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ACCEPTANCE OF ISLAMIC BANKING AMONG NON-MUSLIMS IN MALAYSIA Stellia Djapri
Corporate Master in Business Administration
2013
Pusat Khidmat Maklumat Akademik
UMVERSITI MALAYSIA SARAWAK
ACCEPTANCE OF ISLAMIC BANKING AMONG NON-MUSLIMS IN
MALAYSIA
P.KHIDMAT MAKLUMAT AKADEMIK
111111111
IIi'iiillllllllll
1000246875
By
STELLIA DJAPRI
(11031908)
A thesis submitted In fu\tillment of the requirement for the degree of Corporate Masters in Business Administration Faculty of Economics and Business
UNIVERSITI MALA YSJA SARA W AK
2013
ii
APPROVAL PAGE I certified that I have supervised and read this study and in my opinion it conforms to
acceptable standards of scholarly presentation and is fully adequate in scope and quality
as a research paper for the degree of Corporate Master in Business Administration.
Dr. Mahani bt Mohammad Abdu Shakur
Supervisor
This research paper was submitted to the Faculty of Economics and Business, UNIMAS
and is accepted as partial fulfillment of the requirements for the degree of Corporate
Master in Business Administration.
Dr. Mohamad Affendy Arif
Dean, Faculty of Economics and Business
UNlMAS
iii
STATEMENT OF ORIGINALITY The work described in this Research Paper, entitled
"ACCEPTANCE OF ISLAMIC BANKING AMONG NON-MUSLIMS IN MALAYSIA" is to the best ofthe author's knowledge that of the author except where due reference is made.
Date
STELLIA DJAPRI
11031908
iv
ACKNOWLEDGEMENT I would like to express my sincere gratitude to those who helped and supported
me in my corporate business project paper to fulfill the needs for the certification of the
Corporate Masters in Business Administration (CMBA).
First and foremost, I would like to thank to my respectable coordinator, Dr.
Mahani BMA Shakur, who has been very helpful and understanding for her great
guidal)ce and lesson to me.
I would like to thank to all my course mates and others who have provided
assistance at various occasions. Their views and tips are useful indeed. Regrettably, it is
not possible to list all of them in this limited space.
My special appreciation is extended to the respondents who spared their time in
completing the questionnaire. I would like to offer special thanks for the supporting from
my family and friends as well for their sincerity and kindness along the way in
completing my thesis.
v
ABSTRACT (IslamiC banking has been almost three decades when the first Islamic bank makes ,its
debut in Malaysia. Islamic banks have to face stiff competition, especially with
conventional banks which have longer history than Islamic banks. thus, it is important for
the Islamic banks to know the awareness, understanding, attitudes and banking selection
criteria of Malaysians, especially non-Muslims towards it. In Malaysia, we have roughly
40% of the population belongs to non-Muslims and hence non-Muslims market is
respectively important to Islamic ban0
The purpose of this research is to examine the
level of awareness, understanding, attitudes and banking selection criteria towards the
acceptance of Islamic banking among non-Muslims. A total of 384 respondents from
Sibu are chosen for the purpose of this study. For the analysis, Pearson moment product
correlation and multiple linear regressions were adopted to analyze the results. The
results indicated that the awareness, understanding, attitudes, banking selection criteria
do have positive relationship with the acceptance towards Islamic banking. This study
also provides implications for the Islamic bankers to attract non-Muslims customers and
recommendations for future research in Islamic banking.
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ABSTRAK Perbankan Islam telah menjejakkan langkah pertama di Malaysia sejak tiga dekad yang
lalu. Perbankan Islam perlu menghadapi persaingan yang sengit, terutamanya dengan
bank-bank konvensional yang mempunyai sejarah lebih daripade perbankan Islam. Oleh
yang demikian, perbankan Islam wajib mengetahui kesedaran, kefahaman, sikap dan
criteria pemilihan perbankan Malaysia, terutamanya kepada penduduk Malaysia yang
bukan beragama Islam. Kita mempunyai kira-kira 40% penduduk Malaysia yang bukan
beragama Islam, dan pemasaran prod uk berkaitan perbankan Islam adalah penting.
Tujuan kajian ini adalah untuk mengkaji tahap kesedaran, kefahaman, sikap dan kriteria
pemilihan perbankan ke arah penerimaan perbankan Islam di kalangan penduduk yang
bukan beragama Islam. Sebanyak 384 responden dari Sibu telah dipilih untuk kajian ini.
Modei Pearson dan model regresi linear berganda telah digunakan untuk menganalisis
keputusan untuk kajian tersebut. Hasil kajian menunjukkan bahawa kesedaran,
kefahaman, sikap, kriteria pemilihan perbankan mempunyai hubungan yang positif
dengan penerimaan terhadap perbankan Islam. Kajian ini juga member implikasi bagi
perbankan Islam untuk menarik perhatian pelanggan yang bukan beragama Islam dan
juga cadangan untuk kajian dalam bidang perbankan Islam pad a masa hadapan.
vii
·
t l\1aklumat Akademik
pusat Khldma .
SARAWAK
Ui'ilVE ITI I LAYSJA
TABLE OF CONTENTS
CHAPTER
TITLE
PAGE
TITLE
1
2
APPROVAL PAGE
iii ST ATEMENT OF ORIGINALITY
iv ACKNOWLEDGEMENT
v
ABSTRACT
vi ABSTRAK
vii LIST OF CONTENTS
viii LIST OF TABLES
xii LIST OF FIGURES
xiii INTRODUCTION
1.1
Background of study
1.2
Problem Statement
4
1.3
Research Question
6
1.4
Research Objective
7
1.5
Scope of the study
8
1.6
Significance of the study
9
1.7
Conclusion
II LITERATURE REVIEW
2.1
Islamic banking in Malaysia
12 viii
2.2 Awareness of Islamic banking products and services among Non-Muslims
2.3 The understanding of Islamic banking products and services among Non-Muslims
19 2.3.1 Contracts in Islamic banking
20 2.4 Attitudes towards Islamic banking
25 2.5 Banking selection criteria
29 2.6 Acceptance of Islamic banking
34 2.7 Proposed Theoretical Framework
38 2.8 Proposed Conceptual Framework
41 2.9 Hypotheses Development
44 2.10 Conclusion
3
17 44 METHODOLOGY
3.1 Research Design
45 3.2 Data collection methods
46 3.2.1 Primary data
46 Sampling design
47 3.3.1 Target population 47 3.3.2 Sampling size 48 3.3.3 Sampling technique 49 3.4 Survey methodology
50 3.5 Research Instrument
51 3.5.1 Questionnaire design 51 3.5.2 Questionnaire construction 52 3.5.3 Pilot study 56 Constructs measurement
56 3.6.1 Nominal scale 57 3.6.2 Interval scale 57 3.3 3.6 ix
3.7 3.8 3.9 4
Data processing
57 3.7.1 Data screening 58 3.7.2 Data coding 59 3.7.3 Data analysis 59 Descriptive analysis
60 3.8.1 Reliability test 60 3.8.2 Pearson Product Moment Correlation
61 3.8.3 Multiple linear regressions 63 Conclusion
64 RESEARCH FINDINGS
4.0 Introduction
65 4.1 Descriptive analysis
65 4.1.1 Respondents Demographic profile
66 4.1.2 Age 66 4.1.3 Ethnic origin (Race) 67 4.1.4 Religion 68 4.1.5 Educational level 69 4.1.6 Monthly income level 70 4.2 Reliability test
71 4.3 Analysis of the relationship between the Independent variables and Dependent Variable
72 4.3.l Examine the relationship between awareness, Understanding, attitude, banking selection criteria, Acceptance towards Islamic banking
73 4.3.2 Awareness of non-Muslims towards
Islamic banking
77
4.3.3 Understanding of non-Muslims towards
x
Islamic banking
77
4.3.4 Attitude of non-Muslims towards
Islamic banking
78
4.3.5 Banking selection criteria towards
5
Islamic banking
79
4.4 Analysis of the multiple regression
80
4.5 Conclusion
84 CONCLUSION AND RECOMMENDATION
5.1 Summary of the main findings
85 5.2 Discussion of the main findings
85 5.3 To test the relationship of awareness, Understanding, attitudes, banking selection Criteria towards acceptance of non-Muslims In Malaysia
86 5.4 Implications of the study
87 5.5 Limitations of the study
88 5.6 Recommendations for future research
89 5.7 Conclusion
90 REFERENCES 91-103 APPENDIX 104-108 xi
LIST OF TABLES TABLE
TITLE
NO
PAGE
3.1 Table Krejcie and Morgan (1970), p.608
48 3.2 Guildford Suggested Interpretation for the Correlation Coefficient
62 4.1 Respondents Demographic Profile
66 4.2 Frequency and Percentage of Respondent according to Age
66 4.3 Frequency and Percentage of Respondent according to Ethnic Origin
67 4.4 Frequency and Percentage of Respondent according to Religion
68 4.5 Frequency and Percentage of Respondent according to Educational Level
69 4.6 Frequency and Percentage of Respondent according to Monthly Income Level
70 4.7 Cronbach's A'lpha
72 4.8 The Correlation Coefficient of the Awareness, Understanding, Attitudes, Banking selection criteria, Acceptance towards Islamic banking.
74 4.9 Interpretation and Computation of the Coefficient of Multiple Determination
77 4.10 Determination of the usefulness of the model
79 4.11 Determination ofthe Multiple Regression Equation for the data
80 xii
LIST OF FIGURES FIGURES
NO
TITLE
PAGE
2.1
The Hierarchy of Effects
39 2.2
Theoretical Framework on Acceptance ofIslamic banking
40 2.3
Conceptual Framework
43 xiii
,....
I
Chapter 1
INTRODUCTION
1.1 Background of the study
Malaysia is one of the most progressive Muslim countries in the world and it has
been promoting the idea of implementing Islamic Banking System (IBS). In Malaysia,
there is two types of separate banking system, which is the conventional banking system
(the well-known banking system), as well as the Islamic banking.
Basically, what is Islamic Banking? Islamic Banking is the banking system that
uses the Islamic law in Malaysia, which known as Shari'ah as the foundation for the
banking system operations, legislations and regulations. This rules and teaching in the
Islamic transactions came from the Holy Quran and the Sunnah of Prophet Muhammad
for over 1400 years ago (Bank Negara Malaysia, 2009). The motive of IBS is to develop
the ring of harmony among the Muslims and to ensure a fair allocation and exploitation
of fund in compliance with the Islamic principles and teaching. This has also indicated
that all the banking operations right from the deposits transactions, financing and
products offered by the Islamic banks to their customers should be in compliance with
Shari'ah law (Abdullah, Sidek, and Adnan, 2012).
1
Malaysia today has one of the world's most sophisticated banking environments
with a well developed financial market even though the practice of Islamic banking and
finance in Malaysia is comparatively new and quick growing. The Islamic financial
industry in Malaysia has faced rapid transformations. The product variety has now
extended into wide array of pioneering instruments using contracts ahead of Murabahah
or Bai Bithaman Ajil (BBA). In the earlier period, there were only some new Islamic
financial products that had been marketed, for examples residential mortgage backed
securities, commodity based financing, as well as investment and equity linked product
based on Musyarakah, Mudarabah and Ijarah. Thus, Islamic banking has become an
essential service being offered (Ranjbar and Sharif, 2008).
There are several important doctrine of IsLam, to help for an improved
understanding oflslamic banking, which are Shari'ah and Muamalat. Islamic banking is a
mere play of semantics by replacing the word "interest" with "profit", or merely another
type of conventional banking minus the interest component. For a better comprehension
of Islamic banking, one must be aware with and understand that Islamic banking and
conventional banking is two separate activities based on diverse values and
considerations. Conventional banking, in four simple words is, "lending money at
interest"; whereas interest or riba in Islam is rigorously not allowed (Abiah and
Wabekwa, 2012).
2
According to Ranjbar and Sharif (2008), Islamic banking is fundamentally a
trading contract which is based on an asset, it may be tangible or not, or financial system
activity. Therefore, the underlying transaction that related to the asset or the activity is as
contradicted to conventional banking where the underlying transaction is money-lending
at an interest. By trading, they often make reference to sale of goods and services. A
valid contract should not contain interest (riba), ambiguities (gharar), gambling (maisir),
and forbidden merchandise such as liquor, pork etc (Ranjbar and Sharif, 2008).
Dusuki and Abdullah (2006) indicate that the bankers acknowledge that Islamic
economics is a development area but it is not for everybody. This is because some of the
investments have no interest free equivalent, which may also crease the sector's
development. Meanwhile, the Islamic banking products often cost more to set up as the
profit restrictions on Shari'ah compliant products are equal with interest rates on non­
Islamic investments. Simultaneously, many Muslims do go for for Islamic approved
banking if they are given a choice. This has become one rationale why the western banks
are dynamic in Muslim countries and are so keen to strengthen their Shari 'ah
identification. There is a fragment of customers within the current market that would
change to Islamic if the value and remuneration offered were comparable with
conventional financial products. It is obvious that Islamic finance has moved into
mainstream (Ranjbar and Sharif, 2008).
3
According to Ranjbar and Sharif (2008), many primary commercial banks in
Malaysia have established Islamic banking businesses to hit the opportunities in the US$1
trillion industry. There are a lot of other controls to be put in place to improve the
assertion and strengthen the risk management through the Shari' ah governance and
structure. Non-Muslims now comprised of half of some Malaysian Islamic banks'
customers. Islamic banking products such as mortgage loans and takaful insurance have
drawn considerable implication from Malaysia's ethnic Chinese and Indian minorities.
Shari'ah bonds are among the supreme rising Islamic finance instruments, with recent
issuers coming from non-traditional Muslim markets such as Japan. Although there are
over 300 global Islamic financial institutions, it is just a portion of the total value of the
conventional global banking industry, and the Islamic financial sector is valued at about
$1 trillion (Ranjbar and Sharif, 2008).
1.2 Problem Statement
The introduction of Islamic banking and the changes in the Malaysian financial
landscape has resulted in new measurement and phenomenal in banking sector. Islamic
banking has emerged as one of the highest mounting industries for more than three
decades. It has widened to all corners around the world and received wide recognition by
both Muslims and non-Muslims alike (Iqbal and Molyneux, 2005). Both conventional
and Islamic, Muslims or Non-Muslims customers alike from both conventional and
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Pusat Khidma t Maklumnt Akademik UNlVERSlTI MALAYSIA ARAWAK Islamic banking have been accessible with massive choices to choose in terms of banking
products and services had led to changes in customer's taste and demand for improved
and high quality banking services. The aggressive commence of pioneering and refined
products by financial institutions puts remarkable pressures on Islamic banks. In addition,
customers are now spoilt for choices to choose the ones that fulfill their needs and wants
before making any decisions. On the other hand, many people in Malaysia still has a
wrong
understanding
or thoughts
against
Islamic
banking which
among
the
misconception is Islamic banking is only for Muslims. It comes to few questions that "to
what extent are non-Muslims aware of Islamic banking products and services and to what
extent are non-Muslims understand about Islamic banking products and services?"
As one of the most important players in service industry at present, Islamic
banking is a business that is ineluctably in need for winning over customers at the same
time as retaining the old ones and it is no longer regarded as a business entity determined
only to take in the religious obligations of the Muslim community (Wilson, 2003). In
Malaysia, Islamic banking not only have to fight with products offered by the long
established conventional banks in a dual banking system, but also among the products
offered by the Islamic banking itself, thus customers' positive attitude towards Islamic
banking is far more important. Since 1983 to date, Islamic banking system operates
similarly with the conventional system as Malaysia has a dual banking. As per today, the
Islamic banking and finance that contributes to the expansion and development of the
Malaysia economy has emerged as an essential element of the overall Malaysian financial
5
system. Thus, a better awareness shall be created among the customers, whereby Islamic
banking is not only an option of financial approach, but it also provides better value
propositions to the consumers in some aspects. It rose up a question that "what are the
bank selection criteria for the non-Muslims" in order to create a better value
propositions?
Due to the heightened competition, it is concerned if is the Malaysian banking
system getting overcrowded. We have to understand what is the attitude of the non­
Muslims towards Islamic banking? The better understanding of the non-Muslims attitude
can help to meet the ever-changing customer wants and expectations of all walks of life.
This is because the aggressive launch of inventive and refined products by financial
institutions put remarkable pressure on Islamic banks.
1.3 Research Questions
• Are the non-Muslims in Malaysia aware of Islamic banking products and
services?
• Are the non-Muslims in Malaysia understood about the basic principles oflslamic
banking?
• Will knowledge and understanding on Islamic banking influence non-Muslims'
acceptance towards Islamic banking products and service?
6
•
Will bank selection criteria influence non-Muslims' acceptance towards Islamic
banking products and service?
1.4 Research Objectives
This research is a study of Islamic banking in Malaysia, a country which has a
minority of non-Muslims in its population. This study seeks to establish the level of
awareness that non-Muslims have in relation to Islamic banking, to examine the
understanding of non-Muslims about the basic principles of Islamic banking, the attitude
of non-Muslims towards Islamic banking and a position of the bank selection criteria of
non-Muslims.
• To examine the level of awareness of non-Muslims in Malaysia of Islamic
banking products and services.
• . To examine the understanding of non-Muslims
In
Malaysia about the basic
Islamic banking products and services.
• To examine the non-Muslims' attitude towards Islamic banking products and
services.
• To assess non-Muslims' bank selection criteria towards Islamic banking.
7
1.5 Scope of the study
This study will be conducted at the selected Islamic banks in Malaysia,
particularly in Sibu, Sarawak. According to the latest statistics of year 2010 received
from Statistics Department, Kuching division, the total population in Sibu is 233,446, in
which Muslims comprise only 24,937. The statistics proved that Sibu population is
dominated by a majority of who are ethnic Chinese, especially the Fuzhou, as well as
indigenous Melanau, Malay and Iban. There has been marked increase in public buildings
in recent years in Sibu. Besides, Sibu is recently building UCTS University, which is
estimated to have their official launching on September 2013. It is likely to see much
potential in Sibu for future development and progression, as Sjbu now has a well-built
airport and two 4 stars hotels. According to Parochial Sarawakian (2012), Pehin Sri Taib
indicates that Sibu businessmen are aggressive, bold and they have entrepreneurship
skills and that had made Sibu folk successful. This will be a big driving force behind
Sibu's future transformation into a center for technical, tinancial and education support.
He added to say that, Sibu town would have a major role in helping to make Sarawak be
Malaysia's richest state by year 2030. Thus, there will be great market potential in Sibu.
8
1.6 Significance of ,t he study
This study focuses on the awareness, knowledge and understanding, attitudes and
bank selection criteria of non-Muslims that influence the acceptance of Islamic banking
products and services. Malaysia is a multi-racial country. It was shown in government
statistics in the year of 2000 that about 60.4% of the population in Malaysia was
Muslims, which in other word that about 40% of the population in Malaysia was non­
Muslims. Islamic banking is not only available for Muslims, but they also targeted their
market segment in non-Muslims market. Hence, non-Muslims market is evenly important
to the continued existence of Islamic banks in Malaysia. Non-Muslims market is
immense and has a significant possible expansion and development for Islamic banking,
as mentioned earlier, there was 40% of the population in Malaysia was non-Muslims in
the year 2000. Islamic banking will have difficulties to compete with conventional banks
if the level of awareness of non-Muslims is still showing pessimistic. Hence, non­
Muslims market is equally important to the survival of Islamic banks in Malaysia. Non­
Muslims market is big and has substantial potential of growth for Islamic banking. If
non-Muslims keep on ignoring the existence of Islamic banks, they will be facing
problems in competing with conventional banks. Thus, by attracting non-Muslims
customers, it can enhance the long term survival of Islamic banks.
Islamic bankers could set up different kinds of marketing activities or campaigns
for the non-Muslims based on their level of awareness by knowing the level of awareness
of non-Muslims in Malaysia towards Islamic banks. Since the Muslims and non-Muslims
9
in Malaysia are come from different cultural background, by knowing the level of
understanding of non-Muslims towards Islamic banks, the Islamic bankers could use
simpler words when approaching non-Muslims potential customers if they happen to
encounter difficulties in understanding some of terms that is used in Islamic banking and
finance. In addition, by knowing the non-Muslims attitude towards Islamic banks, Islamic
bankers could maintain the attitude if the attitudes are favorable to Islamic banks. On the
other hand, the bankers should try to put in more efforts to change the non-Muslims
attitudes towards Islamic banks if the attitudes happen to be unfavorable because of the
lack of uniformity between Shari'ah principles.
In addition, the bank selection criteria are projected to influence a customer's
overall satisfaction towards his or her bank. This study can help to identify a number of
factors, such as convenience, friends and family recommendations, reputation of a bank,
friendliness of the bank staff, etc. In short, the bankers could use the result from this
study to improve their comprehension on the Malaysia non-Muslims banking users and
the profiles if Malaysia non-Muslims potential customers. Besides, it can also aid Islamic
bankers in formulating different strategies and policies to attract more non-Muslims
banking users by knowing the non-Muslims level of awareness, understanding, and
attitudes and banking selection criteria towards Islamic banks.
10
1.7 Conclusion
This chapter lays the background of the study, problem statement, research
questions, research objectives, significance of the study. All these layouts will be used to
analyze the level of awareness of non-Muslims of Islamic banking products and services,
the understanding of Islamic banking products and services among non-Muslims, the
attitudes of non-Muslims towards Islamic banking and the assessment of their bank
selection criteria.
11