Introduction the study explains the important aspect of

 

Introduction and background of the
studyThis section of the study explains
the important aspect of the topic and the research. It includes objectives,
introduction to the topic and study. It also explains the significance of the
study along with limitations, purpose and scope of the study.Introduction:Islamic Banking is an emerging banking
practice that is considered to be ethical, because of prohibition of usury and
other uncertainties that are harmful mostly for poor, but are beneficial for
the rich people(Aminet, al., 2011).Islamic banking is more like trading
that provides social and economic benefits to the needy ones. It is not on the
extreme side, not only concerns with religious principles, but also concerns
with economic benefits(Henry & Wilson, 2004). Besides it, the main goal of
Islamic banking is to provide Social and Economic benefits to people under
religious teachings of Islam and Shariah(Metawa&Almossawi, 1998).As Islamic Banking is new and emerging
industry that fulfills the economic needs of its customers under religious
principles of Islam, it is attracting new customers by making Islamic Banking
Services improved (Ahmad, Rustam, & Dent, 2011).On the other hand, Islamic Banks have to
put extra efforts to identify customers’ needs, designing products/ offering
services according to customers’ needs and complying these products and
services with Islamic and Shariah principles(Chong & Liu, 2009).The earnings of Islamic Banking is
increasing more as compared to the earnings of overall financial sector for the
first time, the reason being that it works under the Shariah rules for trade,
and thus it not only attracts Muslim customers but also non-Muslim customers
because Islamic Banks not only refer to religious teachings of Islam, but it
also proved to be the best economic and financial system that is improving the
overall economy of the country.Evolution
of Islamic Banking:Before the arrival of Islam, the city of
Makkah was considered to be the centre of trade for investors and other
business people. The trading was done in Darham and Dinars (Awan, 2009).With this trading the money changing
business was common and so, the lending and borrowing of money on interest or
usury was also there. The Jews of Madina, Banu Nadir had power of local
businesses, they lent money to the needy ones, and in return charged high
interest rates and hence interest was there major source of income. They were
in majority, whereas tribe of Quersh was people dealing in trade and commerce.
They collected financial resources for carrying out business on a large scale,
and the profit they earned from that large scale business were shared among
partners according to the proportion of their investments(Warde, 2006).When the Holy Prophet (P.B.U.H) migrated
from Makkah to Madina, the business activities also transferred from Makkah to
Madina. After the arrival of Holy Prophet (P.B.U.H) and His companions, the
city of Madina emerged as the main centre of business activities. (K.Ali, Study
of Islamic History, p.59).The Holy Prophet (P.B.U.H) and His
companions were loyal and honest traders. They introduced pro-poor, equitable
and welfare oriented financial system, and thus the city of Madina emerged into
the big-empire of the world (Awan, 2009). Islamic
Banking in Pakistan:Islamic banking emerged in Pakistan in
1981. In its initial stages, customers were not focusing on Islamic Banking,
but with the passage of time, when the loop wholes in Islamic Banking got
cleared, customers started using Islamic Banking services. In Muslim countries
religious teachings of Islam are important to people and thus, the concept of
Islamic Banking opened new horizons for Muslims to get benefited from Interest
free banking and to deal in banking transactions under acceptable teachings of
Islam. As day by day Islamic Banking is striving to improve its quality and to
reduce ambiguity of its services, they are attracting more and more customers
especially In Pakistan (Taimoor, 2012).Being central bank, State Bank of
Pakistan has strived to introduce Islamic Banking practices in 2000, and thus
Meezan bank got registered as fully fledged Islamic Bank in 2002 (Khan, 1986)In 1977-78 steps were initiated towards
Islamization of Banking and financial sector but implementation of these steps
were very difficult to be implemented at national level, therefore this process
was implemented in phases.Interest free Banking windows started to
operate in all commercial banks and one foreign bank in Jan 1, 1981.The following study was carried out to
observe and investigate the factors that consumer’s seek in selecting Islamic
banking in Peshawar.  Statement
of research problem:·        
What
is the impact of factors on consumer while selecting Islamic banking in
Peshawar?Consumers need motivation to become customers to an
institution. In terms of banks, the customers need has to be understand and
find out what factors or variables may attract him towards a certain bank out
of many(Taimoor,
2012).The following study would investigate the impact of factors
on consumer while selecting Islamic banking in Peshawar.Research
questions:·        
What
isthe impact of factors on consumer while selecting Islamic banking in
Peshawar?Objectives
of the Study:The researcher proposed the following objectives for
this study:1)     
To
find out the factors ranked for selecting Islamic banking in Peshawar.2)     
To
assess the impact of factors on consumer while selecting Islamic banking in
Peshawar?Purpose
of the study:This study was conducted in order to know the possible
factors that a consumer chooses when he or she makes mind to use Islamic
banking. Islamic banking is operating in all Muslim and on-Muslim countries.
The following study was proposed to be carried out in Peshawar because the
findings of the study would help the Islamic banking to work on the factors
that attract customers. Moreover, the study would identify the impact of factors
on consumer while selecting Islamic banking in Peshawar?Scope
of the Study:Peshawar was identified and selected as the scope of
this study where the researcher would conduct the study and the participants of
this research study would be from Peshawar region. The study would involve the
people of Peshawar and give them opportunity to become a part of this study.Limitations
of the Study:The study would not be replicated and generalised in
any other area due to the fact that the researcher used convenience sampling
techniques for data collection. Responses were collected from the people living
in Peshawar. The number of population of consumers who uses Islamic banks for
services. Scheme
of the Study:This research report is divided in 5 Chapters. Chapter
1 includes preliminary information of the research like Background of the
Study, Purpose of the Study, its Scope and Limitations faced in the process of
carrying out research. Chapter 2 is all about literature about the introduction
to the Islamic Banking, Evolution of Islamic Banking in Pakistan. Riba and its
restrictions in Islam (In the Light of Quran and Hadith). Chapter 3 is about
the methods adapted to conduct the study.. Chapter 4 is the Analysis Chapter.
And the last Chapter 5 contains Recommendations and Conclusions drawn based on
the Analysis of Research. Chapter 2Literature Review:Although
different studies have been carried out to know the consumer’s preferences of
Islamic and Conventional Banks but so far, no study has been done to know the
Consumer preferences of Conventional over Islamic Banks in PakistanAccording
to Turnball (1983) studied the approach of corporate customers about the
preferences. He studied the responses of 44 corporate customers of UK. The
findings of Turnball’s study showed that size plays essential role in selecting
banks. Another finding of the Turnball’s study were that corporations select
foreign banks as compared to banks in their home country.Moreover,
Chan & Ma’s (1990) studied the perceptions of corporate customers towards
selection of banks or split banking. They found that corporate customers go for
banks with high reputation and they will only switch between the banks if the
new bank provide quality product and services.Likewise,
Erol& El bdour (1989) and Erol at al. (1990) also explored the perceptions
of corporate customers about switching between Islamic and Conventional Banks.
The findings of their study showed that corporate customers are sensitive
towards reputation, image and confidentiality of banks. Erol and El Bdour are
famous because they are considered the earlier researcher about patronage
studies on Islamic Banks.In
addition, Metawa and Almossawi (1989) also studied about the customers
preferences about Islamic Banking. The results of their studies showed that to
most of the customers in Bahrain, Islamic Principles are the most important
factors for selecting of Islamic Banks. The other factor that was important to
corporate customers was reward extended by banks followed by influence of
family and friends and location.Likewise,
Javalgi et al. (1989) also studies the determinants of banking selection criteria.
His study findings showed that “safety of Funds” is of utmost importance to
customers in selecting banks.Similarly,
Kaynak (1986) studied preferences of customers by dividing his simple into two
groups’ i.e. of Managers and Customers. The study results showed that for
managers “reputation” is essential while to customers “fast and efficient
services” are the important criteria for selecting banks.On
the other hand , Rehman (2011) explored factors that were the main reason for
which people preferred Islamic banks in Cairo, the study focused on people who
used Islamic banks and for that purpose 115 consumers participated in the
research paper. The results indicated that consumers chose Riba free banking as
the sole factors for choosing Islamic banks.According
to Rehman et, al., (2008) explored factors that were the main reason for which
people preferred Islamic banks in KaulaLampur, the study focused on people who
used Islamic banks and for that purpose 500 consumers participated in the
research paper. The results indicated that consumers chose efficient services
as the sole factors for choosing Islamic banks.On
the other and, Zulfiqar et, al., (2014) explored factors that were the main
reason for which people preferred Islamic banks in Sahewal, the study focused
on people who used Islamic banks and for that purpose 520 consumers
participated in the research paper. The results indicated that consumers chose
internet banking as the sole factors for choosing Islamic banks.According
to Awan (2014)explored factors that were the main reason for which people
preferred Islamic banks in Multan, the study focused on people who used Islamic
banks and for that purpose 550 consumers participated in the research paper.
The results indicated that consumers chose customer satisfaction as the sole
factors for choosing Islamic banks.Likewise,
Suhbani (2012)explored factors that were the main reason for which people
preferred Islamic banks in Karachi, the study focused on people who used
Islamic banks and for that purpose 600 consumers participated in the research
paper. The results indicated that consumers chose religious motives as the sole
factors for choosing Islamic banks.Moreover,
Rasheed (2012) explored factors that were the main reason for which people
preferred Islamic banks in Quetta, the study focused on people who used Islamic
banks and for that purpose 280 consumers participated in the research paper.
The results indicated that consumers chose quality of service as the sole
factors for choosing Islamic banks.Taimoor
(2012) explored factors that were the main reason for which people preferred
Islamic banks in Bahawalpur, the study focused on people who used Islamic banks
and for that purpose 180 consumers participated in the research paper. The
results indicated that consumers chose service quality as the sole factors for
choosing Islamic banks.Moreover,
Aswan (2009) explored factors that were the main reason for which people
preferred Islamic banks in Chaman, the study focused on people who used Islamic
banks and for that purpose 140 consumers participated in the research paper.
The results indicated that consumers chose product features as the sole factors
for choosing Islamic banks.On
the other hand, Haroon (1994) explored factors that were the main reason for
which people preferred Islamic banks in Hyderabad, the study focused on people
who used Islamic banks and for that purpose 240 consumers participated in the
research paper. The results indicated that consumers chose bank’s image as the
sole factors for choosing Islamic banks.In
addition Khan (2014) explored factors that were the main reason for which
people preferred Islamic banks in Lahore, the study focused on people who used
Islamic banks and for that purpose 150 consumers participated in the research
paper. The results indicated that consumers chose banks services for customers
as the sole factors for choosing Islamic banks.Likewise,
Abduh (2012) explored factors that were the main reason for which people
preferred Islamic banks in Malaysia, the study focused on people who used
Islamic banks and for that purpose 180 consumers participated in the research
paper. The results indicated that consumers chose service quality as the sole
factors for choosing Islamic banks.According
to Awan (2011) explored factors that were the main reason for which people
preferred Islamic banks in Karachi, the study focused on people who used
Islamic banks and for that purpose 210 consumers participated in the research
paper. The results indicated that consumers chose product featured as the sole
factors for choosing Islamic banks.According
to Rao (2010) explored factors that were the main reason for which people
preferred Islamic banks in India, the study focused on people who used Islamic
banks and for that purpose 175 consumers participated in the research paper.
The results indicated that consumers chose quick transaction services as the
sole factors for choosing Islamic banks.On
the other hand, Okumus (2005) explored factors that were the main reason for
which people preferred Islamic banks in Turkey, the study focused on people who
used Islamic banks and for that purpose 176 consumers participated in the
research paper. The results indicated that consumers chose speed in
transactions as the sole factors for choosing Islamic banks.Similarly,
Marimuthu (2010) explored factors that were the main reason for which people
preferred Islamic banks in Turkey, the study focused on people who used Islamic
banks and for that purpose 132 consumers participated in the research paper.
The results indicated that consumers chose Riba free banking as the sole
factors for choosing Islamic banks.Moreover,
Lateh (2009) explored factors that were the main reason for which people
preferred Islamic banks in Bnagladesh, the study focused on people who used
Islamic banks and for that purpose 150 consumers participated in the research
paper. The results indicated that consumers chose Riba free banking as the sole
factors for choosing Islamic banks.According
to Khattak (2011) explored factors that were the main reason for which people
preferred Islamic banks in Pindi, the study focused on people who used Islamic
banks and for that purpose 145 consumers participated in the research paper.
The results indicated that consumers chose marketing of Islamic banking as the
sole factors for choosing Islamic banks.After
reading and examining many published articles it was found that people
preferred many factors that include interest rate, fast services, religious
motives, value added services, reputation of banks, advertising and many more.
The following research paper was carried out with an aim to investigate the
factors responsible for consumers in Peshawar to select Islamic banks. This
study would help the Islamic banks to improve the factor further and work on
the factors that are weakness to Islamic banks in Peshawar.    Chapter 3Research methodologyThe
researcher adapted the quantitativeaspect of a research process. The researcher
proposed the pragmatic school of thought on the basis of the quantitativetype
of research process. The deductive approach was selected on the mere fact that
the study used questionnaire for data collection.Population and sample sizeThe
researcher considered the consumers of Islamic banks of Peshawar as the whole
population for this research study though the study could not get hold of the
total number of consumers as the bank keeps the information confidential.
Moreover, the study took in consideration a total 150 participants who gave
their respective responses for the analysis purpose. The number of participants
was kept at 150 as the researcher could not get hold of the banking customers
during banking time. Therefore the researcher could get hold of 150 filled questionnaires
from the banking customers. Sampling Technique:Convenience
sampling technique was used for one main reason. First one was reason was that
the study did not have access to exact number of Islamic bank’s customers. Bank
did not share the data with the researcher as it was against their company policy. Data collection:The
study incorporated the primary data which was to be collected from the
customers of Islamic banks with help of a closed ended and structured
questionnaire. The questionnaire was designed to know the factors or reasons
for choosing Islamic banksand the
impact of factors on consumer while selecting Islamic banking in Peshawar.
The questionnaire was used as the researcher just wanted their opinion based on
the simple and straight questions based on the objectives of the study.Questionnaire:The
questionnaire used in this research study was developed by the researcher herself.
There weretotal fifteen questions in the questionnaire. The researcher ran
Cronbach alpha reliability test to assess the quality of the questionnaire. The
value or reliability was 0.7 or 70%.Questionnaire design:The
questionnaire was closed ended and had questions which were based on three
options i.e., yes and no and don’t know. People had to answer each question
that were based on investigating which reason was the core factors for
selecting Islamic banks in Peshawar by consumers. The reasons were mentioned in
the questionnaire and they had to choose by either yes, no or don’t know. The
objectives of the study could be achieved with this questionnaire.Data analysis:Frequency
count to study the perception of consumers was incorporated in the study to
find out the consumer’s preference of factors that make them use Islamic banks
services in Peshawar.Unit of analysis:The
Islamic banks customers were the main unit of analysis in this research study.Independent
variable                                                                          Dependent
Variables

  

Variables of the study:Independent Variables derived from
literature:Factors:1.     
Service
DeliveryIt is the quality of service which is provided by the relationship
officers and the staff of the banksReligious motivesIt is the motives which are in accordance with Shariah and Quran.2.     
EfficiencyIt is the time management by the staff in providing the services in
respective time.3.     
Knowledge
of Islamic BankingDoes the staff has the knowledge of Islamic banking by providing
satisfactory answers to the customers query?4.     
Value
added servicesWhat are the extra services offered and provided by the Islamic banks?5.     
Good
rate of InterestWhat is the instalments asked by the Islamic banks as
compared to other conventional and Islamic Banks?6.     
Customer
handlingHow respectfully every customer is eat by the bank?7.     
TechnologyIs the bank equipped with latest technology to
facilitate their customers?8.     
Reception
receivedAre the banks able to document every transactions and
give importance to individual case accordingly?9.     
Word
of MouthThe banks are famous in the locality by the people who
have sued their services.10.  Zero balance accountCan the banks offer the service to customers by
keeping a zero balance account or not.11.  Customer handlingAre the banks able to deal every customer importantly?12.  ProfitabilityIs the bank and customers are able to earn good on their
investment in various projects?13.  Reputation of BankWhat is the reputation of the banks in the banking
sector?14.  AdvertisingDoes the bank paying attention to advertise their
products through proper advertisingDependent Variables:Selection of Islamic Banks1.      On
the above discussed factors how customers’ selection of Islamic banks is based
is considered the dependent variables HypothesisH1: There
is a significant impact of factors on selection of Islamic banks by customers
in Peshawar.H0: There
is no significant impact of factors on selection of Islamic banks by customers
in Peshawar.

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In
order to investigate and understand the people’s choice in selecting Islamic
banks in Peshawar, the study carried out a survey in Peshawar. For this reason,
customers of Islamic banks were selected for the analysis purpose. The study
used 150 responses from people in Peshawar. For that purpose Islamic banks
operating in Peshawar were selected and the data collection took place by the
research through a self-administered questionnaire. There were total 17
questions other than the questions which were related to basic demographics of
the individuals participating in the study.

 

Findings:

1.     
The analysis of each
question stated that people were not selecting Islamic banks for the reason of
delivery of service.

2.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
religious motives.

3.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
efficiency.

4.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
knowledge of Islamic banking.

5.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
value added services.

6.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of good
rate of interest.

7.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
customer handling.

8.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
technology.

9.     
The analysis of each
question stated that people were selecting Islamic banks for the reason of
reception received.

10. 
The analysis of each
question stated that people were not selecting Islamic banks for the reason of
word of mouth.

11. 
The analysis of each
question stated that people were selecting Islamic banks for the reason of zero
balance account.

12. 
The analysis of each
question stated that people were selecting Islamic banks for the reason of
customer handling.

13. 
The analysis of each
question stated that people were selecting Islamic banks for the reason of
profitability.

14. 
The analysis of each
question stated that people were not selecting Islamic banks for the reason of
reputation of banks.

15. 
The analysis of each
question stated that people were selecting Islamic banks for the reason of advertising.

`Conclusion:

The study found that delivery of service;
word of mouth and reputation of banks were not the core reason to select
Islamic banks in Peshawar by consumers. the regression test showed that there
was significant impact of factors on election of Islamic banks by customers in
Peshawar. Therefore the main hypothesis of the study was accepted..
Furthermore, these findings are limited to Peshawar area only. More, research
work is needed to be carried out to check these variables and evaluate them
among Islamic bank users and general public.

Recommendations:

·        
Islamic banks need to work on t heir
service of delivery of services in order to attract more consumers attention

·        
Moreover, banks need to work on their
publicity so word of mouth can play its effective role.

·        
Banks need to improve their reputation
and become market leader so it becomes one of the reason to attract consumers.