Thesis submitted by:MUHAMMD ARSHAD MALIK

To IQRA UNIVERSITY (GULSHAN CAMPUS)

In supervision of Mr. IMTIAZ ARIF

Consumer Preference on Auto Leasing (Car Ijarah) through Islamic

Banks

Introduction

Statement of the Problem

• Interest (Riba) is prohibited in Islam.

• Muslims do not hesitate in dealing with conventional banks.

• Consumer prefer better services and banking system.

• This research is to discuss the reasons of choosing Islamic banking specifically for auto leasing

Review of Literature

LEASING

Leasing is a source of financing through which the lessee

acquires an asset (usually equipment) from lessor against a

series a payment for using/owning the equipment. Typically

leasing is of two types one is “Operating Lease” and the other

is “Financial Lease.

Review of Literature

IJARAH

“Ijarah” derives from the root word ajara – to recompense,

compensate or give a consideration and return. Ajr refers to

a worker’s wage, and ujrah to rental payment. In its juristic

usage, ijarah primarily refers to both a rental as well as a

hire contract that engages the services of persons. In its

current usage ijarah also occurs in two types, namely

operational lease and financial lease, the latter is known as

ijarah wa iqtina. ”.

Research Question

Primary QuestionQ: Do consumer prefers auto leasing through Islamic banks for its interest (Riba) free feature?

Secondary QuestionQ: Do better services be criteria to prefer Islamic banking system?

Hypothesis

H1. Consumer prefers auto leasing through Islamic banks due to interest free feature.

Ho. Consumer does not prefers auto leasing through

Islamic banks due to interest free feature. H2. Consumer prefers auto leasing through Islamic banks

due the better services provided by Islamic banks. H0 Consumer does not prefers auto leasing through Islamic

banks due the better services provided by Islamic banks.

 

Research Design Methodology

Target Population• All customer (lessee) customers who have leased their car

from any Islamic Bank or the potential customers of Islamic banking .

Sampling• Approximately the total population of customers who have

leased cars from any Islamic Bank in Karachi is around 5000. The thesis took a sample size of 150.

Data Collection• The primary data collection is the search questionnaire

which conducted from the consumer.

Data Analysis

Technique

• Collected data will be gathered and compiled through SPSS software.

• Hypothesis is tested by Chi-Square.

• Reliability and validity assessment is done.

Bar Chart (Hypothesis 1)

Strongly DisagreeDisagreeUndecidedAgreeStrongly Agree

Did you preferred auto leasing from islamic bank because it is Intrest (Riba)free?

70

60

50

40

30

20

10

0

Fre

qu

en

cy

Did you preferred auto leasing from islamic bank because it is Intrest (Riba)free?

Result (Hypothesis 1)

Did you preferred auto leasing from islamic bank because it is Intrest (Riba) free?

Frequency Percent Valid PercentCumulative

PercentValid Strongly Agree

34 22.7 22.7 22.7

Agree64 42.7 42.7 65.3

Undecided28 18.7 18.7 84.0

Disagree19 12.7 12.7 96.7

Strongly Disagree5 3.3 3.3 100.0

Total150 100.0 100.0

Interpretation (Hypothesis 1)

Chi-square test was used to test that whether the pattern observed can be extrapolated to the entire population.

The above mentioned questions frequency and graph related to the hypothesis 1 shows that 22% of the respondent strongly agree and the 43% are agree, so the cumulative value of the population who agreed is 65%. While 19% are undecided and 12% are disagreed and 3% are strongly disagreed.

Based on this evidence we can safely state that we fail to accept the null hypothesis and to accept the alternative hypothesis.

Bar Chart (Hypothesis 2)

Strongly DisagreeDisagreeUndecidedAgreeStrongly Agree

Did you preferred Ijarah through Islamic Banks because of better servicesoffered?

70

60

50

40

30

20

10

0

Fre

qu

en

cy

Did you preferred Ijarah through Islamic Banks because of better servicesoffered?

Result (Hypothesis 2)

Do you think that Ijarah (Leasing) through islamic banks are 100 percent shari'a compliant?

Frequency Percent Valid PercentCumulative

PercentValid Strongly Agree

7 4.7 4.7 4.7

Agree64 42.7 42.7 47.3

Undecided56 37.3 37.3 84.7

Disagree19 12.7 12.7 97.3

Strongly Disagree4 2.7 2.7 100.0

Total150 100.0 100.0

Interpretation (Hypothesis 2)

Chi-square test was used to test that whether the pattern observed can be extrapolated to the entire population.

The above mentioned questions frequency and graph related to the hypothesis shows that 5% of the respondent strongly agree and the 42% are agree, so the cumulative value of the population who agreed is 47. While 37% are undecided and 12% are disagreed and 3% are strongly disagreed.

Based on this evidence we can safely state that we fail to accept the null hypothesis and to accept the alternative hypothesis.

Conclusion & Recommendations

Consumers know about the difference between Islamic and conventional banks but there is some ambiguity about the difference.

Consumers are not fully aware of shariah compliant of the Islamic banks therefore banks emphasis to deliver proper knowledge of shariah compliant.

According to this research consumer prefers car ijarah for religious prospective. The product offered by Islamic banks claim to be shariah compliant.

But the majority of muslims do not hesitate to deal with Conventional banking, because of services and lower markup rate.

Islamic banks needs to increase the awareness about car ijarah and prohibition of Interest in Islam.