Globally, the Islamic financial service industry has achieved a remarkable growth with an
estimated growth rate of 10-15% during 1995-1005 (Khan et al, 2008). There were
approximately 180 Islamic Banks and Financial Institutions operating in Asia, Africa, Europe
and USA with more than 8,000 branches with an estimated value of $ 170 billion in 1999
(Kamal, Ahmad and Khalid, 1999). As the people consciousness of Islam is rising, the demand
of Islamic banking will potentially keep growing in the future. According to Islamic Financial
Service Board (IFSB), the total asset of Islamic financial service industry in 2005 were worth
US$ 700 billion in 2005 at an annual growth rate of 15% which increased up to US$ 1.4 trillion
in 2010 and will increase up to US$ 2.8 trillion by 2015.
The first Islamic bank established in Indonesia is PT. Bank Muamalat Indonesia (BMI)
November 1991. In Indonesia, the development of the Islamic banks is quite impressive in
the last decade. The number The Islamic banks in Indonesia are developing as much as 3 % in
2010. With more than 80% of the population consists of Muslims, Indonesia is significantly
potential for Islamic banking products. Particularly in Yogyakarta, the market segment for
Islamic banks has reached 5,8%. According to the data acquired from Bank Indonesia in
Yogyakarta, there were around 87 banks with 416 offices in 2007. As March 2011, the asset
value of Islamic banks in Yogyakarta increased significantly for 14.45% or reached IDR 1.68
trillion from the total asset of banking industry in Yogyakarta, which was accounted for IDR 28
trillion (Bank Indonesia Yogyakarta). This number shows that the prospect for Islamic banks in
Yogyakarta is very significant. It even started to emphasize more of its efforts to develop small
and middle business.
Although the financial service is performed according to Islamic syari‟ah, Islamic
banking are actually very popular even among the non-Muslims in different parts of the world
(Knight, 2007). This industry is now facing a tighter competition since there is an increasingly
large number of international conventional banks entering the Islamic banking industry market
by opening new windows and applying Islamic banking system (Hassan and Ahmed, 2001).
The growing existence of both the conventional banks and the Islamic commercial banks
has given certain pressure and challenge for the Islamic banks. Customers are also more likely to
see Islamic banking products/services as commodities rather than unique products/services
(Rivai et.al. 2007). As the consequences, when competition intensifies and when the
products/services offered are more or less similar, it is important to strengthen marketing strategy
and assess the degree of customer satisfaction towards Islamic bank, especially the one operating
in Islamic countries, since customer satisfaction could influence the performance of an Islamic
bank (Haque, Osman and Ismail, 2009). It is important for banks to have a system by which
consumer satisfaction is continuously measured (Chakravarty et al., 1996). In addition, Islamic
banks need to study customer perceptions to help them market their products effectively (Haron,
Ahmad and Planisek, 1994: Dusuki and Abdullah, 2006; Thambiah, Nathan and Eze, 2008).
Periodic customer surveys to investigate customer awareness and the usage of Islamic banking
products/services also will have an imperative effect on deciding Islamic banks advertising and
promotional strategies along with the media selection. Islamic banks should transform to be a
customer-oriented institutions, by emphasizing on customer needs.
Based on the explanation above, it is important to study the changing behavior, attitude,
and perceptions of their customers especially in the retail sector of the banking business. There
are a lot of questions can be raised related to these issues. This study is designed to identify the
Islamic bank customer profile and banking behavior, including research to find out their
awareness, level of usage, degree of satisfaction with the products and services being used, and
their preferences in choosing Islamic bank.
1.2. Problem Statements
From the background that has been explained, this research is conducted to answer the
research questions below.
Is the customers aware towards various Islamic bank products and services offered in
different Islamic banks?
Is there any relationship between socio-demographic factors and the customer usage of
Islamic bank products and services?
What is the customers satisfaction level towards the Islamic products and services they
What factors are influencing the customers‟ Islamic bank selection criteria?
Is there any relationship between socio-demographic factors and the consumer
preferences on Islamic bank selection?
Is there any differences of Islamic bank consumer preferences among the Islamic banks
1.3. Research Purposes
The purposes of conducting this research are:
To analyze whether the customers are aware towards various Islamic bank products and
services offered in different Islamic banks.
To analyze the relationship between socio-demographic factors and the customer usage
of Islamic bank products and services.
To analyze the customers satisfaction level towards the Islamic products and services
they are using.
To analyze the factors that are influencing the customers‟ Islamic bank selection criteria.
To analyze the relationship between socio-demographic factors and the customers‟
Islamic bank selection criteria.
To analyze the differences of Islamic bank consumer preferences among the Islamic
banks in Yogyakarta.
1.4. Research Motivation
These are what motivate researcher to conduct this research.
1. The growth and development in Islamic banking industry which leads to an increase in
market competitiveness, especially in Indonesia, which makes this issue still interesting
to be investigated in order to understand the Islamic banking market better.
2. Factors that influence the Islamic banking behavior should be continued to be studied in
order to provide guidance and basic concern for marketers to take the right business
decisions as different time might cause different trends in consumer behavior.
1.5. Research Contribution
This research is expected to give some contributions to several parties as follow.
1. Islamic bank management
To provide an up-to-date overview regarding the Islamic bank consumer profile and
behavior, related to their awareness, attitudes, satisfaction, and preferences, and the
relationship between the behavior and socio-demographic factors, so that it can be used
as inputs for Islamic bank managers to understand the consumers better to make the right
marketing decision in the competitive market.
2. Research and academic world
To yield a research which could be utilized as a literature for enhancing the interest and
development of marketing, concerning consumer behavior covering its awareness,
attitudes, and preferences towards Islamic banks in particular, and to push ahead better
research on it.
As a means to deepen the understanding and comprehension concerning consumer
behavior towards Islamic banks, particularly related to consumer awareness, attitudes and
preferences in choosing Islamic banks.
1.6. Writing System
CHAPTER 1 INTRODUCTION
This chapter provides descriptions about the background of this research, problem
statements, research motivation, research contribution, research purposes, and writing
system of this overall thesis.
CHAPTER 2 THEORITICAL FRAMEWORK AND HYPOTHESES DEVELOPMENT
This chapter contains of relevant theoretical overview which is used by the researcher to
sustain this research. It comprises the literature review of consumer behavior,
preferences, attitudes, awareness, and satisfaction related to Islamic banking industry,
highlights from previous researches, and hypotheses formulation.
CHAPTER 3 RESEARCH METHODOLOGY
This chapter explains about the methodology of this research. It consists of population
and sample, type and source of data, data collection method, and data analysis method.
CHAPTER 4 DATA ANALYSIS
Data that has been collected through the chosen sampling method and processed using
the statistical software are interpreted in this chapter.
CHAPTER 5 CONCLUSION AND RECOMMENDATION
This chapter provides conclussion regarding the results of this research by answering the
questions in the problem statements, research implications, research limitations, and
some useful recommendations for the next researchers to build a better research.
THEORETICAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT
2.1. Theoretical Framework
Generally, Islamic bank can be defined as a non-interest based financial institution which
complies fully with Islamic laws and has creative and progressive financial engineering to offer
efficient and competitive banking, investment, trade finance, commercial, and real estate
financing services (Abdul Qawi and Lynn, 2001). Islamic banking prohibits riba or interest. It
pays the investor profit-sharing dividends and offer borrowers fixed repayment rates.
Conventional interest rates are deemed not „halal‟ or legitimate by Islamic laws (Kamus Perwira,
1998:451). According to Metawa and Almossawi (1998), most of Islamic banking customers are
aware of the different philosophies Islamic banking system has compared to the conventional
system. Muslims in South Africa are aware of Islamic banks in general. However, the usage rate
is low because Muslim customers regard efficiency, lower bank charges, the availability of
automatic teller machines and an extensive branch network as important factors for choosing
bank service, rather than religious motivations (Saini, Bick, and Abdulla, 2010).
To face the competition, the execution of marketing strategies becomes important, as well
as customer satisfaction as a chief element in it. The term “after marketing” has been widely
used to mean focusing attention and efforts on current customers in order to maximize their
satisfaction so to secure their retention (Vavra, 1995). Royal Bank of Scotland uses customer
satisfaction to help plot the course toward its vision for the future. The bank is concerned about
profitable customer behavior in terms of the “3Rs: remaining with the bank, referring the bank to
friends, and repurchasing from the bank” (IJRDM, 1995).
Customer satisfaction is the feeling or attitude of a consumer toward a product/service
after it has been used (Solomon, 1996; Wells and Prensky, 1996). A satisfied consumer will
repeat the purchase of the product and convey positive messages about it to others (Dispensa,
1997). On the contrary, dissatisfied customer is more likely to switch to an alternative
products/service, even give negative word of mouth that may damage the company's image. This
has led to the increasing popularity of measuring customer satisfaction in recent years (Gulledge,
1996). It was reported that in order to satisfy customers, banks use different kinds of tools,
ranging from re engineering all services to focusing on some specific services (Motley, 1994). It
is essential for a present-day bank to switch from managing means to managing customers in
order to satisfy them with the whole services they offer. Therefore, it is important for banks to
have a system by which consumer satisfaction is continuously measured (Chakravarty et al.,
1996; Chitwood, 1996; Morrall, 1996; Noe, 1996; Romano and Sanfillipo, 1996). In addition,
Metawa and Almossawi (1998) also found that customers' attitudes, perceptions and degree of
satisfaction with the current products/services offered by Islamic banks are likely to be
influenced by their previous banking experience (Metawa and Almossawi, 1998).
Every individual has different in purchasing and consuming products/services started
from information seeking process. According to Kotler (1994), consumer behavior influenced by
external factors, such as cultural and social factors, and internal factors, such as personality and
psychological factors. Consumer behavior comprises the activities undertaken when obtaining,
consuming and disposing of products and services (Blackwell, Miniard and Engel, 2006).
The Islamic banking market in Indonesia consists of three different segments: Shari‟ah
Loyalist, Floating Market, and Conventional Loyalist. Those have similar behavior in choosing
the bank, which determined by product functionality, product form, and life style, with the
difference only in priority.
Bank selection criteria always become an interesting topic for researchers to be studied.
From the studies, several attributes were found to play essential roles in the process of bank
selection. Those attributes are, for example availability of credit, relatives‟/friends‟ advice and
recommendation, convenient location, variety of bank services, the quality of services,
availability of ATM, adequate bank hours, return on investment, friendliness of personnel,
understanding financial needs, special services for women, and bank name. The relative
importance of each of those attributes differs from one market to another depending on: the type
of institution (Islamic bank or commercial bank), the customers‟ level of education, age, income
and occupation (Haron et al., 1994; Hegazy, 1995; Kaynak and Yavas, 1985; Laroche et al.,
Using consumer decision making process as a framework, Karim and Affif (2005)
investigated Islamic banking consumer behavior in Indonesia and found two important factors in
the selection of a bank: product functionality and service quality. In his findings, Hegazy (1995)
showed the most important factor for Islamic bank selection criteria, which was the advice and
recommendations made by relatives and friends. Convenience of location, friendliness of
personnel, the bank‟s vision of serving the community regardless of the expected profitability,
timeliness, and efficiency were also found to play important roles in the selection of Islamic
banks (Hegazy, 2005).
There are three most important factor in the selection of Islamic banks: adherence to
Islamic principle, rate of return, reference-oriented factor (Metawa and Almossawi, 1998;
Hegazy, 1995; Laroche et al., 1986). Based on the research done by Islamic Banking Directorate
and Bogor Agricultural University (2004) in South Kalimantan, the reasons of choosing Islamic
bank will be because of the Islamic regulations, accessibility, professionalism in service,
credibility, and facility. Meanwhile, the type of product of Islamic bank people usually use is
mudharabah saving account. The research which was done by Erol and El-Bdour (1989) and
Erol, Kaynak and El-Bdour (1990) was able to identify that religious motivation was not a
primary criterion in selecting Islamic bank, but there are three non religious related key selection
criteria: fast and efficient services, reputation and confidentiality.
The study of Khoirunissa (2003) proved that economic factors, such as receiving
economic benefits, quick services, online facilities, easy reachable locations, and healthy
financial systems, as well as religious factors and external factors are influencing consumers‟
decision in choosing Islamic banks. Gerrard and Cunningham (1997) found that the reason for
choosing Islamic banks will be influenced by its expeditious service, secrecy, reputation, image,
light costs of checking, as well as the parking facility. The other study has been conducted by
Bank Indonesia and Universitas Diponegoro to analyze the potency, preference, and behavior of
society to Islamic banking in Central Java and Yogyakarta, found that the society preferences
toward Islamic banks are influenced by its relative profit, compatibility, comprehensiveness, and
Khoirunissa (2003) stated in her research that there are differences in religious preference
and external party influence between one bank to another, which in her study she investigated the
consumer preferences of Bank Muamalat Indonesia and Bank BNI Syariah.
In banking industry, which belongs to service industry, the determination of quality
depends on what customers are experiencing during delivery process. Service is intangible
product where it is experienced while it is being produced, which is different compared to
tangible products. Quality perceptions and the relationship between service satisfaction and
quality are important (Taylor et al., 1994). Some reserachers in their study found evidence to
suggest that service quality leads to customer satisfaction which will help keeping existing
customers and attracting new ones (Keiser, 1993). However, some banks go even beyond service
quality and come up to suggest “service excellence” (Mahoney, 1994).
Unfortunately, it is not easy to convert the service excellence into a high performance
customer satisfaction (Subkhan, 2012). MarkPlus Insight (2012) has developed more
comprehensive measurement method from service excellence to be branded service with the help
of service blueprint which finally became 'care with character' concept by applying value-based
principles. The measurement it has developed from the findings consists of several attributes:
credibility, dependability, courtesy, comfortability, and connectivity, which is influenced
indirectly by the character of employees consisting of trustworthiness, responsibility, respect,
fairness, and corporate citizenship.
Dusuki and Abdullah (2006) explained that Islamic bankers can no longer depend on
promoting the Islamic factor but also service quality. They also found Their survey the three
most important factors, which were competence, friendliness and customer service quality.
Gerrard and Cunningham‟s (1997) study stressed the significance of customer awareness,
product knowledge and informative advertising campaigns. The need to create awareness,
enhance product knowledge and improve promotional campaigns is supported by Haron et al.
(1994), Bley and Kuehn (2004), Dusuki and Abdullah (2006) to combat growing competition
from both Islamic and conventional banking products.
The research conducted by Rivai et.al. (2007) explained that the respondents‟ choice for
using Islamic banks saving and credit services is based on economic factors, compatibility with
needs, and perception related to simplicity of requirements. From the analysis, it is shown that
the demographic factors are significantly correlated with the type of banks chosen. The findings
showed five dimension determining consumer behavior in selecting Islamic bank: attitudes,
personal selling, family, costs and benefit, religion.
2.2. Hypothesis Development
Based on the theoretical framework and previous researches, the hypothesis for this
research can be formulated as follows:
• The customers' level of awareness towards various Islamic bank products and
services offered in different Islamic banks are not very high.
• There is a relationship between socio-demographic factors and the customer usage of
Islamic bank products and services.
• The customers satisfaction level towards the Islamic products and services they are
using are not very high.
• There are several factors that are influencing the customers‟ Islamic bank selection
criteria, including religious factor, economic factor, service quality, and
• There is a relationship between socio-demographic factors and the customers‟ Islamic
bank selection criteria.
• There are differences of Islamic bank consumer preferences among the Islamic banks
3.1. Population and Sample
The population is the entire group of the study (Malhotra & Birks, 2007). The population
in this research is all Islamic banks customers in Yogyakarta.
Judgment sampling which is a type of purposive sampling will be applied. Judgment
sampling involves the choice of subjects who are most advantageously placed or in the best
position to provide the information required (Sekaran, 2003). It is chosen for the reason that the
customers selected through it will be the ones which can provide the information that is sought.
The selection criteria is that the respondents are customers of Islamic banks in Yogyakarta,
particularly the customers of BTN Syariah, Bank Muamalat, CIMB Niaga Syariah, BNI Syariah,
BRI Syariah, and Bank Mandiri Syariah.
3.2. Data Collection
3.2.1. Type of Data
This research uses both primary and secondary data. The secondary data consists of
information related to banking condition globally and in Indonesia, and also demographic and
socio-economic condition in Yogyakarta, including population, bank numbers and distribution,
Islamic banking market condition, and etc. The primary data which is related to the banking
behavior of Islamic banks customers are gathered by distributing questionnaires to several
Islamic banks customers in Yogyakarta chosen as respondents.
3.2.2. Source of Data
The secondary data are taken from related institutions, such as BPS (Badan Pusat
Statistik) Daerah Istimewa Yogyakarta, and other sources, such as newspapers, magazines,
journals, and related websites. The primary data are obtained through distributing questionnaires
directly to the respondents.
3.3. Data Collection Methodology
A focus group discussion to get more insights about the attributes of banking behavior
will be conducted prior to formulating the questionnaires. A pilot study of 10 questionnaires will
be conducted to check the validity and reliability of the questions included in the questionnaire.
The test will be conducted using SPSS program. The validity can be shown from the correlation
value, while reliability can be seen from the cronbach alpha value. From the feedback acquired,
several improvements are going to be made before distribution of the questionnaire. Around 120
questionnaires are going to be hand distributed to the account holders of six Islamic banks in
Yogyakarta as stated above. The process of data collection will be done from Mei until June
3.4. Data Analysis Methodology
To perform the statistical analyzing method, the researcher uses SPSS.
3.4.1. Descriptive Statistics
This descriptive statistics is performed to yield characteristics of the data through means,
frequency, and percentage of variables used in the research.
3.4.2. Profile Analysis
To classify a particular set of subjects according to a particular number of relevant
attributes, the profile analysis method will be used.
3.4.3. Chi-Square Test
To examine the relationship between the socio-demographic factors and the usage of
Islamic usage of products/services and between the socio-demographic factors and the Islamic
bank selection criteria, the chi-square tests will be conducted.
3.4.4. Analysis of Variance (ANOVA)
ANOVA is used to test whether there is a significant difference between two or more
comparable means. In this research, it is applicable to see the differences of consumer
preferences among six Islamic banks in Yogyakarta.
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