Text of Attitudes and Perceptions towards Islamic Banking
1. International Journal of Arts and Sciences 3(13): 453-485 (2010) CD-ROM. ISSN: 1944-6934 InternationalJournal.org 453 Attitudes and Perceptions towards Islamic Banking among Muslims and Non-Muslims in Malaysia: Implications for Marketing to Baby Boomers and X-Generation Mark Loo, Concordia University College of Alberta, Canada Abstract: The financial crisis that started in the West in 2008 has prompted Islamic Banking proponents to renew their claim that Islamic Banking is superior to conventional banking. While Islamic Banking is a lesser known banking system in the West, its potential cannot be under-estimated in view of the fast expanding Muslim population in many developed European cities. For a viable worldwide Islamic Banking system, marketers need to measure acceptance among non-Muslims. This paper explores the differences in attitude and perception towards Islamic Banking between Muslims and non-Muslims. Malaysia is an ideal case study where the population is 60% Muslim but the nations wealth lies disproportionately with the non-Muslims. A total of 200 Malaysians comprising 100 Muslims and 100 non-Muslims were interviewed, each with an equal number of Baby Boomers and X-Generation. The results show Muslims as supportive of Islamic Banking while non-Muslims view Islamic Banking as relevant primarily to Muslims. However, among non-Muslims, the X-Generation has a more favourable perception towards Islamic Banking than Baby Boomers. This study provides implications for marketing to non-Muslims and recommendations for future research in Islamic Banking. Keywords: Islamic Banking, Malaysia, Non-Muslims, Generations INTRODUCTION Political and business leaders at the Fifth World Islamic Economic Forum in Jakarta in March 2009 praised the Islamic financial institutions resilience against recession citing their refrain from investing in toxic assets (Synovitz, 2009). The interest in Islamic banking reached a new height when the Turkish media reported that the Daily Vatican newspaper, L Osservatore Romano encouraged banks to study the ethical rules of Islamic finance to restore confidence amongst their clients (World Bulletin, March 2009). One of the strongest proponents of Islamic banking is Malaysia, a multiracial country ruled by Malays who are Muslims by birth. Five years after gaining independence, the Malaysian government initiated the Lembaga Tabung Haji or Pilgrimage Fund Board to help Muslims save for pilgrimage to Mecca. By 1983, the first Islamic bank was established and by 1993, commercial banks, merchant banks and finance companies were allowed to offer Islamic banking products under the Islamic banking Scheme. In June 2005, Dow Jones of New York and RHB Securities of Kuala Lumpur united to launch a new Islamic Malaysia Index, a
2. International Journal of Arts and Sciences 3(13): 453-485 (2010) CD-ROM. ISSN: 1944-6934 InternationalJournal.org 454 collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia or Islamic laws based criteria (Islamic Banking in Malaysia, March 2009). Malaysia has been serious in promoting itself as a leading centre of Islamic studies and research. The International Centre for Education in Islamic Finance (INCEIF) was established in 2006 and boasts an international faculty and student body from over 40 countries pursuing Islamic finance studies from certificate to PhD. The International Shariah Research Academy was established in 2008 to conduct applied Islamic legal research on financial issues (Aziz, 2008). The growth of Islamic banking in Malaysia can be attributed to the rise of Islamic consciousness. Affluence has enabled more pilgrimages to Mecca and financed Muslim youth to study Islam in the Arab countries. Back from the founding cities of Islam, these Muslims desire to implement all aspects of Islamic lifestyle, including Islamic banking. Forming 60% of the population, Muslims are a significant market for Islamic banking products. Islamic banking prohibits riba or interest. It pays the investor profit-sharing dividends and offers borrowers fixed repayment rates. Conventional interest rates are deemed not halal or legitimate by Islamic laws (Kamus Perwira, 1998:451). The Islamic Banking Act came into effect on April 7, 1983. However, promotion of Islamic banking had been slow until the mid-90s. Banking on the fear of imminent rise in interest rate with the economy recovering, Islamic banks began aggressive promotion on their fixed repayment rates for mortgages. With the aim to transform Malaysia into a leading Islamic banking centre (The Star, May 04 2002), Islamic banks have stepped up marketing campaigns to include non-Muslim market segments. Speaking at the Fifth World Islamic Economic Forum in 2009, the then Prime Minister Abdullah Badawi announced that Malaysia aims for 30% of banking assets under Islamic management from the current 12% (Islamic Finance in a Changing World, 2009). Owing to the highly competitive environment, Islamic banks need to study customer perceptions to help them market their products effectively (Haron, Ahmad and Planisek, 1994; Dusuki and Abdullah, 2006; Thambiah, Nathan and Eze, 2008). This study aims to investigate the perceptions of Muslims and non-Muslims towards Islamic banking, and specifically, the differences between the X-Generation (X-Gen hereafter) and Baby Boomers, both being market segments of higher value in terms of loans, savings and investments compared with other generation categories.
3. International Journal of Arts and Sciences 3(13): 453-485 (2010) CD-ROM. ISSN: 1944-6934 InternationalJournal.org 455 LITERATURE REVIEW There has been considerable development in Islamic banking research in the last decade. This development seems to heed Dar and Presleys (1999) suggestion that Islamic banking writers would gain from adopting the empirical approach of Western economic literature. In their article Islamic Finance: A Western Perspective, Dar and Presley (1999) argued that (1) Islamic writers have implicitly assumed that prohibition of interest is unique to Islamic literature, (2) Islamic scholars should exploit the wealth of supportive argument in Western literature rather than develop their literature in isolation, and (3) Islamic writers need an empirical approach like their western counterparts. Interest free loans were practised pre-Islam among Jews and Christians, and later advocated by socialists and economists. The Old Testament, in Deuteronomy, teaches interest free loans to the poor (Stein, 1956) and the Judeo-Christian thought views loans with interest as doing little for economic brotherhood (Maloney, 1971). The Old Testament was the key influence on Jewish and Christian opposition to interest, and may have been the original reason for the Korans dismissal of usury since the three religions share the same belief in the God of Abraham (Dar & Presley, 1999). Apart from religion, socialists condemned interest as encouraging a parasitical existence (Brunner, 1937). There is a wealth of supportive argument in Western literature for Islamic scholars to exploit as western economists have identified linkages between interest rates and macroeconomic instabilities which afflict most capitalist economies, such as, inflation, unemployment and negative growth (Mill, 1826; Smith, 1904; Keynes, 1931; Fisher, 1933; Wicksell, 1935; Hayek, 1933, 1939; Minsky, 1977; Greenwald and Stiglitz, 1988; Bernante and Gertler, 1990). The abundant western literature that supports interest free loans should encourage Islamic scholars to take an empirical approach. Western economies have their foundation in classical economics based on a perfect world but they have progressed by accepting uncertainty and imperfection, and testing empirically economic theories. Islamic theory describes how people, groups or governments should act in a perfect Islamic community and the reality is that people do not act in this manner, and empirical testing is needed to understand how Muslims behave in the real world towards Islamic Banking. Islamic banking studies are largely conducted among Muslims and to a smaller extent among non-Muslims. Erol and El-Bdour (1989) and Erol, Kaynak and El-Bdour (1990) are among the earliest known researchers who identified three key selection criteria for Islamic banks: fast and efficient services, reputation and confidentiality. Religious motivation was not a primary criterion.
4. International Journal of Arts and Sciences 3(13): 453-485 (2010) CD-ROM. ISSN: 1944-6934 InternationalJournal.org 456 However, Metawa and Almossawi (1998) and Naser, Jamal and Al-Khatib (1999) found adherence to Islamic tenets the primary criterion for selecting Islamic banks in Bahrain and Jordan. Likewise Kader (1993, 1995) and Osman et al. (2009), Othman and Owen (2001, 2002), and Wakhid and Efrita (2007) share the same findings in their studies in Malaysia, Kuwait and Indonesia respectively. Dusuki and Abdullah (2006) explained that Islamic bankers can no longer depend on promoting the Islamic factor but also service quality. Their survey among 750 respondents found the three most important factors were competence, friendliness and customer service quality. Comparative Islamic Banking Studies among Muslims and Non-Muslims Haron, Ahmad and Planisek (1994) compared Muslim and non-Muslim commercial bank customers in Malaysia and found no significant differences in patronage factors. Both ranked fast and efficient service, speed of transactions and friendliness of bank personnel as the three most important factors. Gerrard and Cunningham (1997) studied Islamic banking in Singapore with a sample of 29 Muslims and 161 non-Muslims. If no profit were distributed, 21% Muslim and 67% non- Muslim respondents would withdraw their deposits. Ahmad and Haron (2002) criticized that Gerrard and Cunninghams (1997) study lacked measurement of intention to use Islamic ba