Impact of customer demographics on bank selection criteria A study of banking sector of Okara, Punjab (Pakistan) by ABILA SAHER

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JUNE 2011 VOL 3, NO 2 Impact of customer demographics on bank selection criteria

A study of banking sector of Okara, Punjab (Pakistan)

Hafiza Hafsa Nayyab, Abila Sehr, Muhammad Adnan, Zufishan Ali

Abstract

Pakistan is an Islamic country. There are six full pledge Islamic banks providing Islamic services to their customers. The purpose of conducting research in Islamic banks of Okara (Pakistan) is basically to examine the impact of demographical variables on bank selection criteria in Islamic banking sector. We are aimed to observe that changes in demography actually affect the bank selection criteria. We have used the regression analysis after controlling the four demographic factors i.e. age, gender, occupation and income. We are given the higher weights to those criteria which are mostly chosen. Our findings show that, Islam is not the only reason to choose the Islamic banks, but some other factors which are mostly selected by the customer. Those factors show their satisfaction level regarding the criterion. Customers give high weight to those criterions, from which they are more satisfied. The results of our study shows that customer mostly choose Islamic banks due to convenience, because most of the customer choose this criteria as their first preference. And the second preferred criterions are cost and benefit and corporal efficiency. Each demographic factor has different criteria for Islamic bank’s selection.

Key words: Islamic banking, customer demography, and customer satisfaction.

Introduction:

In last decade of twentieth century Islamic banking sector was introduced, and now it is flourished rapidly not only in Islamic country but in all over the world. Growth rate of Islamic banking is 10-15% from 1995-2005. (M. Kabir Hassan June 2009).The assets of global Islamic banking stood at US $700 at the end of 2005 it would grow to US $2.8 trillion at the end of 2015. (M. Kabir Hassan June 2009)

Islamic banking system is based on the Islamic laws and the principles regarding banking and trade. Major point of differentiation in Islamic and conventional banking is that Islamic banks operate on the principle of profit & loss sharing. Due to this principle a large number of non Muslim customers are also adopting Islamic banking.

Another problem that Muslims were facing while dealing with conventional banking, was provision of interest in transactions and loans. Islamic banking system removes this curse from banking system and provides interest free dealings. As Quran says,

‘’O ye, who believe! Devour not usury doubling and quadrupling (The sum lent). Observe your duty to Allah, that ye may be successful. (3:130)’’



JUNE 2011 VOL 3, NO 2 According to Hadith:

‘’Jabir reported that: Messenger of Allah has cursed the Devourer of usury, its payer, its scribe and its two witnesses, and said they are equal (in sin).’’

Another place Quran says in Surah Al Imran Verse 130‐2:

‘’O believer, take not double and redouble interest and fear Allah so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey Allah and Prophet so that you may receive mercy.’’

As Islamic countries are rich in oil resource, that provide opportunity to Islamic countries to introduced a banking system based on Islamic rules and regulations with rest of the world. Initiative in Islamic banking system was taken by Egypt in 1963 and a bank ‘’The Mit Ghamr Bank” was established, but this step had to face failure because of poor marketing and management strategies. (Naveed Azeem Khattak and Kahiful Rehman, 2010)

Then in 1975 Islamic Development Bank (IDB) was established in Judah, Saudi Arabia. 54 states were the member of this bank with the initial capital of 2 billion US$. After that Malaysia was the first Islamic country that work for the development of Islamic banking system.

In Pakistan, Islamic banking sector was introduced in 1980’s. For that purpose PLS account were introduced in conventional banks, but it failed. After that, in December 2001, Meezan bank Ltd. was established as the first stand alone Islamic bank in Pakistan. At the end of 2007, there were 6 full fledge Islamic banks in Pakistan i.e. Al Bakara Islamic Bank Ltd. Dubai Islamic Bank Ltd. Dawood Islamic Bank Ltd. Global Emirate Islamic Bnaks Ltd. Bank Islamic Ltd., and Meezan Bank Ltd.

In Okara, there are three branches of Islamic banks i.e. Dubai Islamic Bank Ltd., Islamic Bank Ltd., and Meezan Bnak Ltd. Many conventional banks have also opened branches which operate according to Islamic laws and principles. In Okara the example of such bank are Al Fallah and Faisal Bank Ltd.

Literature review

Increasing diversity and demographic factors have different impact on the bank selection criteria of customer in different region. Customer satisfaction is the core strategy of Islamic banking system. As Islamic banking system had to face a high competition from convention banking system, Islamic banking is trying to improve their quality of services and product continuously to achieve desired customer satisfaction and meet the competition. As compare to conventional banking, there are few studies on Islamic banking on the basis of demographic factors. Examining the effect of demography on bank selection criteria give birth to the new segmentation in market or in Islamic banking sector, it also



JUNE 2011 VOL 3, NO 2 shows the behavior of the customers towards the Islamic banks criteria and make

positioning easier.

Different studies have conducted in the field of Islamic bank selection by different researches, and they have different findings.

Erol and EL-Bdour et al. (1989) conducted a study. They evaluate the attitude of Jordanian people towards Islamic banking system. They find from their studies that religion is not the basic factor of the selection of Islamic institutions, instead of it, there are other factors which are important for customers while selecting the Islamic financial institutions and the main factor is profitability and return on investment.

Islamic banking system based on the principles of profit and loss sharing which remove the burden from customers that they have to bear it alone but the loss is shared with institutions. Naser and Mountinho in 1997 identified that the profit and loss sharing is a relationship banking tool for Islamic banks, this relationship establish a close link between customers and banks. (Mamunur Rashid and M. Kabir Hassan, June 2009) In 1994, Sudin conduct study in Malaysia, he finds out those facts that are important for Muslim customers while selecting the banks. (Sudin H, Norafifsh A,Planisek L ,1994)

1. The provision of fact and efficient services

2. The speed of transaction

3. The reputation and image of bank.

(Kaynak , 1991) observed difference in bank selection criteria based on gender, age, education and background of customers in Turkey. He reported that male customer gives more preference to the reputation of bank, business hours, parking facility, availability of wide range of services than female customers. The convenience and banking location is important for customers who are under 40. In the field if educational background, educated customers give importance to the fast and efficient transactions and location of branch, while uneducated customers give preference to interest rate only.

Occupation was another demographic factor, which was studied. He reported that most of the white collar households give importance to the reputation of bank, modern facilities and convince. On the other hand, blue collar household give importance to the cost profit issues and core banking. Gender show different results in bank selection criteria, male customer’s emphasis on faster services and convince, but the female customer’s emphasis on longer term aspects related to organization their finances and become more financially secure.

Hegazy L (1995) conducted study in Egypt about the attitude of customers in 1995. He selected the customers of Islamic banks for study and find out that most of customer chooses the Islamic banks due to the efficiency and speed of the service delivery.

H.Saduman Okumus (2005) undertook a survey in Turkey. His study covered the theoretical and practical aspects of Turkish Islamic banking sector. He took a sample of



JUNE 2011 VOL 3, NO 2 161 respondents and tried to find out the level of awareness and satisfaction of customer of

Islamic banks. He found that most of the customers are familiar only with the few products and services of Islamic banks like Musharkah and Mudarabah but they were not using these products.

The fact was proved by many theories that religion is not the only factor for the selection of Islamic bank, but instead of religion, there are other factors which are non religion such as cost and benefits, profit and loss sharing principles, efficiency and convince. In June 2009 by (M. Kabir and Mamunur Rashid , June 2009) a study was conducted, they found that there are demographic factors which effect on the bank selection criteria and the satisfaction level in Bangladesh. Their purpose of study was to find out the effect of demography on bank selection criteria in Islamic banking sector in Bangladesh. In Pakistan, (Jamal ET al.2003 ) conduct a study at 300 customers of specific banks. He found that there is a strong relationship between service quality and customer satisfaction. In Pakistan, there is no more attention is paid on bank selection criteria and customer satisfaction on the basis of demography. Dushuki and Abdullah (2007) mentioned in their study that Islamic banks not just relay on Islamic rules but also considered the presence of customer quality and efficient customer services. Boyd et al. (1994) put the emphasize of different demographic factors he stated that occupation like blue collar give more importance to cost and benefits, and white collar gives more importance to convenience. He further stated that male put more importance to conveniences whereas female give importance to long term relations with banks. Metawa (1989) and Almossawi they took the sample of 300 customers and identify that Mostly customers choose Islamic banks due to two reasons.

1. Islamic principles 2. Return rate.

Research Methodology

For this study a structured survey questionnaire was used, consist on three parts i.e. demographic information, bank selection criteria, and checking the understanding. Questionnaire covered the demographic variables (gender, age, income and occupation), some decision criterion as independent variable (corporal efficiency, convenience, compliance, and cost-benefit).

Variables

We have selected one independent and one dependent variable. Independent variable is customer demography (age, occupation, income, and gender); there are some decision criteria corporal efficiency, compliance, convenience, and cost-benefit. The dependent variable is bank selection criteria.

Independent Variable: Customer Demographic Factors (age, gender, occupation and income)

Dependent Variable: Bank Selection Criteria



JUNE 2011 VOL 3, NO 2 Model

Independent Variable Dependent Variable

Gender

Age Occupation Income

In above model there is dependent variable (bank selection criteria) on the right side and on the left side there is independent variable (customer demography). There are some bank selection criteria I.e.

Corporal Efficiency: corporal efficiency represents the fast transaction and documentation process knowledge of customer business, good and efficient management.

Compliance: compliance represents provision of Islamic law and principles, profit and loss sharing, and provision of interest free loans.

Convenience: here it shows strong global and local networks, convent branch location, and sufficient transaction time.

Cost-Benefit: cost and benefits describe low service charges and good returns.

The respondents of customer while bank selection criteria are described in table 1-5, which show that how demographic responds to different criteria of bank selection.

Placing table 6 here, this shows the ranking of criteria factors evaluation. According to table, respondent ranked the cost and benefit highest then others with mean 4.66, SD 1.046 and median is 5.00. The second highest rank is of convenience with mean 4.46 SD is 1.03 and median 4.50.Respondent ranked corporal efficiency at three (mean 4.40, SD 0.974 and median 4.00). Finally, compliance is in last (mean 4.34. SD 1.075 and median is 4.00).

Hypotheses:

Ho1: Bank selection for male and female are not different. H1: Bank selection criteria for male and female are different.

Ho2: Bank selection criteria for different occupation are not different.

H2: Bank selection criteria for different occupation are different.

Ho3: Bank selection criteria for different income group are not different.

Customer demography

Bank selection criteria



JUNE 2011 VOL 3, NO 2 H3: Bank selection criteria for different income group are different.

Ho4: Bank seletion criteria for different age group are not different.

H4: Bank selection criteria for different age group are different.

Population and Sampling

The total population includes all Islamic banks’ customer in Okara. There are three Islamic banks in Okara i.e. Dubai Islamic Bank Ltd., Islamic Bank Ltd., and Meezan Bnak Ltd. The total customers of these three Islamic banks are our population and we are taking the sample of 100 customers randomly from these three banks.

Findings

In this study, 100 questioners were conducted and SPSS was used to interpret data. We used multiple regression analysis to find the satisfaction level of customers regarding criteria of choosing Islamic banks. There are four dependent variables whose satisfaction level is resulted from independent variable. We have four demographic factors in this study such as gender, occupation, age and income.

Results

H1: Bank selection criteria for male and female are different.

In the regression table 7 which is supporting the hypothesis showing statistics about gender that, male gives highest importance to convenience (Beta 0.325) i.e. (strong global and local networks, convent branch location, and sufficient transaction time). Whereas female responds highest to cost and benefit (Beta 0.527) factor i.e. (cost and benefits describe low service charges and good returns). Both of these have significant level P<0.050. The second impotent criterion for male is corporal efficiency (Beta 0.245) (i.e. fast transaction and documentation process knowledge of customer business, good and efficient management) and for female is convenience (Beta 0.269) (i.e. strong global and local networks, convent branch location, and sufficient transaction time). R square for female respondent is 0.482 and for male is 0.259 while choosing Islamic banks.

H2: Bank selection criteria for different occupation are different.

Supporting the hypothesis, table 8 shows the statistics about occupation. The table shows that Private sector employees and Govt. employees give highest responds to convenience (Beta 0.425) and (Beta 0.369). Self employed people prefer more corporal efficiency than other criteria (Beta 0.306). Whereas the second preference of Private employees is Convenience (Beta 0.425), Govt. employees is cost and benefit factor (Beta 0.272) and self employed prefer more Compliance (Beta 0.261), when they choose Islamic banks. More over R square of private employees is 0.305, for self employee is 0.281 and for Govt. employees is 0.470.



JUNE 2011 VOL 3, NO 2 H3: Bank selection criteria for different income group are different.

Table 9 supports the hypotheses and shows that people who have income level 20000-30000 give more importance to corporal efficiency (Beta 0.656), people having income level 31000-50000 gives high preference to Convenience (Beta 0.437) and the people who have income level of 50000 or above prefer higher to compliance (Beta 0.452). When people chose Islamic banks with different level of income gives different responds to different criteria. The second important factor for income level 20000-30000 is compliance (Beta 0.494) people having income level 31000-50000 prefer (Beta 0.185) and the people with income level 50000 or above prefer compliance (Beta 0.401). Whereas P<0.050.

H4: Bank selection criteria for different age group are different.

Table 10, supporting the hypothesis, describe that customers within age group 21-30 give higher rank to cost and benefit factor (Beta 0.562) significant level is 0.001. And their second preference is corporal efficiency (Beta 0.287). The customers with the age group 31-40 give more preference to Convenience (Beta 0.375) and the above 41 ages, customers prefer corporal efficiency (Beta 0.169) where P<0.050.

Conclusion

The basic purpose of this study is to find out those bank selection factors that are responded more by customers while selecting Islamic bank in Okara.

Table 11 summarizes the whole story of his study. It shows the most and second most respondent bank selection factors by customer of Islamic banks. Compliance is the less important factor while choosing the Islamic banks. Compliance includes compliance represents provision of Islamic law and principles, profit and loss sharing, and provision of interest free loans. This means, Islam is not the only reason to choose the Islamic banking. Whereas Convenience is the most important factor, corporal efficiency and cost and benefit are the second most important factors while choosing the Islamic banks by customers.

Limitation: The study is conducted in Okara (Pakistan). The same study can be conducted in any other region in Pakistan. Sample would be less or greater in most of the region. Most of the Islamic banks in Okara have branches in which Islamic banking can b seen, but here those are not included.



JUNE 2011 VOL 3, NO 2 References

Mamunur Rashid and M. Kabir Hassan June 2009. Customer demography affecting bank selection criteria vol. 4 No.6.CCSE Naveed Azeem Khattak And Kahiful Rehman, May 2010. Customer Satisfaction and Awareness of Islamic banking system in Pakistan vol.4 (5) pp 662-671

Erol C, El-Bodur (1989) Attitude, behavior and patronage factor of bank customers toward Islamic bank. International Journal Bank Marketing 7;

Sudin H, Norafifsh A,Planisek L (1994) Bank patronage factors of Muslims and Non Muslims customer. International Journal Marketing 12(4); 32-40. Kayanak, E., Kucukemirogulu,O.,& Odabasi, Y.(1991) Commercial bank selection in Turkey. International Journal of Bank Marketing, 9(4), 30-39. Hegazyl, L (1995). An empirical comparative study between Islamic and commercial banks selection criteria in Egypt. International Journal of comer manage 5; 3. Saauman Ho (2005). Interest free banking in Turkey. A study of customer satisfaction and bank selection criteria. Journal of economic cooperation 26(4); 51-86. Jamal, A. and Naser Kmal (2003). Factor influencing customer satisfaction in the retail banking sector in Pakistan. International Journal of commerce and management, vol.13. Issue 2, pp 29-53 Dusuki, A. W., & Abdullah, N. I. (2007). Why do Malaysian customers patronize Islamic banks? International Journal of Bank Marketing, 25(3), 142-160. Boyd, W., Leonard, M., & White, C. (1994). Customer preferences for financial services: an analysis. International Journal of Bank Marketing, 12(1), 9-15. Metawa S, Almossawi M (1998). "Banking Behavior of Islamic Bank Customers: Perspectives and Implications." Int. J. Bank Mark. 7(16): 299-315



JUNE 2011 VOL 3, NO 2 Annexure

Table 1. Statistics

Respondent's Gender

Respondent's Age

Respondent's Occupation

Respondent's Monthly Income

Valid 100 100 100 100 N

Missing 0 0 0 0

Table 2.

Respondent's Gender

Frequency Percent Valid Percent Cumulative Percent

Male 85 85.0 85.0 85.0

Female 15 15.0 15.0 100.0

Valid

Total 100 100.0 100.0

Table 3.

Respondent's Age


21-30 24 24.0 24.0 24.0

31-40 48 48.0 48.0 72.0

41 or above 28 28.0 28.0 100.0

Valid

Total 100 100.0 100.0



JUNE 2011 VOL 3, NO 2

Table 4: Respondent's Occupation


private sector 46 46.0 46.0 48.0

self-employed 31 31.0 31.0 77.0

government 23 23.0 23.0 100.0

Valid

Total 100 100.0 100.0

Table 5: Respondent's Monthly Income


20000-30000 18 18.0 18.0 18.0

31000-50000 49 49.0 49.0 67.0

50000 or above 33 33.0 33.0 100.0

Valid

Total 100 100.0 100.0



JUNE 2011 VOL 3, NO 2 Table 7.

Coefficients

Un standardized Coefficients

Standardized

Coefficients

Respondent's Gender B Std. Error Beta t Sig.

(Constant) 2.372 .278 4.100 .000

Corporal Efficiency .243 .110 .245 2.205 .030

Compliance .151 .099 .167 1.523 .002

Convenience .324 .107 .325 3.039 .003

Male

N =85

R seq. =0.259

Sig.=0.00

Cost and Benefit ‐.077 .105 ‐.084 ‐.739 .036

(Constant) .092 .357 .056 .157

Corporal Efficiency .007 .145 .005 .011 .291

Compliance .052 .296 .043 .130 .199

Convenience .272 .301 .269 .905 .187

Female

N=15

R seq= 0.482

Sig.=0.157

Cost and Benefit .741 .260 .527 1.323 .215

a. Dependent Variable: Overall Satisfaction

Source: created from SPSS Output




Coefficients


Standardized

Coefficients

Respondent's Occupation B Std. Error Beta t Sig.

(Constant) 2.547 .353 2.986 .005


Compliance .051 .125 .061 .407 .016

Convenience .421 .144 .425 2.920 .006

private sector

N=46

R seq.=0.305

Sig.=0.005

Cost and Benefit ‐.184 .137 ‐.197 ‐1.342 .007

(Constant) 1.645 .130 1.455 .008


Compliance .307 .236 .261 1.299 .001

Convenience .051 .200 .053 .257 .034

self‐employed

N=31

R seq.=0.281

Sig.=0.008

Cost and Benefit .035 .258 .030 .135 .009

(Constant) 1.003 .363 .944 .008


Compliance .044 .262 .044 .169 .005

Convenience .446 .238 .369 1.871 .078

Government

N=23

R seq.=0.470

Sig.=0.008

Cost and Benefit .236 .257 .272 .920 .001

Source: SPSS output




Coefficients

Unstandardized CoefficientsStandardized Coefficients

Respondent's Monthly Income B Std. Error Beta t Sig.

(Constant) 2.289 .319 2.046 .002


Compliance .403 .270 .494 1.491 .010

Convenience ‐.312 .341 ‐.321 ‐.913 .008

20000‐30000

N=18

R seq.=0.456

Sig.=0.002

Cost and Benefit ‐.199 .356 ‐.200 ‐.559 .026

(Constant) 2.104 .400 2.630 .002


Compliance .083 .152 .070 .544 .009

Convenience .394 .125 .437 3.139 .003

31000‐50000

N=49

R seq.=0.328

Sig.=0.002

Cost and Benefit .163 .121 .185 1.344 .001

(Constant) 1.065 .120 .951 .005


Compliance .395 .157 .401 2.511 .018

Convenience .521 .151 .452 3.443 .002

50000 or above

N=33

R Seq.=0.531

Sig.=0.005

Cost and Benefit ‐.460 .180 ‐.385 ‐2.553 .016

Source: From SPSS output




Coefficients


Standardized

Coefficients

Respondent's Age B Std. Error Beta t Sig.

(Constant) 2.377 .822 2.894 .003


Compliance ‐.101 .090 ‐.156 ‐1.124 .007

Convenience .062 .135 .060 .458 .001

21‐30

N=24

R Seq,=0.397

Sig=0.003

Cost and Benefit .430 .115 .562 3.752 .001

(Constant) 2.343 .749 3.129 .002

Corporal Efficiency ‐.008 .098 ‐.009 ‐.085 .003

Compliance .042 .089 .044 .473 .002

Convenience .352 .093 .375 3.781 .000

31‐40

N=48

R Seq.=0.231

Sig=0.002

Cost and Benefit .237 .086 .260 2.747 .005

(Constant) 5.158 1.270 4.063 .000


Compliance .123 .126 .141 .981 .002

Convenience ‐.047 .101 ‐.066 ‐.466 .003

41 or above

N=28

R Seq.=0.091

Sig.=0.000

Cost and Benefit ‐.135 .100 ‐.191 ‐1.352 .004

Source: results from SPSS




Category First important Factor Second Important Factor

Male Convenience Corporal efficiency

Female Cost and benefit Convenience

Private Sector Convenience Corporal efficiency

Self‐employed Corporal efficiency Compliance

Govt. employees Convenience Cost and benefits

20000‐30000 income level Corporal efficiency Compliance

31000‐50000 income level Convenience Cost and benefit

50000 + income level Convenience Compliance

21‐30 years Cost and benefit Corporal efficiency

31‐40 years Convenience Cost and benefit

40+ years Corporal efficiency Compliance

Source: Derived From Above Regression Analysis



JUNE 2011 VOL 3, NO 2 Quality perception of the customers towards services of domestic Islamic banks in

Okara Part one: Demographic information (please tick) Your gender Your age Male 21-30 31-40 Female 40+ Your occupation Public sector Private sector Self-employed Semi-Governmental agency You’re monthly Income 20000PKR-30000PKR 30000PKR-50000PKR More than 50000PKR

Part two bank selection criteria

Please rank the bank facilities for following items. Rank them from 1 to 7. ‘1’ represents

extremely disagree and ‘7’ respects for extremely agree.

Please tick 1 2 3 4 5 6 7

Fast and efficient counter services

Speed and efficiency of transaction

Faster documenting processing

Availability of financial advice

Knowledge on customer’s business

Provision of interest free loans

Run on Islamic law and principles

Strong global network

Sufficient time for transaction

Convenient branch location

Lower service charge

Average decent return

What is your level of overall satisfaction?

Extremely Dissatisfied Extremely Satisfied

1 2 3 4 5 6 7



JUNE 2011 VOL 3, NO 2 Part three

Do you know that in Okara banks provide interest-free services?

Not much Sufficient knowledge Very well

What extent of knowledge you have about Islamic banking and finance?

Not much Sufficient knowledge Very well

By which source you come to know that in Okara bank offers interest free banking?

Bank employee Media (Newspaper, TV) Internet

Friends / Family

In what way you categories banking services?

Interest rate/ profit Convenience Cost of banking

Other; please specify………..

Having what idea you have chosen Islamic banking?

Religion Cheap products Friends

Conventional bank location Other than above, please specify…..

Do you accept that interest-free services are costlier than non-Islamic services?

No Not sure

In what way you feel more satisfied, while dealing in Islamic products?

Internet banking Telephone banking Personal visit

Would you prefer to sustain with Islamic banks, if Islamic products becomes costly?

Yes No

Documents

Impact of customer demographics on bank selection criteria A study of banking sector of Okara, Punjab (Pakistan) by ABILA SAHER