CUSTOMER'S AWARENESS LEVEL AND

CUSTOMER'S SERVICE UTILIZATION

DECISION IN ISLAMIC BANKING
RATIONALE
Islamic banking is growing rapidly in various parts of globe. This study examines the customer's awareness level (CAL) about
products offered by Islamic Banks to assess customers' service utilization decision (CSUD) in Pakistan, a country with almost
98% Muslim population. Twenty-five years ago Islamic banking was virtually unknown. Now 55 developing and emerging
market countries have some involvement with Islamic banking and finance.1 In addition, there are Islamic financial institutions
operating in 13 other locations: Australia, Bahamas, Canada,Cayman Islands, Denmark, Guernsey, Jersey, Ireland,
Luxembourg,Switzerland, United Kingdom, United States and the Virgin Islands. In Pakistan, Iran and Sudan, all banks need to
operate under Islamic financing principles. Elsewhere, in the mixed systems, the Islamic banks are in a minority and operate
alongside conventional banks. Despite this expansion,Islamic banking remains poorly understood in many parts of the Muslim
world and still continues to be almost an enigma in much of the West. Our objective is to provide a succinct analysis of the nature
of Islamic banking and finance,accessible to a wide range of readers.

INTRODUCTION
Banking sector plays an important role in the economic development financial soundness of any economy. It stimulates savings
and with broader aim of social welfare, prosperity, increased per more opportunities and optimum utilization of economic
substantial benefits. Banking sector became an essential component after industrial revolution of 18th century,Similarly, banking
sector flourished in mid 1990sin PAKISTAN due to privatization financial liberalization by the government.in Pakistan. Almost
80% banking assets are owned by private sector which play very important role economic development of Pakistan
(Economic Survey of Pakistan2007,2008) Pakistani banking sector experienced many crisis since inception the start of 21st
century proved a success for Islamic banking stream, started, in 2002.There are two major types of banking system operating in
Pakistan, i.conventional banking and Islamic banking. The main difference between the two banking streams includes objectives,
interest/riba based transactions, risk sharing and some other parameters.In fact, the basic idea of Islamic banking can be stated
simply. The operations of Islamic financial institutions primarily are based on a profit-and loss-sharing (PLS) principle. An
Islamic bank does not charge interest but rather participates in the yield resulting from the use of funds. The depositors also share
in the profits of the bank according to a predetermined ratio. There
is thus a partnership between the Islamic bank and its depositors, on one side,and between the bank and its investment clients, on
the other side, as a manager of depositors’ resources in productive uses. This is in contrast with a conventional bank which
mainly borrows funds at interest on one side of the balance sheet and lends funds at interest on the other

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah,
known as Fiqh al-Muamalat (Islamic rules on transactions). There is a consensus among Muslim scholars that the Qur'an
prohibits usury, the payment and/or collection of any of interest (riba). In addition, Islamic law prohibits investing in businesses
that are considered unlawful (haraam ).Due to these prohibitions, observant Muslims require specialized alternative arrangements
from their banks. Many of the largest global financial companies, such as Deutsche Bank and JP Morgan Chase, have realized the
untapped potential in this market and established successful and thriving subsidiaries that have strived to meet the requirements
of Islamic banking. The basic principles of Islamic bank ing are the sharing of profit and loss and the prohibition of riba
(interest). Among the common Islamic concepts used in Islamic banking are profit shar ing (Mudharabah), safekeeping (Wadi
ah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah). Each concept is explained below.

MODARBA
Mudharabah is a contractual agreement between a financial institution or a capi tal investor and an entrepreneur. This can be
viewed as "venture capital" fund ing. Essentially, it is a contract that pro vides for profit sharing between the money source and
the entrepreneur. In such contracts, the entrepreneur can mobilize the funds of the former for its business activities. While the
financing entity provides the funding for the busi ness venture, the entrepreneur provides expertise, labor, and management. Prof
its made are shared between the bank and the entrepreneur according to a predetermined ratio. In the event of a loss, the bank
loses the capital, while the entrepreneur loses his provision of labor

Wadiah
In this arrangement, the depositor and the bank enter into an agreement where the bank essentially acts as the keeper and trustee
of the funds deposited. However, while serving as a trustee, the bank is entitled to utilize the funds on deposit for its business
endeavors. The bank guarantees a refund of the entire deposit or whatever balance remains upon demand by the depositor. At its
discretion, the bank may periodically reward the depositor with hibah (a gift) in appreciation for allowing it to use the depositor's
funds. The hibah in most instances is a cash payment equivalent to an interest payment. However, it is not considered riba as
there is no guar antee of such payments, nor is the amount generally fixed. The amount, frequency, and duration of the hibah is
entirely at the bank's discretion

Musharakah
Musharakah is what we commonly refer to as "joint ventures." In these transac tions, two or more persons/entities combine their
capital or labor together to share the profits, enjoying similar rights and liabilities. This method of financing is often used in
investment projects, letters of credit, and the pur chase of real estate or property. While the investment by each partner may be
unequal, each partner retains an equal right to management and participation in the business .

Murabahah
This concept refers to the sale of goods at a set price, which includes a profit margin agreed to by both parties. The purchase and
selling price, other costs, and the profit margin must be clearly stated at the time of the sale agreement. The bank is compensated
for the time value of its money in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset .

Ijarah
The concept of Ijarah simply refers to the idea of leasing, renting, or wages. However, under the purview of Islamic finance,
Ijarah means to sell a benefit or a use for a fixed price or wage. Under this concept, the bank makes available to the customer the
use of assets/equip ment such as a plant, office automation, or motor vehicle for a fixed period and price. The benefits derived
and the rea sons behind this form of financing are very similar to those that drive major American corporations to lease rather
than purchase equipment, tools, offices, and automobiles .
.

GAP IDENTIFICATION
Islamic banking is an emerging sector of our country and is developing raidly but cutomers have a very little awarness about its
products and its operations so people are reluctant to invest and consider it as an another operating arm of the conventional
baking system.The main reason behind this is that they have lack of knowlege or awarness and islamic banks have failed to
market its products to the customer.

CUSTOMERS' AWARENESS LEVEL

Awareness is central tenet for the recent age of information technology survive in the highly competitive global market especially
due of financial services worldwide. Awareness means one's understanding knowledge about anything, e.g. personality, place,
product or service can stimulate the individuals towards action because awareness enables to make choice (decision making)
based upon pros and cons of anything.subject matter. Similarly, customer (CAL) reveals the stage or phase of customer's
psychological of understanding and knowledge regarding any idea, person, or service.So by studying this variable we will be able
to understand how people perceive about islamic banking.

CUSTOMERS' SERVICE UTILIZATION

DECISION (CSUD )
Decision making is the process of making a choice based upon some analysis or intuition. It includes various steps/stages in a
systematic fashion to reach at conclusion to do something or not according to some preferences, standards or other parameters
that varies from person to person as well as from situation to situation .

LITERATURE REVIEW
Main objective of Islamic law is to promote welfare of mankind, justice, protection of
religious life and prosperity. Islamic legal system facilitates the growth of Islamic finance and
to meet the needs of financial markets, Habib Ahmed (2006). Muslims are more eager to lead
their lives according to Islamic shariah and law. All kinds of interest are totally prohibited in
Islam as it not only leads the economy to the path of crisis but also affect the whole society,
Ahmad (2008). Islamic banking is not merely about profit maximization but they focus more
on promoting Islamic values, Farook, Hassan and Lanis (2011). More over customer’s
satisfaction level with respect to the baking products of Islamic banking is more than
conventional banking Ahmed et al. (2010). Islamic banking based on Shariah law whereas
conventional banking is based on profit maximization, lending and borrowing, findings
revealed that in term of cost efficiency and Islamic bank performs better than conventional
bank where as in terms of technical efficiency conventional bank give tough time to Islamic
bank Shahid et al. (2010). The comparison of Islamic banking and conventional banking
system in Pakistan showed that conventional banks are on declining stage due to the financial
crises at global level. Where as Islamic banking has emerged as a strong financial system
then conventional banking on the basis of assets, financing, profitability and efficiency etc
and maintain consistent growth, Awan (2009). Keeping in view the growth, development and
prospects of Islamic banking of Pakistan in terms of assets, funds and deposits, Islamic
banking with the efforts of bank in Pakistan (SBP) is also playing an active role with the
banks which deals with corporate social responsibility, Akram, Rafique and Alam (2011).
Islamic banking is rapidly getting recognition in financial market and people are adopting it
because it is according to Islamic shariah rules and regulations. Manzoor, Aqeel and Abdul
Sattar (2010) investigated motivational, economic, socio- psychological and religious factors
that there are greater opportunities in Pakistan for development and growth of Islamic
banking system. With an impressing growth of Islamic banking in this contemporary world
how Islamic banking compete with conventional banks in regard of customer attitudes and
products, Awan and Bukhari (2011). Khattak and Kashif-Ur-Rehman (2010) examined the
degree of satisfaction and customer’s awareness towards the products and services of
Islamicbanking of Pakistan and people are not well aware of some specific Islamic financial
productsi.e. Murabaha, Ijara etc. The root of Shariah corporate governance comes from Islamic
banking and finance. Results have proved that entity in any sector especially in Muslim
countries have to follow Shariah corporate governance for their long term sustainability,
Muneeza and Hassan (2011)

RESEARCH HYPOTHESIS
H1. Awareness significantly affects satisfaction of Islamic banking.
H2. Service quality significant affects awareness of Islamic banking.
H3. Product quality significantly affects awareness of Islamic banking

Research Framework

A research framework was constructed and formulated. The present paper identifies three

variables that influence satisfaction, namely awareness, service quality and product quality.

Based on the literature review, consumer awareness is the direct predictor variable, while

service quality and product quality are the indirect predictor variables. The relationship

between these variables is illustrated in Figure 1.

RESEARCH DESIGN

Nature of Study:

The nature of our study is casual and quantitative in nature. We will see the impact of service

quality & product quality on consumer satisfatction in islamic banking.

Purpose of Study:

The purpose of our study is to find the correlation between the independent variable (service &

product quality) and the dependent variable (satisfaction)

Extent of Research /Study Interference:

We will be using minimal interference in the data and no manipulation with the data. We will

use normal data i.e. questionnaires filled by respondents

Unit of Analysis:
Our units are individual which means we are targeting individual people. Data will be gathered
from individual people for testing.
Type of Analysis/ Time Horizon:
This is a cross sectional study which means data will be collected once over the period of
research.

Data Collection:

Research Instrument:
The instrument that is being used in the study are questionnaires and our questionnaires
include Five demographic variables, twenty closed ended questions for measuring satisfaction
of customer and quality of products offered by islamic banks.

Population:
The targeted population are customers of islamic banks .the banks we choose were hbl islamic
banking branch and bank islami.

Sampling Procedure:
The data is collected from 97 individuals using non-probability sampling procedure in which
convenient sampling type is selected. Out of 97, 73 samples are selected for data analysis.

Reliability Analysis

Cronbach’s Alpha statistic was computed to estimate the reliability of the data. The reliability
assessment of the entire scale was observed to be good, with Cronbach’s alpha between 0.738
and 0.813.