic Finance and Its Impact on client Satisfaction in Islamic Finance trade. The scope of the study was restricted to the shoppers of Islamic banks and conjointly vital because of a rising tendency of Islamic banking performance altogether over the planet.

In the lightweight of the findings, many concrete recommendations are created for the advance of Islamic finance system also quality service and client satisfaction conjointly. The analysis would be strengthening the promoting strategy also as service quality of the Islamic Bank. there\’s high potential for Islamic finance trade.

It is suggested that the Islamic finance trade standardize the promoting ethic and supply the standard service to their customers.
I
Certificate of Approval

This is certifying that Muhammad Ejaz has with success completed his scientific research beneath my supervising. The thesis titled “Islamic Finance and its Impact on client satisfaction” is value submission for the award of the degree and his scientific research meets the very best master’s commonplace as set by Dadabhoy Institute of upper Education.

Syed Ghazanfar Ali

Research Supervisor
Dated :

II
ACKNOWLEDGEMENTS

First of all, I’m terribly appreciative to Almighty Allah, UN agency has scattered ME along with his steering throughout my life to attain my missions in life also as enabled ME to complete my scientific research on Islamic finance and its impact on client satisfaction.

I would prefer to supply my feeling to my supervisor mister. Syed Ghazanfar Ali for giving ME valued pointers that enabled ME to figure with efficiency. while not his kind supervising, i might ne\’er have had the prospect to complete my analysis work on time.

I am appreciative to my friends and relatives UN agency have supported ME altogether respects for my study.

Muhammad Ejaz

III
CONTENTS
Page

Abstract …………………………………………………………………………………….. I
Certificate of Approval ……………………………………………………………………. II
Acknowledgements …………………………………………………………………………. III
List of Tables ……………………………………………………………………………….. VI

Chapter One — Introduction …………………………………………………………………01

1.1 Background ………………………………………………………………………………. ..01
1.2 Statement of Problem …….………………………………………………………………. .02
1.3 Research Questions ……..……………………………………………………………….. ..02
1.4 Justification ……..……………………………………………………………………….. ..03
1.5 Purpose of Study ……..…………………………………………………………………. …03
1.6 Scope of Study ……..………………………………………………………… ………… ..03
1.7 Hypothesis …….………………………………………………………………………… .04
1.7.1 Independent and Dependent Variables .…….……………..………………………. .04
1.8 Delimitations ……..,……………………………………………………………………… .04
1.9 Key terms ………………………………………………………………………………… .05

Chapter Two — Literature Review ………………………………………………………………………… …06

2.1 The concept of Halal and Haram in Islam ………………………………………………………………..06
2.2 Principles of Islamic finance ………………………………………………………………………………….07
2.2.1 Interest (Riba) …….……………………………………………………………………………………… 07
2.2.2 Gharar ……………………………………………………………………………………………………. 07
2.2.3 Maysir …………………………………………………………………………………………………….. 08
2.3 Islamic finance products …………………………………………………………………………………….. 08
2.3.1 Partnership based mode of financing ………………………………………………………………. 09
2.3.2 Trade based modes of financing ………………………………………………………………….. 10
2.3.3 Rental based modes of financing……………………………………………………………………… 12
2.4 Derivatives ………………………………………………………………………………………………………….. 13

Chapter Three — Methodology ……………………………………………………………………………….15

3.1 Research Methodology …………………..…………………………………………………15
3.2 Research approach ……………….…………………………………………………………16
3.3 Research Method …………….…………………………………………………………….17
3.4 Research variables …………………………………………………………………………18
3.4.1 Sample selection ……………………………………………………….……………..18
3.4.2 Data collection ………………….……………………………………………………18
3.4.3 Research instrument ……………………………………………………………..…..19

IV

Page

Chapter 4 Interpretation of Results / Findings………………………………………………21

4.1 Results ………………………………………………………………………………………21
4.2 Demographics of the Respondents ………………………………………………………….21
4.3 Descriptive Statistics of the Variables ………….…………………………………………..23
4.4 Hypothesis Testing ………………….……………………………………………………..25
4.5 Regression Model Results …………………..……………………………………………..26
4.5.1 Dimensions of Service Quality and Customer Satisfaction …………………………26
4.5.2 Service Quality and Customer Satisfaction …….…………………………………….27
4.5.3 Service Quality and Islamic Finance or Bank Performance …………………………..28
4.5.4 Customer Satisfaction on Islamic Finance or Bank Performance …….……………..28

Chapter 5 Conclusion, Implications and Suggestions ….…………………………………..30

5.1 Conclusion ……………….…………………………………………………………………30
5.2 Suggestions …………………………………………………………………………………31
5.3 Limitations and Future Research …………………………………………………………..32
5.4 Contribution of the Study …………………………………………………………………..33
5.5 Theoretical and Practical Implications …………………………………………………….33
5.6 Unique Status of the Study ……….………………………………………………………..33
Appendix ………….…………………………………………………………………………..34
Appendix-I Questionnaire …………..……………………………………………………….34
Appendix-I I Definition of Terms ……………………………………………………………40

References …………………………………………………………………………………….41

V
List of Tables

Table Page

Table: 01 Details regarding Branches and Respondents (City wise) 19

Table 4.2.1 Summary of Demographics of the Respondents 21

Table 4.3.1 Skewness and Kurtosis of Constructs/Variables 23

Table 4.3.2 Descriptive Statistics of the Constructs/Variables 24

Table 4.4.1 Independent Samples T-Test for Difference in the Perception of Service
Quality among Male and Female Customers of IB 25

Table 4.4.2 Summary of Correlation between Selected Variables 25

Table 4.5.1.1 Summary of the IBDSQL-IBCS Linear Regression Model
(based on SPSS results) 26

Table 4.5.1.2 Summary of the Multicollinearity Coefficients for
IBDSQL-IBCS Regression Model 27

Table 4.5.2.1 Summary of the IBSQL-IBCS Linear Regression Model (based on SPSS
results) 27

Table 4.5.3.1 Summary of the IBSQL-IBPRF Linear Regression Model (based on SPSS
results) 28

Table 4.5.4.1 Summary of the IBSC-IBPRF Linear Regression Model(based on SPSS results) 28

VI

Chapter One

Introduction

1.1 Background
Islamic Finance possesses associate increasing attention all round the monetary world in recent years, particularly in the point of view of world monetary crisis beginning in late 2000s. international monetary crisis have caused the downfall and casualties of well-known and sure standard money establishments (CFIs) everywhere the globe like Lehman‘s Brothers and UBS, that reciprocally have raised the interest of the final public on Islamic funding conjointly within the different elements of the globe.

Islamic funding system has since its institution in Seventies been increasing its principles through the complete world, however in the point of view of world monetary crisis it\’s intimate with a integer rate with worldwide assets near one trillion (IMF, WP/11/156). Though Islamic funding is one amongst the quickest growing segments within the monetary world it\’s still in its infancy stage, at concerning one p.c of the world banking industry. When put next to the standard financial set-up it actually faces several challenges. The foremost necessary challenge it\’s facing now could be the actual fact that it operates in economies driven by interest, that isn\’t compliant with Islamic banking principles.

Moreover, the expansion and therefore the development of Islamic merchandise and services across the Islamic financial set-up has meant that the criticisms have increased touching on product structures and therefore the scope with that these merchandise and services adhere to elementary Islamic beliefs (El-Gamal, 2006, El-Hawary et al., 2004).

On the opposite hand, so as for Islamic funding to become another within the world‘s financial set-up there needs to be introduced regulative measures removing the obstacles to the event of Islamic funding or Islamic banking, like financial organization support, taxes and public policy.

This kind of regulative measures that are taken by State Bank of Pakistan has shown that it\’s attainable for Islamic funding to control and grow its activities in such economies. During this relation, my preliminary analysis suggests that Islamic finance has huge potential for additional enlargement once together with non-Muslims as target cluster.
On the opposite hand I even have, in my analysis, many faced several ambiguities concerning Islamic funding from prestigious researchers within the monetary world. El-Gamal et al. (2015) as an example have finished that Islamic finance merely seeks to copy the functions of standard monetary instruments and is primarily a sort of rent-seeking legal arbitrage (IMF, WP/11/156).
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So being a Muslim myself and a finance student, the ambiguities and also the higher than Mentioned issues that face the expansion of Islamic finance or Islamic banking within the current world driven me to analysis additional during this field particularly in Pakistan. The aim of this analysis is to urge insight into Islamic funding, its opportunities, its challenges, and to search out out whether or not Islamic finance is another to the standard banking or simply a replication of the standard system by providing client satisfaction.
1.2 Statement of Problem
This analysis examines Islamic finance trade and the way the service quality and also the performance of Islamic finance have an effect on the customers\’ judgments towards satisfaction or its impact on customer’s satisfaction.
The current trend within the Islamic finance trade is like that the demand for Islamic product square measure increasing and there square measure additional product on the roads than before. Customers have completely different opinions concerning Islamic finance product. the various factors that influence Islamic finance and its impact on client satisfaction vary from person to person. Some Islamic product users square measure Religion-conscious whereas others is also Value-conscious within the society. Some might take into account Quality as a very important issue while not compromising on different things whereas some might not essentially be hard to please Quality within the society.

1.3 Research Questions
1: However will Islamic finance or Islamic banking operate within the trendy money spectrum?

This analysis presents a traditional read of Islamic banking and finance within the trendy economy. Primarily we\’ve to grasp the central tenets of Islamic banking and finance. Moreover, on the opposite hand, this analysis conjointly appearance at thesensible and tutorial development of Islamic finance and delves into the expansion of Islamic finance from the medieval to the fashionable times and its impact on client satisfaction.
2: What are the issues and future developments of the regulative standards inside the world Islamic monetary system?
Now the aim of this analysis is to explore the problems encompassing the regulative standards in Islamic finance. So, the literature has indicated that there\’s an absence of Uniformity of regulative standards across the world Islamic money hubs. it\’sbeen additional argued that this might cause AN uneven enjoying field between Islamic money systems and is harmful to the event of Islamic finance as an entire. Moreover, the employment of Shariah-screens to market the event of Islamic finance in non-Muslim money systems has conjointly come back beneath scrutiny.
3: What are the factors that influence Islamic funding and its impact on client satisfaction?
This analysis has unconcealed 2 necessary factors, that square measure risk management from spiritual facet in Islamic finance trade that makes impact on client satisfaction.
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1.4 Justification

The justification concerning, this analysis was to explore the potential of Islamic finance with maximize the Islamic product market and develop the nice relationship with the purchasers and to reinforce the satisfaction in positive tone.

1.5 Purpose Of Study

The analysis examines the link among Islamic funding and customers\’ preference of service quality, their feelings of satisfaction and performance of Islamic banks in Pakistan. currently a days Islamic funding system looks to be growing quickly throughout previous couple of years and has proven its potential to figure as a compatible and parallel different system for providing monetary services.

This analysis analyzes the perception of services quality of product offered by Islamic funding with mediating impact of client satisfaction on Islamic bank performance. The competition has been increasing among Islamic finance trade and standard banks to capture new customers also on retain existing customers in each sectors of banking system (Islamic funding and standard banking.

It conjointly needs a study to live the impact of service quality on client satisfaction towards Islamic finance or Islamic bank performance. This study aims to propose and check a model of SQL, Cs and PRF by analyzing Islamic finance performance and its impact on client satisfaction in Pakistan. The most objectives of the study square measure as under:
• First: to search out the distinction within the perception of service quality among bank customers on the premise of gender in Pakistan.
• Second: to search out out the link between service qualities of product offered by Islamic funding and customers satisfaction in Pakistan.
• Third: to grasp however client satisfaction affects the performance of the banks in Pakistan.
• Fourth: To determine Company and individual shopper perspective towards Islamic funding so as to judge its success in Pakistan. it\’s conjointly essential to determine the interest of potential purchasers for brand new product. If the potential marketplace for Islamic funding is deficient to justify investment, the banks would possibly need to develop the merchandise additional so as to form it additional enticing for his or her purchasers, equivalent to Islamic automobile finance Schemes etc.
1.6 Scope of Study

Besides the importance of this sort of study on this subject, there have been many following limitations of the appliance of this study;
First because of the restricted amount of your time and little sample size in survey form. Results might not be indicative for the target respondents at giant or macro basis.

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Second some respondents, UN agency have restricted data of Islamic funding or no data concerning the monetary modes of typical and Islamic banking, conjointly answered the queries; thence the replies of some questions is also supported their own imagination or thoughts. Therefore, during this study the results concerning Islamic funding ought to be taken solely as indicative and perceptive instead of conclusive.

1.7 Hypothesis

The hypotheses of the analysis can confirm the parameters of the analysis queries and also the strategies to be used in testing the hypotheses should be relevant for each the analysis queries and also the analysis hypotheses. Below square measure analysis hypotheses:
• First: The socio-economic structure and pietism of the Muslims communities play a major role within the level of economic exclusion.
• Second: Do individuals like Shari’s-compliant finance to standard finance below traditional circumstances in their daily business activities?
• Third: however the service quality of Islamic finance affects the customer\’s perspective towards satisfaction and conjointly its impact on bank performance.
• Fourth: Islamic funding managers should take into account the necessary components of service quality to develop ways for quality improvement (Hung et al., 2003).
• Fifth: The great service qualities facilitate to achieve the competitive advantage for long client relationship (Zeithmal et al. 2000).

1.7.1 Independent and Dependent Variable
Independent Variables
• Riba or Interest free Profit (Sharing of profit on the premise of Shari’a-compliant).
• Quality of Service. • Awareness.
Dependant Variables
• Switch to Islamic Finance or Standard Bank. • Client Satisfaction.
• Recommendation to different customers.
1.8 Delimitations
Islamic finance may be an emergent business compared to the standard monetary industry; thus there are various challenges and opportunities connected to its future development and progress. Initial of all this analysis has been targeted on the challenges and opportunities that are of significant importance for the institution and future growth of Islamic finance within the current world, therefore, different specific is its impact on client satisfaction that is secondary importance would be mentioned during this paper.
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As Islamic money trade tries to realize a stronger foothold within the world each with the capital and cash markets, the main target of this thesis is on Islamic finance trade as an entire and not on a specific market. Though, it ought to be noted, that there are immense numbers and kinds of product provided by Islamic money establishments within the Muslim countries, as within the standard system. However because of the scale and limit of this thesis, solely those products are centered on that square measure of direct interest and have potential for growth within the western world in close to future. What is more, it\’ll be an excessive amount of for this thesis to say all potential markets for the Islamic finance within the world.

1.9 Key terms

Islamic Finance trade industry, Islamic banking business, interest, Riba, Shari’a-compliant, Impact and Client’s Satisfaction.

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