MALAYSIAN CUSTOMERS BEHAVIOUR IN

ADOPTING ISLAMIC BANKING PRODUCTS

AND SERVICES

By
AMEER SHAFIQ BIN KAMALULLAIL

A research project submitted in partial

fulfillment of the requirements for the degree of
BACHELOR OF BUSINESS
ADMINISTRATION (HONS)
B.B.A. (Hons) (Intl. Bus.)
FACULTY OF BUSINESS AND LAW
MULTIMEDIA UNIVERSITY
MAY 2011

The copyright of this thesis belongs to the author

under the terms of the Copyright Act 1987 as qualified by
Regulation 4(1) of the Multimedia University Intellectual
Property Regulations. Due acknowledgement shall always
be made of the use of any material contained in, or derived
from, this thesis.
Ameer Shafiq, 2011
All rights reserved

DECLARATION
I hereby declare that the work have been done by myself and no portion of the work contained in
this research project report has been submitted in support of any application for any other degree
or qualification of this or any other university or institute of learning.

I hereby declares that pursuant to the provisions of the Copyright Act 1987 (the Act) that I shall
not during my tenure at the University or thereafter engage in any unauthorised act of copying or
reproducing or attempt to copy / reproduce or cause to copy / reproduce or permit the copying /
reproducing or the sharing and / or downloading of any copyrighted material or an attempt to do
so whether by use of the Universitys facilities or outside networks / facilities whether in hard
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the Act whether for payment or otherwise save as specifically provided for therein. This shall
include but not be limited to any lecture notes, course packs, thesis, text books, exam questions,
any works of authorship fixed in any tangible medium of expression whether provided by the
University or otherwise.
I hereby further declare that in the event of any infringement of the provisions of the Act whether
knowingly or unknowingly the University shall not be liable for the same in any manner
whatsoever and undertake to indemnify and keep indemnified the University against all such
claims and actions.

Ameer Shafiq Kamalullail

1071116646

ACKNOWLEDGEMENT

This report is prepared to fulfil the Final Year Project requirements. Our deepest thankfulness to
God for his consent to make this desertion is possible and complete.
First of all, I want to thank all of my family members especially my beloved parent. Thank you
to all of you for your support and encouragement.
Secondly, we owe our gratitude to our lecturers, for devoting their utmost of time and effort with
generosity and patience, and most of all for being so understandable person.
Our sincere appreciation also goes to Mdm. Rahayu binti Tasnim our supervisor for this project
and land a helping hand and kindly cooperation.
Finally, we also indebted to all of our friends for their comments, criticism and moral support to
make the project over at last. Highly appreciation goes to whoever that involves indirectly during
the period. Your kind and cooperation will always be in our inner heart that no one could wash
out this fondest memory.

ABSTRACT

Purpose - The purpose of this paper is to examine the key factors that influence the Malaysian
customers behaviour in adopting Islamic banking products and services.

Design/methodology/approach The paper presents primary data collected by selfadministered questionnaires involving a sample of 400 respondents in Malaysia. The Islamic
banking criteria ranking as perceived by the respondents are analysed using Friedman test. To
further explore the customers understanding of the banking criteria, an exploratory factor
analysis is employed.

Significance of Study The empirical evidence of this paper affects two aspects; first, Islamic
banks must offer quality services while maintaining its Islamic credential and reputation; second,
Islamic banks should also embrace good customers services policies o reap its potential as a
strategic tool to achieve competitive advantage enhance reputation and secure customers
allegiance. This research will be of interest to both incumbent and potential entrants into this
niche market.

TABLE OF CONTENT

Page

COPYRIGHT

ii

DECLARATION

iii

ACKNOWLEDGEMENTS

iv

ABSTRACT

TABLE OF CONTENTS

vi

LIST OF TABLES

vii

LIST OF FIGURES

ix

PREFACE

CHAPTER 1 INTRODUCTION
1.1

History of Islamic Banking

1.2

Islamic Banking in Malaysia

1.3

Principles and Characteristics of Islamic Banking System

10

1.4

Islamic Banking Concepts

14

1.5

Justification

18

1.6

Research Problem Statement and Questions

19

1.7

Objective of Study

20

1.8

Organisational of Research Project

21

CHAPTER 2 LITERATURE REVIEW

2.1

Shariah Principles/Framework of Islamic Banking

23

2.2

Impact of Interest Rate

28

2.3

Banking Selection Criteria

30

2.4

Intention towards Dealing with Islamic Banking and Finance

33

CHAPTER 3 METHODOLOGY
3.1

Research Framework and Design

35

3.2

Descriptions of Variables

38

3.2.1

Independent Variables

3.2.2

Dependent Variables

3.2.3

Moderating Variables

3.3

Hypothesis Study

40

3.4

Sampling Procedures and Sampling Method

42

3.5

Sources of Data and Data Collection Procedure

44

3.6

Questionnaire Design

45

3.7

Data Analysis

46

APPENDICES

48

REFERENCES

49

LIST OF TABLES
Table No.
1
2
3
4
5
6
7
8
9
10
11

Page
A Summary of the Characteristics of Islamic Banking System
The differences between Islamic banking and conventional
banking
Islamic Banking Concepts
Islamic Banking Products and Services in Malaysia (Deposit)
Islamic Banking Products and Services in Malaysia (Retail
Financing)
Islamic Banking Products and Services in Malaysia (Card
Services)
Islamic Banking Products and Services in Malaysia (Trade
Finance)
Islamic Banking Products and Services in Malaysia (Banking
Services)
Summary of Customers Selection Criteria Based
List of Islamic Banks in Malaysia
Religions in Malaysia

11
12
14
25
25
26
27
27
31
32
43

LIST OF FIGURES
Figure No.

Page

Theory of Planned Behaviour

33

Research framework of the intention to deal with Islamic

Banking affected by awareness towards shariah principles of
Islamic Banking

37

CHAPTER ONE
INTRODUCTION
The purpose of this research is to examine the key factors that influence the Malaysian
customers behavior in adopting Islamic bank products and services.
The two feet of the son of Adam will not move on the Day of Judgement in front of his Lord
until he is asked about five matters: about his life and how he exhaust it? And about his youth,
what did he consume it in? And about his wealth, how did he earn it? An what did he spend it
on? And how much did he act upon what he knew? (At-Tirmidhi, no 2416; Albani: Sahih)
Any flesh that has grown from impure wealth (forbidden), verily the hellfire is more deserving
for it (Related by At-Tabrani, 19/136; Al- Mughni lil Iraqi, 2/9207; Ithaf As-Sadat al Muttaqin,
Az-Zubaydi, 5/226)
Do not sell in our market except to those who already have deep understanding of the Deen
(Related by Tirmidhi, no487, pg 129; Albani: Hasan)
There will come upon the people a period in which a person will not care whether what he
earned of wealth was through halal or through haram(Related by At-Tirmidhi)
When riba and zina (fornication) becomes evident in a town, verily they have made it
permissible upon themselves the torment of Allah s.w.t (Related by Al-Hakim, 2/37 Abyu Yula;
Al-Hakim: Sahih and agreed by Az-Zahabi; Albani : Hasan)
Hadith mentioned above is the evidences regarding the importance of learning about
lawful and unlawful matters pertaining to finance. The principal goal of Islam is to maintain
good relationship with all human beings which lead to the importance of brotherhood, the
importance of justice among them, and to understand the means and concept of zuhud
(asceticism). Chapra (1993) stated that the well-being (falah) of all human beings includes
physical satisfaction because mental peace and happiness can be achieved only by means of a
balances realization of both the material and spiritual needs of the human personality where
therefore the conventional means of the maximization of total output cannot be the goal of a
Muslim society.
From the Islamic perspective, the economical concept and the means of money are
viewed and interpreted in a different kind of perspectives. Economic is defined as a social
science concerned chiefly with description and analysis of production, distribution and
consumption of goods and services (Merriam-Webster Online Dictionary, 2011). While
10

economics from the Islamic perspective viewed as, the Islamic ummah are people who work to
obtain rezeki (sustenance) by using the resources made available by Allah for their use while
living in this world and as preparation for the Hereafter. The knowledge of economy can be
found in many Verses in the Al-Quran which also supported by the Hadith given by the Prophet
where these source of knowledge can be used as a guidelines, view, and lessons regarding to the
economy and business. The religion of Islam does not only focus and covers the relationship
between human beings and their Creator, but also taught humans n how to manage the existing
resources on earth in line with the reasons and intent of them being made available.
The means of money is interpreted differently from the perspective of Islam. The religion
of Islam view money as a divine favour and the essence of life. There are two types of Islamic
concept in the matter of money that can be seen in the concept of ownership and utilization. In
the teaching of Islam, the ownership of either money, wealth or all the resources on earth belongs
to Allah, alone. Man has only the rights of disposal and use the things that Allah bestows upon
him including money where they will be asked in Hereafter; how he earned it and how he spent
it.
To Him belongs what is in the heavens and the earth, and all between them, and all beneath the
soil (Surah Ta Ha, verse 6)
This refer to that Allah has created the heavens and the earth and all things existent therein. He is
the only owner of all things in existence.
And give them something yourselves out of the means which He has given to you (Surah AnNur verse 33)
It refers to anything, including money, in our hand is given by Allah and we are the heirs thereof.
While in the concept of utilization, money is seen as a great Divine favour to the human being
where it is only attributed to mankind. Mankind has no ultimate ownership to the resources on
earth but he has only the right to utilise the resources where by utilising it, mankind can fulfil
their needs and wants. There are several aspects that must be focused on, in the sense of ways in
utilisation and preservation of money. The aspects are debt management, wasting money,
squandering, spending money and earning money.
He it is Who has made the earth subservient to you (i.e. easy for you to walk on, to live in and
to cultivate, etc.), so walk in the path thereof and eat of His provision, and to Him will be the
Resurrection. (Al-Mulk, 67:15)
11

In order to keep up with the changing needs and environment of individuals and society,
it is very important to generate income through halal professions as one of the changing needs is
our wealth. We also should realize that this act also fulfilling the words of Allah s.w.t where
generating income and wealth through halal professions will allow them to earn rewards that will
bring closer to Allah s.w.t (Al-Qaradawi, 2001). In Islam, working through halal professions and
having halal businesses in order to gather wealth is also part of the righteous deeds where it is
very common that most of the Muslims misinterpreted it to only specific acts of worships such as
dhikr (remembrance), solah (prayer), umrah, hajj, sadaqah (charity) and other typical acts of
worship.
Wealth can be either beneficial or detrimental depends on these factors; intention, how
wealth is earned, how wealth is grown, how wealth is spend and the rights of poor and needy.
However, in order to acquire wealth, many Muslims often mislead the ways of how the wealth is
earned even though it is accumulated through haram means. Al-Qaradawi states that the
temptation of wealth does not mean accumulating it through halal means according to the rules
of Islam, rather, it is about being obsessive in acquiring and hoarding wealth, even through
haram means. The temptation of wealth is mentioned by The Prophet Muhammad s.a.w as
below:
Verily, upon every nation is a temptation, and the temptation of my nation is the wealth.
(Related by At-Tirmidhi, no2337; Ibn Hibban, Al-Hakim: Sahih (Authentic) according to AlHakim and agreed by Az-Zahabi. Hasan (good) according to Tirmidhi)
However nowadays, the temptation of gaining more wealth even though it is through
haram means becomes commonly practise. The society becomes more material-oriented
individuals, either ignores or not aware of the lawful and unlawful ways to gain wealth, and
focused too much on this world. Wealthy individuals become wealthier, while the needy become
poorer. Justice among mankinds is ignored. Daily activities containing unlawful matters in terms
of finance are being adopted in the financial framework and done every day such as the adoption
of the interest (riba) framework in the conventional financial institution.
Recently, the emergence and rapid development of the Islamic bank and finance that
adopted the Shariah principle and framework started to open the eyes of the global society
especially among the Muslims about the importance and advantages dealing with Islamic banks.
The awareness regarding the lawful and unlawful matters in finance started to arise besides of
12

mass research and study regarding Islamic banks in terms of development, challenges,
regulations, financial products and services, and the effects to the society as a whole. However,
issues have arisen from the emergence of Islamic banking, saying that Islamic banking is costlier
than the conventional banks. It is not in the matter of cost but it is a righteous act as explained in
the verse below.
Wealth and children are the adornment of the life in this world. But the good righteous deeds
(five compulsory prayers, deeds of obedience towards Allah, remembrance of Allah with
glorification, praises and thanks, etc.), that last, are better rewarded by your Lord and better in
respect of hope. (Al-Kahf, 18: 46)
1.1

History of Islamic Banking

Early Beginning of Islamic Banking

The history of Islamic banking system as a financial institution only starts to make its
impact to the modern banking system with the emergence of two small private Islamic banks in
two different places that is in Pakistan in the 1950s and also in Egypt in 1963. The emergence of
Islamic banking in Egypt started in a small town named Mit Ghamr in 1963 which only lasted
until 1967, by which time there were nine such banks in the country. The institution was founded
and the operation that took the form of a saving bank based on profit-sharing was done
underground because fears of being labeled as a manifestation of Islamic fundamentalism, which
was anathema to the government in power. However, it is also in Egypt that took place of the
arrival of new era in Islamic finance with the establishment of the Nasser Social Bank by the
Government of Egypt in 1971. Since then, the 1970s witnessed the emergence of several Islamic
banks in various Muslim countries such as the Philippine Amanah bank in 1973, the Dubai
Islamic Bank in 1975, the Kuwait House, the Faisal Islamic Bank of Sudan, and the Faisal
Islamic Bank of Egypt, all in 1977, the Bahrain Islamic Bank in 1979, and the Qatar Islamic
Bank in 1981 (Ariff 1988, Wilson 1995, Edward 1999).
The Islamic Development Bank was established in 1975 and it plays an important role to
the establishment of other Islamic banks in various Muslim countries (Haiwad, 2008). Islamic
Development Bank was founded during the first conference of Finance Minister of the
Organization of the Islamic Conference (OIC) and basically the members of Islamic
13

Development Bank is also the members of the Organization of the Islamic Conference. The
purpose of its establishment is to foster the economic development and social progress of
member countries and Muslim communities individually as well as jointly in accordance with
the principles of Shariah.
Evolution and Development of Islamic Banking and Finance; A Report by BNM Special
Session on Islamic Finance and Financial Stability Report (Zeti, 2010)
Islamic banking and finance evolve rapidly throughout the decades since its first
establishment from a fringe industry into an industry that encompasses of banking, insurance
and capital market globally. The landscape of Islamic finance also transform into more diverse
and extensive range of financial products and services.
The evolution in the development regarding the Islamic banking and finance started since
1970s, where during that period Islamic banking serves mostly only in retail banking to its
Muslims customers in their respective countries. But however, Islamic banking develops more
financial products and services throughout every decade. In the 1980s, Islamic banking started
to shift its services towards investment banking, commercial banking, Islamic Insurance
(Takaful), and also project finance and syndication. While in 1990s, services such as equity
funds, leasing and Islamic securitization were introduced. Equities are open as an asset class to
the Islamic investors which gives them the ability to invest in equities. This is because of the
approval by the Islamic Fiqh Academy in Jeddah where it is a major legal body in the Muslims
world. While in the contemporary years, services such as advanced treasury services, balance
sheet management, and innovative asset management are then introduced.
The development of Islamic banking can be seen in the expansion of Islamic finance
assets where the global Islamic finance assets are estimated to be approximately USD1.0 trillion
in 2009, where 82% of the amount is the Islamic banking assets. The Islamic finance assets also
have grown at an impressive CAGR of 14.1% from USD150 billion in the mid-1990s to about
USD1.0 trillion in 2009. The asset expansion also maintained the 28% annual compound growth
achieved in the recent 3 years, 2009 until 2012. While in comparison, asset growth of worlds top
1000 conventional banks slumped to 6.8% during this period of time.

14

The interest in adopting Islamic banking and finance also shows positive growth globally.
This can be seen where countries such as France, United Kingdom, Germany, South Korea,
Japan, Hong Kong, and Australia are starting to offer Islamic finance products and services to
their respective country. This however shows us the strong interest towards Islamic banking from
Non-Muslim countries.
Besides that, the evolution and development can be seen in the Sukuk market and also the
Takaful market. The Sukuk market expanded rapidly since 2001, where the global Sukuk
outstanding reached the USD100 billion mark in 2009 with USD23.3 billion worth of issuances.
While the Takaful market, are expected to grow by 15% to 20% annually and estimated to reach
US$14.4 billion by 2010.
Shariah-compliant funds also show positive and strong growth where it expands at the
rate of 15% to 20% per annum. The total of Islamic funds at the end of 2009 are amounted to
US$52.3 billion and the total number of Islamic funds increased from 200 in 2003 to 671 as at
the end of 2009. The largest composition of Islamic fund is in the form of equities. This shows
that the Islamic fund management industry has vast potential to contribute to the growth of
Islamic finance. Besides that, there are a few of development that have been done in terms of
financial infrastructure in order to maintain its financial stability and standards. The institutions
that have been established are the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI), Islamic Financial Services Board (IFSB), and the International Islamic
Liquidity Management Corporation (IILM).
1.2 Islamic Banking in Malaysia

The first form of Islamic banking activities was started around September 1963 when the
Perbadanan Wang Simpanan Bakal-Bakal Haji (PWSBH) was established by the government.
PWSBH was established in order to be an institution for the Muslims to save their money as a
preparation to perform Haj in Makkah. Later on 1969, PWSBH merge with the Pejabat Urusan
Haji to form a Pilgrims Management and Fund Board where it is known now as the Lembaga
Tabung Haji. There are several types of financing modes known as the Mudarabah (profit and
sharing), Musharakah (joint venture), and Ijara (leasing) during that era in order to invest the
savings of the local Muslims who intent to perform pilgrim (Hajj). The financing modes utilize
15

by the Lemabaga Tabung Haji is under the guidance of the National Fatwah Committee of
Malaysia.
The initial call to propose the form of Islamic Banking was made in 1980, in a seminar
held in the National University of Malaysia. In the seminar, a resolution was made on requesting
the government to pass a special law in order to setup an Islamic bank in Malaysia. Aziz (2001)
stated that, the government responds positively on the request by forming a committee known as
the National Steering Committee in 1981 to study legal, religious and operational aspects of
setting up an Islamic bank. In 1983, the blue print of a modern Islamic banking system was
established by the committee. With the establishment of the blue print, it enabled the government
to establish an Islamic financial institution and to issue non-interest bearing investment
certificates.
In 1993, conventional banks, merchant banks and finance companies start to offer Islamic
banking products and also services under the Islamic Banking Schemes (IBS). In order to
maintain the ethics and principles of Shariah, conventional banks who offer Islamic products and
services must ensure to separate the funds and activities of the Islamic banking transactions from
the non Islamic banking business.
The first Islamic bank in Malaysia was the Bank Islam Malaysia Berhad (BIMB). It was
established in the year of 1983 under the Islamic banking Act. Bank Negara Malaysia introduced
the Interest-Free Banking Scheme in March 1993 where the concept of Islamic banking starts
to take place in Malaysia. The purpose of the introduction of this scheme is to allow the existing
of conventional banks together produced Islamic products and services (Yap.P.L, 2009). While in
1999, the Islamic banking Scheme was established that also include the interest-free banking
system and full-fledged Islamic banks involved in operating Islamic financial products and
services. The second Islamic bank in Malaysia, Bank Muamalat Malaysia Berhad (BMMB) was
established and starts to commence its operations on 1 October 1999. There were 2 full-fledged
Islamic banks and 17 commercial banks offering Islamic window in 2000. While there were 11
full-fledged Islamic banks, 8 commercial banks offering Islamic window, 4 Islamic investment
banks and 5 development institutions offering Islamic banking and products in July 2007. The
rapid growth of Malaysia Islamic banks participation was because of the liberalization policy by
the Malaysian government. Foreign Islamic finance institution, such as the Al-Rajhi Banking and
Investment Corporation, Kuwait Finance House and the Islamic Financial Consortium also starts
16

to enter the Islamic banking industry in Malaysia because of the opportunity and the policy that
was introduced by the Malaysian government.
1.3 Principles and Characteristics of Islamic Banking System

There are two fundamental principles adopted by Islamic banking. The two fundamental
principles are Islamic banking should help in achieving the socio-economic objectives of an
Islamic society and it should be conducted without transgressing any injunctions of the Shariah
principles (Ahmad, 2003). Aziz (2002), stated that the elements that must be inherent to Islamic
banking are the nature of the business of Islamic banking confines its activities to that which is
supported by an underlying productive activity where all financial transactions must be
accompanied by the genuine trade and also business related transaction. Islamic banking also
must not only operates under similar robust prudential regulatory, supervisory and legal
framework that is applied to conventional banking institutions but also this is reinforced by
further by the Shariah framework. The very basic principles under the Shariah framework are the
prohibition of Riba (interest) and also Gharar (ambiguity and injustice). The characteristics of
Islamic banking system are explained in Table 1 while in Table 2, explains the differences
between conventional banking and Islamic banking.

17

Table 1: A Summary of the Characteristics of Islamic Banking System

Characteristics

Islamic Banking System

Business Framework

Based on Shariah laws Shariah scholars ensure

Balance between moral and

adherence to Islamic laws and provide guidance.

The requirement to finance physical assets which banks

material requirement / Ethics

usually take ownership of before reseale reduced over

Equity financing/sharing with risk

extension of credit.
Available. Enables several parties, including the Islamic

to capital and stake taking

bank to provide equity capital to a project or venture.

Losses are shared venture. Losses are shared on the basis
of equity participation while profits are shared on a preagreed ratio. Management of the enterprise can be in one
of several forms depending on whether the financing is

Profit and Loss Sharing

through Mudarabah, Musharakah , etc.

All transactions are based on this principle.
Returns are variable, dependent on bank
performance and not guaranteed. But the risks are
managed to ensure better returns than deposit accounts.
Consumers can participate in the profit upside i.e. in a
more equitable way than receiving a predetermined

Prohibition of Gharar

return.
Transactions deemed Gharar are prohibited. Gharar
demotes varying degrees of deception pertaining to the
price and quality of goods received by a party at the
expense of the other. Derivatives trading e.g. options are
considered as having elements of Gharar.

Table 2: The differences between Islamic banking and conventional banking

18

Conventional Banking
Its function and operations are based fully on

Islamic Banking
Its functions and operations follow the Quran

man-made principles.
In its investment product, the investor is

and the Sunnah as much as possible.

In its investment product, an Islamic bank

promised a fixed rate. In reality, it is a riba-

promotes the sharing risk and profit between

based loan activity.

investor and investment fund manager. There is

no fixed profit promised. Division of profit is

Aiming for profit without religious or moral

based on real profit.

Aiming for profit that adheres to Islamic

boundaries.

discipline that is limited to that which benefit

Aiming for profit without religious or moral

society
Aiming for profit that adheres to Islamic

boundaries.

discipline that is limited to that which benefits

Ignores zakat.

society.
Pays zakat as it is a social responsibility

The retail loan product applies the system of

fulfilled by Islamic bans.

Its retail product utilizes the trading or renting

giving out loans with multiplied interest.

Charging a compounding penalty on a loan if

of an asset, and not the loan contract.

Charges compensation for any late payment,

there is a late payment.

but it does not go toward the banks earnings.

The main priority is to protect the banks

Instead, it is channeled directly to charity.

Emphasize projects that benefit society. The

interest; no priority is given to ensure equity

main aim is to ensure equity development.

development.
Loans given by conventional banks are simple,

Money is not generated through loans. Thus

no asset required. Their concept is money

any loan should have an underlying asset.

breeds money.
Evaluation stresses on the ability of the

Evaluation also stresses on the potential or

borrower to pay off the loan. Not much

viability, performance and prospect of the

attention is given to the progress of the

project that is being financed.

customers project.
Earn revenue from fixed interest charged to the

Profit according to the concept of sharing

customer.

profit-loss; the bank gives more attention on

The bank-customer relationship: loan lender

investing in project development.

The bank-customer relationship: seller, buyer
19

and borrower.

or partner.

Source: (Rahman, 2008)

1.4 Islamic Banking Concepts

There are 9 common Islamic banking concepts based on the Shariah principle ranging
from Wadiah (safekeeping), Mudharabah (profit sharing), Bai Bithaman Ajil (deferred payment
sale), Murabahah (cost plus), Musyarakah (joint venture), Ijarah Thumma Bai`(hire purchase),
Wakalah (agency), Qard (interest-free loan), and Hibah (gift).
The Islamic banking concepts are explained below in Table 2.
Table 3: Islamic Banking Concepts
Wadiah

Yad

Concepts
Dhamanah

guarantee)

(savings

Explanation
with Refers to goods or deposits, which have been
deposited with another person, who is not the
owner, for safekeeping. As wadiah is a trust,
the depository becomes the guarantor and,
therefore guarantees repayment of the whole
amount of the deposits, or any part thereof,
outstanding in the account of depositors, when
demanded. The depositors are not entitled to
any share of the profits but the depository may
provide returns to the depositors as a token of

Mudharabah (profit-sharing)

appreciation.
Refers to an agreement made between a capital
provider and another party (entrepreneur), to
enable the entrepreneur to carry out business
projects, based on a profit sharing basis, of a
pre-agreed ratio. In the case of losses, the

Musyarakah (joint venture)

losses are borne by the provider of the funds.

Refers to a partnership or joint venture for a
20

specific business, whereby the distribution of

profits will be apportioned according to an
agreed ratio. In the event of losses, both parties
will share the losses on the basis of their equity
participation.
Refers to the sale of goods at a price, which

Murabahah (cost plus)

includes a profit margin as agreed to by both

parties. Such sales contract is valid on the
condition that the price, other costs and the
profit margin of the seller are stated at the time
Bai Bithaman Ajil (deferred payment sale)

of the agreement of sale.

Refers to the sale of goods on a deferred
payment basis at a price, which includes a
profit margin agreed to by both parties.
Refers to debt financing, i.e. the

Bai al-Dayn (debt trading)

provision

of

financial

resources

required for production, commerce and

services by way of sale/purchase of
trade documents and papers. Only
documents
arising

evidencing

from

bona

real

fide

debts

merchant

transactions can be traded.

The financier sells an asset to the customer on

Bai al-Inah

a deferred payment and then the financier

immediately repurchases the asset for cash at a
Al-Ijarah

Thumma

subsequently purchase)

al-Bai

(leasing

discount.
and Refers to a Al-Ijarah (leasing/renting) contract
to be followed by Al-Bai (purchase) contract.
Under the first contract, the hirer leases the
goods from the owner at an agreed rental over
a specified period. Upon expiry of the leasing
period, the hirer enters into a second contract
to purchase the goods from the owner at an
21

agreed price.

Ijarah (leasing)

Refers to an arrangement under which the

lessor leases equipment, building or other
facility to a client at an agreed rental against a

Qardhul Hassan (benevolent loan)

fixed charge, as agreed by both parties.

Refers to an interest free loan. The borrower is
only required to repay the principal amount
borrowed, but he may pay an extra amount at
his absolute discretion, as a token of

Bai as-Salam (future delivery)

appreciation.
Refers to an agreement whereby payment is
made in advance for delivery of specified

Bai al-Istijrar (supply contract)

goods in the future.

Refers to an agreement between the client and
the supplier, whereby the supplier agrees to
supply a particular product on an on going
basis, for example monthly, at an agreed price

Kafalah (guarantee)

and on the basis of an agreed mode of payment

Refers to a contract of guarantee by the
contracting party or any third party to
guarantee the performance of the contract

Rahnu (collateralised borrowing)

terms by contracting parties.

Refers to an arrangement whereby a valuable
asset is placed as collateral for debt. The
collateral may be disposed in the event of

Wakalah (nominating another person to act)

default.
Refers to a situation, where a person

Hiwalah (remittance)

nominates another person to act on his behalf.

Refers to a transfer of funds/debt from the
depositors/debtors
receivers/creditors
22

account
account

to
whereby

the
a

commission may be charged for such service.

Sarf (foreign exchange)

Refers to the buying and selling of foreign

Ujr (fee)

currencies.
Refers to commissions or fees charged for

Hibah (gift)

services.
Refers to gifts award voluntarily in return for
loan given.

Source: (Hairun, 2004)

1.5 Justification
Islamic banking and finance evolve rapidly throughout the decades since its first
establishment from a fringe industry into an industry that encompasses of banking, insurance
and capital market globally. The landscape of Islamic finance also transform into more diverse
and extensive range of financial products and services.
The significance and importance of this research paper is to make contribution to the
development of the Islamic financial institution locally and also globally, to introduce Labuan
International Business and Financial Centre as one of the Islamic Financial hub globally, to
identify the risk management faced by Islamic banking and finance, and also to ensure the
resilience and stability of the Islamic financial system.
This research paper aims to uncover the behavioral aspects of Malaysian towards Islamic
banking. Information obtained from this study can be used to help and assist Islamic banking to
enlarge their customer based.
1.6

Research Problem Statement and Questions

Wilson (1995) stated that Islamic banking is no longer regarded as a business entity

striving only to fulfill the religious obligations of the Muslim community, but more significantly,
as a business that is ineluctably in need for winning over customers whilst retaining the old ones.
It is very important for Islamic banking to know the importance of customers perceptions
towards the Shariah framework and also Islamic banking in terms of factors such as service
quality to secure customers loyalty towards them. Islamic banking also must provide education
23

and increase awareness regarding the framework of Shariah principles and information on
Islamic banking to public because most of the Malaysian customers are not aware with the
Shariah principles, having limited knowledge on the framework and the operations of Islamic
banking, and also having different perception on Islamic banking. From the previous study, the
problem statement can be identified where the factors that could lead to the customers behavior
are the level of education of population regarding the concept of Islamic banking, the knowledge
of the Shariah principle and framework, the importance of Islamic banking development to
compete with other financial institution globally and also locally, and also the banking selection
criteria such as customers service, service delivery, confidentiality, size and reputation of the
bank, and convenience that could lead to the intention in dealing with Islamic banking besides
level of awareness towards Shariah principles and Islamic banking.
The study sought to answer the following questions:
1) What is the relationship between the awareness towards Shariah principles used in
Islamic bank and the intention of local people to deal with Islamic bank?
2) What is the degree of awareness among the local people regarding the Shariah principle
used by Islamic bank?
3) What is the level of intention among the locals people in dealing with Islamic banking?
4) What is the ranking of various bank selection criteria as perceived by the local people?

1.7

Objective of Study
In general, this research is conducted in order to explore the factors that influence Malaysian

customers behavior in adopting Islamic bank products and services. Furthermore, this study
aims to achieve the following specific objectives:1. To determine relationship between awareness towards Shariah principles used in
Islamic bank and the intention of locals to deal with Islamic bank.
2. To establish the level of awareness in relation to the Shariah among the Muslims.
3. To establish the level of awareness in relation to the Shariah among the nonMuslims.
4. To establish the intention among the Muslims in dealing with Islamic banks.
24

5. To establish the intention among the non-Muslims in dealing with Islamic banks.
6. To uncover the ranking of various bank selection criteria among the Muslims.
7. To uncover the ranking of various bank selection criteria among the non-Muslims.

1.8

Organization of Research Project

The purpose of this research project is delivering the initial research of the topic which is

the factors that influence Malaysian customers behavior in adopting Islamic bank services until
we determine the end results and findings. It covers five chapter ranging from chapter one until
chapter five.
Chapter One Introduction
This chapter covers mostly on the background and the root of causes of the study. In this chapter,
they are seven sub chapters ranging from the history of Islamic Banking, Islamic banking in
Malaysia, Islamic banking development in Malaysia, the characteristics of Islamic banking
system, justification, problem statement, objective of the study and lastly the organization of the
study
Chapter Two Literature Review
This chapter covers mainly about the proof of reading of literature review that is relevant to the
topic of factors that influence Malaysian customers behavior in adopting Islamic bank products
and services.

25

Chapter Three Methodology

This chapter will cover the research method being implied throughout the study consisting of the
framework, variables and preliminary data analysis techniques. In this chapter, it also covers the
hypothesis for testing and describing the sampling procedures for the research.
Chapter Four Data Analysis
In this chapter, it will cover the analysis of the whole data acquired which are equipped with the
graphical figures.
Chapter Five Conclusions
This chapter will cover the summary and conclusions describing the total finding and future
utilization of the research.

CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter is employed for the critical assessment of the research framework,
hypotheses and the research method in the chosen published in related to this study. Any further
findings and additional information which is deemed usable will be incorporated throughout the
study itself. All the elements of possible dependent variable, independent variable, mediating
variable, and moderating variable will be elaborated thoroughly in this literature review with a
close focus upon each an every elements. A brief discussion regarding the factors that influence
Malaysian customers behavior in adopting Islamic bank products and services.
2.1

Shariah Principles/ Framework of Islamic Banking

Ahmad (2000), Chapra (2000), Warde (2000), Henry and Wilson (2004), Iqbal and

Molyneux (2005), Iqbal and Mirakhor (2007) examined that based from many Islamic banking
literature, Islamic banking have different approach in dealing with financial transaction although
Islamic banks have similar functions to conventional banks. Mirakhor (2000) and Warde (2000)
also stated that Islamic banking have different and unique features compared to the conventional
26

banking where Islamic banking strives for a just, fair and balanced society as envisioned by the
Islamic economics. There are also lot prohibitions such as interest, gambling, excessive risks and
few more to mention are to provide a level playing field to protect the interests and benefits of all
parties involved in market transactions and to promote social harmony (Ahmad, 2000; Chapra,
2000). The elements of injustice (Gharar) also can be seen in the practice of interest (Riba) by
the conventional banking system where the issuance of the loans made by the customers must be
paid to the conventional banks irrespective of the outcomes of their business. This also can be
seen where the interest-bearing contracts can be unjust to the lenders especially when their
returns on deposits, which have been channeled by the banks to the entrepreneurs, do not
commensurate with the actual performance of the investment (Lewis and Algaud, 2000; Iqbal
and Molyneux 2005).
Ahmad (2000) and Iqbal and Molyneux (2005) also state that the framework of Islamic
banking is also based on the principle of brotherhood and cooperation where it consists of a
system of equity sharing and stake taking. This will however will promote sharing and
cooperation among the provider of funds (investor) and the user of funds (entrepreneur). Besides
that, as a system grounded on ethical and moral framework of the Islamic law of Shariah, Islamic
banking is also characterized by ethical norms and social commitments (Ahmad, 2000;
Mirakhor, 2000; Warde, 2000). Chapra (1992) also states that there is a moral filter based on the
definitions of halal (permissible) and haram (prohibited and undesirable) operating at different
levels, carving the conscience of entrepreneur and firm, promoting a positive social climate for
society, and providing an expedient legal framework. Ahmad (2000) also stated that Islamic
banks are prohibited from financing any project such as financing a brewery factory, a casino a
night club or any other activity clearly prohibited by Islam or known to be detrimental to society
which could be a conflict with the moral value system of Islam. The products and services
provided by Islamic banking in Malaysia are listed below in Table 4, 5, 6, 7 and 8.

Table 4: Islamic Banking Products and Services in Malaysia (Deposit)

Products / Services
Savings account-i

Applicable Concepts
Wadiah/Mudharabah

Current account-i

Wadiah/Mudharabah
27

General investment account-i

Special investment account-i
Specific investment account-i

Mudharabah
Mudharabah
Mudharabah

Source: (Hairun, 2004)

Table 5: Islamic Banking Products and Services in Malaysia (Retail Financing)

Products / Services
Cash line facility-i
Computer financing-i
Education financing-i
Hire purchase-i
Home / House financing-i
Land financing-i
Leasing-i
Pawn broking-i
Personal financing-i
Plant & machinery financing-i
Project financing-i
Property financing-i
Share financing facility-i
Shop house financing-i
Sundry financing-i
Umrah & visitation financing-i
Unit trust financing-i
Working capital financing-i

Applicable Concepts
Bai' Bithaman Ajil / Murabahah
Bai' al-Inah / Murabahah
Bai' Bithaman Ajil / Bai' al-Inah
Al-Ijarah Thumma al Bai'
Bai' Bithaman Ajil
Bai' Bithaman Ajil
Ijarah
Ar-Rahnu
Bai' Bithaman Ajil / Bai' al-Inah / Murabahah
Al-Ijarah Thumma al-Bai'
Bai' Bithaman Ajil
Bai' Bithaman Ajil
Bai' Bithaman Ajil / Mudharabah / Musyarakah
Bai' Bithaman Ajil
Bai' Bithaman Ajil
Bai' Bithaman Ajil
Bai' Bithaman Ajil / Mudharabah / Musyarakah
Murabahah

Source: (Hairun, 2004)

Table 6: Islamic Banking Products and Services in Malaysia (Card Services)

Products / Services
Charge card-i
Credit card-i

Applicable Concepts
Qardul Hasan
Bai' al-Inah

Source: (Hairun, 2004)

28

Table 7: Islamic Banking Products and Services in Malaysia (Trade Finance)

Products / Services
Accepted bills-i
Bank guarantee-i
Export credit refinancing-i
Letter of credit-i
Shipping guarantee-i
Trust receipt-i
Source: (Hairun, 2004)

Applicable Concepts
Murabahah
Kafalah
Murabahah
Wakalah / Murabahah / Musyarakah
Kafalah
Murabahah

Table 8: Islamic Banking Products and Services in Malaysia (Banking Services)

Products / Services
Stock broking services
TT / Funds Transfer
Travellers' Cheques
Demand Draft
Cashiers' Order
Standing Instruction
ATM Service
Telebanking

Applicable Concepts
Ujr
Ujr
Ujr
Ujr
Ujr
Ujr
Ujr
Ujr

Source: (Hairun, 2004)

2.2

Impact of Interest Rate

Rosly (1999) had provides the theoretical explanation of the impact of interest rate

changes on Islamic bank performance in the dual system. He emphasizes that Islamic banks are
exposed to interest rate risks and the root cause of this phenomenon is where the profit rate
(financing rate) is fixed. Rosly explains that when interest rates are rising, the base lending rate
(BLR) and rates of return on deposits of the conventional bank would change accordingly to
changes in the market interest rate. As a result, the profit margin of the conventional bank will
not be affected. However, the Islamic bank cannot increase the rate of returns on its deposits
because the profit margin is fixed. As a consequence, Islamic deposits give lower returns. The
29

substitution effect comes into play where depositors prefer the conventional banks. On the asset
side, customers may find that the installments for existing financing are relatively cheaper than
the existing conventional loans during times of rising interest rates. Hence profit motivated
customers would choose Islamic loans financing if they expect interest rates to rise in future.
Hence, the demand for Islamic loans financing would rise. However, the Islamic bank may not
be able to fulfill this increased demand for loans financing due to the fall in total deposits.
As supported by Short (1979), in the case of falling market interest rates, the
conventional bank is able to adjust both the deposit and base lending rates downwards hence
maintaining its profit margin. It is interesting to note that the Islamic bank would also reduce the
rates of return on deposits in line with the conventional deposit rates. Since the profit rate of
Islamic loans financing is fixed, it is rational for the Islamic bank to lower the deposit rates hence
widening its profit margin. In the case of Islamic financing, because existing Islamic loans profit
rates remain fixed customers would find that existing Islamic loans financing is relatively more
costly than existing conventional loans. If customers expect the market interest rate to decline
further, they would prefer conventional loans rather than Islamic loans financing. Hence, the
demand for conventional loan increases while the demand for Islamic loans financing falls. The
above explanation theoretically shows that any changes in the market interest rate would, on the
asset side, lead to a substitution effect between Islamic and conventional bank financing. It is
recognized that the root of this problem is the structural weakness of the fixed Islamic loans rate
mechanism. Hence overdependence on fixed interest rate financing by the Islamic bank has
limited the banks ability to compete with the conventional bank.

2.3

Banking Selection Criteria

There are various differences between the Muslims and non-Muslims regarding the

factors in the bank selection criteria in Malaysia. Basically, factors that are used to measure
30

customers selection criteria can be seen in features such as cost and benefits of products offered,
service delivery (fast and efficient), confidentiality, size and reputation of the bank, convenience
(location and spacious parking space), friends and families influences and friendliness of
personnel (Erol and El-bdour, 1989; Erol et al., 1990; Omer, 1992; Haron et al., 1994; Gerrard
and Cunningham, 1997; Metawa and Almossawi, 1998; Naser et al., 1999; Ahmad and Haron,
2002; Abbas et al., 2003). Besides that, Metawa and Almossawi (1998) have been discussing in
their writings that the factor of religion also plays an important role and criteria for the selection
of Islamic banking services.
Islamic banking is normally known because of its Islamic-compatible formulation as one
of its major factors in the banking selection criteria. But however, based on the previous
empirical studies found that, the factor of religion is not the major criteria for the section of
Islamic banking institutions or services. Many studies and research found that factors such as
cost and benefits, service delivery, size and reputation of the banks, convenience and friendliness
of bank personnel are the important factors for the customers in making their selection in
adopting Islamic banks services and products. Table 9 provides the summary of the customers
selection criteria based on the banking selection criteria on Islamic banking and table 10 provides
the list of Islamic banks in Malaysia.

Table 9: Summary of Customers Selection Criteria Based

31

Source: Dusuki and Abdullah, 2006

Table 10: List of Islamic Banks in Malaysia
Name
Affin Islamic Bank Berhad

Ownership
Local
32

Al Rajhi Banking & Investment Corporation

Foreign

(Malaysia) Berhad
Alliance Islamic Bank Berhad
AmIslamic Bank Berhad
Asian Finance Bank Berhad
Bank Islam Malaysia Berhad
Bank Muamalat Malaysia Berhad
CIMB Islamic Bank Berhad
EONCAP Islamic Bank Berhad
Hong Leong Islamic Bank Berhad
HSBC Amanah Malaysia Berhad
Kuwait Finance House (Malaysia) Berhad
Maybank Islamic Berhad
OCBC Al-Amin Bank Berhad
Public Islamic Bank Berhad
RHB Islamic Bank Berhad
Standard Chartered Saadiq Berhad

Local
Local
Foreign
Local
Local
Local
Local
Local
Foreign
Foreign
Local
Foreign
Local
Local
Foreign

Source: BNM.gov.my, 2009

2.4

Intention towards Dealing with Islamic Banking and Finance

In the theory of planned behavior by Ajzen (1985), the creator of the model himself again

created an analysis based on the theory which described the usefulness of the model in the
intention and behavior environment. Intentions of performing various behaviours have been said
to originated firmly from an individuals attitude and perceive behavioural control. However, the
likeliness of each an every intention subsided by an individual might also varies when it comes
to actual behavior been performed. Other than that, further usability of the theory of planned
behavior could also be achieved in various other segments like the subjective norms and
perceived behavioural control.
Figure 1: Theory of Planned Behaviour

33

Source: people.umass.edu, 2010

Summary
The beginning of the chapter starts with a discussion on the Shariah principle and
framework embrace by Islamic bank. This was followed by a discussion on possible factors that
have been identified to influence the customers behaviour in adopting Islamic bank products and
services. This discussion is supported with empirical evidence and literature reviews where
available. After the preceding analysis of the selected studies of a similar nature, there is a need
for a stronger research framework that would assist in developing better testable hypotheses to
explain the relationship between the awareness towards framework of Islamic bank and the
intention to deal with Islamic bank. In addition, improvements could be made in the research
method and research design, which would be incorporated in this study. The following Chapter 3
explains the theoretical linkages that can be related to this study. It also describes in details the
research method and design employed in this study.
CHAPTER THREE
RESEARCH METHOD
Introduction
In this chapter, matters concerning the research method of this study are elaborated
thoroughly. The chapter started with discussion of the research framework in this study. It
includes the identification and definition of dependent and independent variables, and
34

moderating variables which appear in the research method. This is followed by explanation on
the formulation of the research hypotheses which are tested in this study. This chapter also
discusses the questionnaire design, data collection procedure, identification of population and
selection of final sample. Lastly, it exposes statistical technique to be employed in testing the
formulated hypotheses, subsequently answering the research problems.
3.1

Research Framework and Design

The main objective of this research is to study the behavior of people towards Islamic

banking in the country. In order to achieve the objective and to accomplish this research, there
are three aspects that should be taken in the research framework. The three aspects are:
1) The degree of awareness towards the principle of Islamic bank
2) The ranking of various bank selection criteria
3) The degree of intention to deal with the Islamic bank
The study aim of this research is to determine the relationship between the levels of awareness
towards the Shariah principles used in the Islamic bank and the degree of intention of local
people in Malaysia to deal with Islamic bank. The moderating variable of this study can be
specified as the impact of religion between the aspects of the awareness towards the Shariah
principle of Islamic bank and the intention to deal with Islamic bank.

Theoretical Framework
Figure 2: Research framework of the intention to deal with Islamic Banking affected by
awareness towards Shariah principles of Islamic Banking

35

Awareness towards the

Religion

shariah principles of Islamic

banking

The intention to deal with

Islamic banking

Customers behaviour in
adopting Islamic banking

3.2

Description of Variables
In this part, the measurements of independent variables, dependent variables, and the

moderating variables will be defined thoroughly.

3.2.1

Independent Variables

36

Independent variables can be defined as the variables can be manipulated through many factors
such as demographical factor, level of education, and many more where these variables could
affect the result of the dependent variables. The independent variable for this research is the
degree of awareness towards Shariah principles used by the Islamic bank.
3.2.2

Dependent Variables

Dependent variables can be defined as the primary interest of the researcher in measuring the
impact of the independent variables. The sole dependent variable for this research is the intention
of people in Malaysia to deal with Islamic bank.
3.2.3

Moderating Variables

Moderating variables can be count as the third variables that affect the relationship between two
variables, independent and dependent variables. Moderating variables is very important where it
can make a big impact on the weight, the direction and also the strength between the two
variables. In this study, the moderating variable is the presence of the religion factor where it
could modify the original relationship between independent and dependent variables which this
could affect the behavior of the intention in dealing with Islamic bank.

3.3

Hypothesis of Study
Based from the theoretical framework developed, the hypothesis of the research is

structured according to the variables that were involved. The development of the hypothesis
includes the aspects that are concerned with the key factors that influence the Malaysian
customers behavior in adopting Islamic bank services.
37

Hypothesis One
H1a:

The degree of awareness towards the principles of Islamic bank is positively related to

the intention to deal with Islamic bank.

H1b:

The degree of awareness towards the principles of Islamic bank is negatively related to

the intention to deal with Islamic bank.

Hypothesis Two
H2a:

There is a significant difference between Muslims and Non Muslims in terms of

awareness towards Shariah principles used in Islamic bank.

H2b:

There is no significant difference between Muslims and Non Muslims in terms of

awareness towards Shariah principles used in Islamic bank.

Hypothesis Three
H3s:

There is a significant difference between Muslims and Non Muslims towards the

intention to deal with Islamic bank.

H3b:

There is no significant difference between Muslims and Non Muslims towards the

intention to deal with Islamic bank.

Hypothesis Four
H4a:

There is a significant between Muslims and Non Muslims in the ranking of various bank

selection criteria.
H4b:

There is no significant between Muslims and Non Muslims in the ranking of various bank

selection criteria.

3.4

Sampling Procedure and Sampling Method

Sekaran (2003) stated that, population is defined as an entire group of people, events or

anything in that nature which the researcher desire to explore. It is the group whom the
researcher is able to gather data in order to make conclusions. In this research, the population
consists of Malaysian customers that adopt to the Islamic bank services here in Malaysia. The
customers will be chosen as the respondents in order to meet the objectives of this research.
38

In order to collect the data for this study, questionnaires will be administered at a given
places mainly at various Islamic banks around the country. The population in Malaysia is quite
unique where there are many types of ethnic groups, religions and also different kind of
languages used in the country. The respondents/customers however will be divided into two
types of sub groups in order to ensure the research accuracy. The reliability of an evaluation
indicates the extent to which it is without bias or error free and hence ensures the consistency
magnitudes across time and across the various items in the instrument. The respondents that are
divided into the two sub groups can be specified as:
1) Muslims
2) Non Muslims

To achieve balance collected data between these two groups, the questionnaires
administered will be based on the ratio between these two sub groups in Malaysia. The statistics
data regarding the population in Malaysia is shown in Table 11.

Table 11: Religions in Malaysia

Religions
Muslims
Buddhist
Christian
Hindu
Confucianism, Taoism, and other

Population Percentage
60.4 %
19.2 %
9.1 %
6.3 %
2.6 %

traditional Chinese religions

Unknown
None

1.5 %
0.8 %

Source: CIA.gov, 2000

Based on the statistic data in Table 11, we can analyse that the ratio between the Muslims
and the Non Muslims are 60/40. The total sample of this study is a sample of 400 respondents in
Malaysia. So, the questionnaires administered will be based on the ratio in order to collect
balance data and sample both Muslims respondents and Non Muslims respondents. The

39

questionnaires also will be administered at the four most populated cities in Malaysia which is
Kuala Lumpur, Pulau Pinang, Johor and Kelantan.
The sampling method that will be used in this research is the simple random sampling.
Sekaran (2003) stated that simple random sampling design is the best fitted when generalizability
of the findings to the whole population is the objective of the study. This research opts to use this
type of sampling method because it is easy to be done and the design is non-bias towards the
population sample.
The total sample size of this study is a sample of a 400 respondents is because as stated
by Sekaran (2003), the population size of this study is more than 1000000 so the sample size that
must be determine is at least 384 respondents and rounding up the figure for the research to a
sample of 400 respondents.
3.5

Sources of Data and Data Collection Procedure

There are two types of major sources of data in this research, which is known as the

primary and secondary data. Primary data refers to the information or data gathered for research
from the actual site of occurrence. While secondary data refers to the information gathered from
sources that are already existing (Sekaran, 2003). The examples of primary data is administering
questionnaires to individual, observing and also by interviewing an individual while examples
for secondary data is published journals, government publications, company records, industries
analysis offered by the web sites, internet and media. These sources of data however would
enhance the effectiveness of the research study.
In order to obtain the primary data, collection method via questionnaire will be used.
Questionnaires will be hand out to all identified respondents at certain Islamic bank branches
which can be considered as the customers that adopt Islamic bank services and products.
According to (Andreoni, Errand and Feinstein, 1998), this type of survey method is considered
appropriate because it can include various socio-economic, demographic and attitudinal
variables. There are some processes will be done after the process of handing out the
questionnaires to the respondents ends. The processes are filtering the received survey
questionnaires, so incomplete respond can be excluded from the analysis. Then, information and
data obtained from the completed survey questionnaire will be analysed using the statistical tool.
40

3.6

Questionnaire Design
The questionnaire design will be adapted from other researches that are related to this

type of research. This is because it is more reliable and more related to this research.
3.7

Data Analysis
A range of data analysis techniques is used in this study. The hypotheses testing can

achieve by choosing the appropriate menus of the software program, or to test each of the
hypotheses using the relevant statistical test. Therefore the method of analysis of this study can
test using the t-test and correlation analysis. The results of these tests will determine whether or
not the hypotheses are substantiated. This data has been analysed by using the Statistical Package
for the Social Sciences (SPSS) version 17.0 software.
There are a few stages in analyzing the data that we need to conduct in order to transform
the raw data into useful data. The first stage is to conduct the descriptive test, where in this stage
the raw data will be transformed into the form that would provide information and data that
describe a set of factors in a situation. The purpose is to examine the description of each variable
and summarizes demographic profiles of respondents. In this stage, the descriptive analysis such
as the mean, median, maximum, minimum can be presented. The descriptive analysis also
derived information of skewness, kurtosis and also graphs that this however can assist the
normality testing.
The next stage is to conduct the normality test. The purpose of conducting the normality
test is to determine whether the variable is normally distributed or not. The residuals from a
linear regression model can be figured out by one of the application of the normality test. The
study is also going to measure the correlation and multicollinearity of the variables. Pearson
correlation analysis and spearmans rank order correlation is going to be applied in this test.
Correlation analysis indicates the strength and direction of a linear relationship between two
variables; however it does not establish causality. The correlation coefficient ranges from -1 to
+1, where a value close to zero is no correlation. The existence of a high degree of linear
correlation among two or more variables is called multicollinearity. In the presence of
multicollinearity, it causes difficulty to assess the effect of the independent variables on the
41

dependent variable in a multiple regression mode. Test of multicollinearity is to check correlation

among predictor variables and it is exists when these conditions exist (i) correlation coefficient
predictor variables is equal or greater than 0.8, (ii) variance inflationary factor (VIF) is more than
1.0 and (iii) tolerance (TOL) is less than 0.1.
The final analysis is the individual hypothesis testing. This test assists in answering each
single research question which will be represented under the research objective. This analysis
will provide a degree of positive or negative correlation with its own significance level. The
independent sample t test is to compare the means of a variable between two independent groups,
for instance gender (female and male). The ANOVA test is to compare the means of three of
more groups such as job title (first line management, middle management and top management)
or the fund sized being managed.
Summary
In this chapter, various elements of research method and the research designs that took
place will be explain briefly. This would gives description and better understanding on how the
study will be conducted and the thorough analytical method where the whole elements took
place.

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Exploratory Study, International Journal of Islamic Financial Services, 1(3).
Nienhaus, V.,(1983): Profitability of Islamic PLS banks competing with interest banks : problems and prospects,
Journal of research in Islamic Economics, 1(1): 37-47.
Zaharuddin Abd Rahman (2008), Money, You and Islam : Views on contemporary financial and Islamic banking
issues
Bank Negara Malaysia
http://www.bnm.gov.my/index.php?ch=13&cat=banking&type=IB&fund=0&cu=0
CIA
https://www.cia.gov/library/publications/the-world-factbook/geos/my.html
Meriam-Webster Online Dictionary
http://www.merriam-webster.com/dictionary/economic?show=0&t=1303890164
Overview of Islamic Banking in Malaysia

http://pkukmweb.ukm.my/~hairun/EX3613/Overview%20of%20Islamic
%20Banking%20in%20Malaysia.pdf

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