EVALUATING THE SERVICE QUALITY OF MALAYSIAN ISLAMIC BANKS: AN

Thaker, Khaliq, and Thaker

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Evaluating the Service Quality of Malaysian Islamic Banks: An Importance-Performance Analysis Approach Hassanudin Mohd Thas Thaker* Faculty of Business Economics and Accounting HELP University, 50490, Kuala Lumpur, Malaysia *Corresponding Author: [email protected] Ahmad Khaliq and Mohamed Asmy Mohd Thas Thaker Faculty of Economics and Management Sciences International Islamic University Malaysia Jalan Gombak,53100, Kuala Lumpur

ABSTRACT This study was designed to evaluate the service quality of Malaysian Islamic banking from the customer’s perspective. The primary data was collected by administering survey questions in Klang Valley (Selangor and Kuala Lumpur), and the analysis was conducted using importance-performance analysis (IPA). The results revealed that service quality attributes such as Shariah requirements, reliability, assurance, responsiveness, website efficiency, and tangibility play an important role in determining customer satisfaction with Malaysian Islamic banks. These findings should assist market players, particularly the Malaysian Islamic banking industry, and policy makers in understanding and enhancing customer satisfaction regarding the quality of service offered by the Islamic banking industry in Malaysia. The research findings could also be used as part of the blueprints for market players to draft the necessary policies with regard to service quality of the banking industry. Keywords: Service quality, importance-performance analysis, Islamic banking, Malaysia

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1.

Evaluating the Service Quality of Malaysian Islamic Banks: An Importance-Performance Analysis Approach

INTRODUCTION

The rapid growth of Islamic financial institutions, specifically Islamicoriented banks, in Malaysia is aligned with the local government’s aspiration. This is to create a wise banking environment that retains the aspired ethical banking and usury-free values that instill professionalism in each banker, hence producing a prudent Islamic banking hub for the region. This step is taken with the aim of reaching the status of a developed nation by the year 2020. At present, there are 16 Islamic banks under the governance of the Central Bank of Malaysia (BNM), inclusive of six that are holding foreign ownership in Malaysia [Bank Negara, Malaysia, 2009]. In an era of globalization and increased competitiveness, depositors or bank customers tend to look for a versatile bank that is able to meet their financial needs at the optimal level. Financial organizations, on the other hand, must maintain their best level of performance in order to satisfy customers for the sake of improving profitability and market share and in order to survive the competition. If Islamic banks now operating in Malaysia are not aligned with the appropriate level of service quality, this situation could contribute to a serious financing problem in the country. This statement is in line with the finding of Abdelghani and Oladokun [2012], whose study proved that the quality of services offered by Islamic banks significantly contributes to the preference made by their customers. The International Development Bank (IDB) itself stresses the importance of delivering service quality. The IDB’s substantial role is “to establish an international financial institution to foster the economic development and social progress of member countries and Muslim communities in non-member countries in accordance with the principles of Shariah." This role was established during the first conference that convened at Jeddah in 1973 [Ali, 2000], which was attended by the finance ministers of the member countries of the Organisation of Islamic Cooperation (OIC). Definition of IDB’s role shows the crucial need to quantify service quality in daily banking transactions. Hence, banks that practice prudent character in their operation will contribute to economic progressiveness. Although a substantial number of studies have been conducted regarding service quality [Bolton and Drew, 1991; Parasuraman et al., 1988, 1991], limited research, if any, has been conducted regarding the service quality of Islamic banking. Such quality simultaneously measures factors such as Shariah requirements, reliability, assurance, responsiveness, website efficiency, and tangibility. The current study contributes to the extant literature by using the

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importance-performance analysis (IPA) method, which Rial et al. [2008] indicated is sufficiently sophisticated to identify the strong and the weak aspects and improvement areas of a given service. Ample studies have been conducted on the service quality of service industries in developed countries [Herbig and Genestre, 1996; Yavas, Bilgin, and Shemwell, 1997]. It is equally important, however, to study societal conduct and preferences in emerging countries, where service industries are among the fastest‐ growing sectors. The aim of the current study, therefore, is to measure the service quality of a portfolio of selected Islamic banks operating in Malaysia. This research is vital because development of the Islamic banking industry over the years has altered the entire landscape of the Malaysian financial system. As a further contribution, the current study highlights the experience of Islamic bank customers and the need for improvement of service quality among Islamic banks within a local context. This paper is organized into seven sections. Section 2 presents a literature review pertaining to Islamic banks, particularly those operating in Malaysia, and to the dimensions of service quality at these banks. Section 3 sets forth the two hypotheses developed in the current study, based on the literature review. Section 4 discusses the methodology for the current study, including data, importanceperformance analysis, and the research framework. Section 5 discusses the research findings, and Section 6 presents study conclusions. Section 7 discusses limitations of the current study and offers suggestions for future research.

2.

LITERATURE REVIEW

Islamic banking refers to a banking system that operates in compliance with Islamic law, also known as Shariah law. The underlying principles governing this banking system are mutual risk and profit-sharing, assurance of fairness between the parties, and assurance that all transactions are based on an underlying asset or business activity. Malaysia plays an iconic role in Islamic banking [Ariff, 2014]. The Islamic banking industry in Malaysia has grown tremendously since it first emerged in the 1970s with the concept of Tabung Haji (Pilgrimage Fund). Up to the year 2014, this industry valued its global assets and assets under management at USD 2 trillion [Malone, 2014]. Moreover, according to Ernst and Young [2014], participatory banking in Malaysia is growing at a rate of 20.7% and, in 2013, was valued at USD 10 billion worldwide.


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Over the last few years, the service quality experienced within Islamic banks has changed dramatically. With the onset of challenging economic conditions, Islamic banks opted to compete in terms of providing healthier services rather than to compete merely on product development among banks. Existing literature indicates that, when organizations deliver superior service quality, such quality helps improve the performance of the institutions. To illustrate, studies conducted by Julian and Ramaseshan [1994] and Zeithaml [1996] verified that providing high service quality improved reputation, enhanced buyer retention, attracted fresh clientele through oral messages, and escalated financial performance and profitability. In addition, in their study on the antecedents of service quality and their influence on bank reputation, Wang, Lo, and Hui [2003] found that delivering a quality service to customers was essential for success and survival in today’s competitive banking environment. Conversely, a study by Ch et al. [2015] demonstrated that the service trades in Pakistan decided that service quality was insignificant with regard to firm performance. This decision could be the reason that Pakistan has limited participation in the world service market. The study by Ch et al. [2015] includes a general observation of relationships in a range of operating contexts. Compliance with Shariah or Islamic law is the core requisite for any operation of Islamic banks [Siddiqi, 1983, 1985, 2001; Ahmad, 1984, 2000; Khan and Mirakhor, 1986]. The word Shariah technically originates from Shara’a, which, in the dictionary of the Quran, connects to the idea of “spiritual law,” “system of divine law,” and “way of belief and practice” [Omar, 2010]. Many studies have indicated that the Shariah element is the core factor in choosing Islamic banks because it guarantees the credibility of the banking system and instills confidence in the stakeholder [Metawa and Almossawi, 1998; Archer and Karim, 2002]. In their study, Chapra and Khan [2000] found that, although Islamic banks appear similar to interest-based institutions, there are significant differences between the two for a number of reasons. According to Jalil and Rahman [2010] and Imam and Kpodar [2010], the major factor in ensuring socioeconomic development is to eliminate fraud and uncertainty (Gharar) in the practice of Islamic banks, thus resulting in practices in accordance with Islamic principles and guidelines. In their study, Amin, Isa, and Fontaine [2013] found that the ultimate reason that Muslims bind relationships with Islamic banks is the trust element that Islamic banks possess, which can be decoded as full compliance with the necessary Islamic principles. The Shariah advisory board in each Islamic bank stresses the importance of maintaining the International Journal of Business and Information


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element of Shariah compliance in banking practices. Sayani [2015] found that customers of Islamic banks were satisfied with the Shariah advisory board and tangibility matters and admired the responsiveness of the staff. Therefore, in order to maintain and magnify their customer base, Islamic banks must understand that the Shariah requirement is crucial to upholding service quality. On the other hand, a study by Chong and Liu [2009] showed that, although Islamic banks seem theoretically to apply the profit and loss sharing (PLS) concept, in practice the banking system does not differ much from conventional practice. Their study, which was conducted in Malaysia, revealed that only a slight portion of the financing by Islamic banks strictly reflects the PLS-based concept. However, Islamic deposits still entail interest, which is closely pegged to the conventional deposit rate. An earlier work on service quality by Parasuraman, Zeithaml, and Berry [1988] sought to develop a general instrument for measuring service quality. In their research, they identified the following five dimensions of service quality: 1. Tangibility (appearance of physical components) 2. Reliability (dependability of service provider and accuracy of performance 3. Responsiveness (promptness and helpfulness) 4. Assurance (knowledge and courtesy of employees and their ability to inspire trust and confidence) 5. Empathy (caring, individualized attention that the firm gives its customers) In their study of customer preferences in Malaysian Islamic banking practices, Amin and Isa [2008] found that Malaysian customers identified the following four key criteria with regard to their satisfaction with bank services: speed, tangibility, friendliness of bank personnel, and reliability. In their study, Al‐Tamimi and Al‐Amiri [2003] measured the service quality of two Islamic banks (Abu Dhabi Islamic Banks and Dubai Islamic Bank) and found that reliability was deemed to be the most important dimension in their instrument. Subsequently, Amirzadeh and Shoorvarzy [2013], found that short and suitable queue and confident and reliable staff were the most prioritized quality factors in the Iranian Islamic banking service. Rehman [2012] found that customers in Pakistani and UK Islamic banks considered assurance, reliability, Volume 11, Number 3, September 2016

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and empathy as weighty factors for customer satisfaction, but that patrons of Islamic banks in the United Arab Emirate considered assurance and tangibility as significant dimensions of satisfaction. With regard to website efficiency, it is well accepted by scholars and practitioners that internet-based applications have become important tools for product marketing for many businesses [Dixon and Marston, 2005; Tih and Ennis, 2007]. Although a few community banks in the United States were initially moderate in using these evolving technologies, today most commercial banks offer rigorous and wider banking services online [Lee, Kwon, and Schumann, 2005]. In addition, a pleasing website interface, ease of navigation, and the presence of transparent information on websites seem crucial to attract more patrons. It is important, therefore, to consider website efficiency in measuring customer satisfaction, in addition to the other dimensions discussed. In service industries, it appears that, when customers receive certain satisfaction from a brand, they tend to build a positive behavioral attitude toward that brand [Nguyen and Leclerc, 2011]. In this respect, the literature reveals that important determinants of service quality measurement include satisfaction derived from the service provided, such as Shariah requirement [Ahmad and Haron, 2002], reliability, assurance, tangibility, responsiveness [Parasuraman, Zeithaml, and Berry, 1988], and website efficiency [Dixon and Marston, 2005]. The variables and dimensions discussed in the preceding paragraphs seem quite crucial in the decision-making process involving bank managers, particularly while strategizing techniques to attract more depositors and customers. The current study, therefore, aims to evaluate the level of customer satisfaction based on service quality offered by Malaysian Islamic banks. 3.

HYPOTHESIS DEVELOPMENT

In accordance with findings in extant literature, the current study developed the following hypotheses for testing:

H 0 = There is no significant statistical difference between mean of importance and mean of satisfaction.

H 1 = There is significant statistical difference between mean of importance and mean of satisfaction.



4.

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METHODOLOGY

This section discusses data collection, importance and performance analysis (IPA), and the framework for the current research effort. 4.1. Data Collection The population for this study comprised existing customers of Islamic banking services in Malaysia. The area of study was the Klang Valley (Selangor and Kuala Lumpur). This area was chosen because of its high number of customers using Islamic banking services. In any research, a proper sampling technique is important in order to have a precise and unbiased sample that represents the whole population. This study opted for a random sampling method. A total of 300 samples were drawn from the population, and a set of questionnaires was administered in person to each of the selected respondents. This study used an English-Malay bilingual questionnaire distributed in person by the researchers and a group of assistant researchers. The respondents were given a simple briefing about the study and a time frame for completing the questionnaire. Of the 300 questionnaires distributed, only 160 effective responses (53.3% effective rate of return) were used in the data analysis procedure. 4.2. Importance and Performance Analysis (IPA) Importance and performance analysis (IPA) was used in the present study to provide a visual analysis of customer evaluations of Islamic banking services. The IPA method has been widely used to measure customer satisfaction and service quality [Hamid et al, 2014; Ainin and Hisham, 2008]. It is also known as importance–satisfaction analysis. The basic idea of the analysis is to investigate the importance of an attribute and the level of customer satisfaction toward that attribute. In the current study, customer evaluations were plotted on importanceperformance grids (Figure 1) in one of four quadrants labeled concentrate here (quadrant 1), keep up the good work (quadrant II), low priority (quadrant III), and possible overkill (quadrant IV) [Martilla and James, 1977]. I.

Concentrate here – High importance, low performance: Requires immediate attention for improvement and represents major weaknesses


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II. Keep up with the good work – High importance, high performance: Indicates opportunities for achieving or maintaining competitive advantage and represents major strengths III. Low priority – Low importance, low performance: Indicates minor weaknesses that do not require additional effort IV. Possible overkill – Low importance, high performance: Indicates that business resources committed to these attributes would be overkill and should be deployed elsewhere

Source: Martilla and James [1977].

Figure 1. Importance and Performance Analysis (IPA) Model

4.3. Research Framework Based on the literature review, the authors developed a research framework for the current study (Figure 2). As indicated, this study mainly focuses on service qualities comprising Shariah requirements, reliability, assurance, responsiveness, website efficiency, and tangibility. Because Malaysia has a dual banking system, these dimensions play an important role in Malaysian Islamic banking in terms of maintaining a competitive edge over conventional banks. The current study differs from other studies because it includes existing customers who have subscribed to Islamic financial products and because both fully fledged and Islamic banks have been targeted in the research.



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Shariah Requirements

Reliability

Assurance

Dimension of Islamic Bank Service Quality

Responsiveness

Website Efficiency

Tangibility

Figure 2. Research Framework: Service Quality Dimensions of Islamic Banks

5.

FINDINGS AND DISCUSSION

This section presents the findings of the current study. The discussion includes a demographic profile of respondents, an importance and satisfaction evaluation with gap analysis, paired–sampled t-test, and importance– performance classification. Table 1 presents the demographic profile of respondents in the current study, including gender, age, race, education, marital status, and employment level. Of the 160 respondents, 48.8% were male and 51.3% were female. This data reflects the fact that, in general, the number of female clients in Islamic banks is higher than the number of male clients. In terms of age, 42.4% of the respondents were between 21 and 30 years old. This percentage seems to be consistent with the study by Metawa and Almossawi [1998], which suggested that focusing on respondents within this age range would provide a more vivid idea of the policies and areas to improve. In terms of race, the highest percentage was Malay (68.1%), followed by Chinese (18.1%), Indian (9.4%), and “other” (4.4%). The descriptive statistics in Table 1 also indicate that the respondents had a good education background, with 54.4% holding a bachelor’s degree, 26.3% having a master’s degree, and 4.4% holding a doctorate. The remaining 15% had an SPM/diploma. In terms of marital status, 51.3% were married, 45.3% were single, and 3.1% were divorced. Regarding employment, 37.1% were employed in the private sector, followed by 25.8% in the public sector; 20.8%, who were self-employed; and 16.4%, who were in the category of “other.”


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Evaluating the Service Quality of Malaysian Islamic Banks: An Importance-Performance Analysis Approach Table 1 Demographic Profile of Respondents in Current Study (N = 160)

Gender Age

Race

Education

Marital Status Employment Sector

Valid Percentage (%) Male 48.8 Female 51.3 20 years or below 8.1 21-30 years 42.4 31-40 years 29.4 41-50 years 10.0 Above 50 years 10.0 Malay 68.1 Chinese 18.1 Indian 9.4 Other 4.4 SPM/diploma/A-level/O-level 15.0 Bachelor’s degree 54.4 Master’s degree 26.3 Ph.D. 4.40 Single 45.3 Married 51.3 Divorced 3.10 Public sector 25.8 Private sector 37.1 Self-employed 20.8 Other 16.4

Table 2 presents the results of mean of importance, satisfaction, Cronbach alpha, and gap analysis of the service quality of Malaysian Islamic banks. In terms of importance, the range of mean is from 4.2625 to 4.7438. With regard to satisfaction level, the range of mean is from 2.3438 to 4.2063. In order to test the sample consistency or reliability, the authors applied the Cronbach’s (α) alpha test. The result postulates that the value ranges from 0.810 to 0.919, which is greater than the rule of thumb (0.70). Table 2 also depicts the overall grand mean for the importance (4.4083) and satisfaction (3.4211) levels. The grand mean was derived by adding the entire individual mean and dividing the sum by the number of observations. Table 2 also presents the value for the gap analysis, which was computed using the formula shown in Figure 3.



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Table 2 Importance of and Satisfaction with Service Quality of Malaysian Islamic Banks from Customer Perspective Variable (a) SHARIAH REQUIREMENTS 1. The product is in line with Islamic principle and guidelines. 2. The product offered is based on Islamic philosophy. 3. The product offered is based on Al-Quran and Sunnah. 4. The product offered is free from fraud and the Gharar (uncertainty) element. (b) RELIABILITY 5. Ability to keep the transaction process secure 6. Ability to maintain accuracy of bank statement 7. Ability in keep all information confidential 8. Banking service that increases customer confidence and trust (c) ASSURANCE 9. Islamic bank ability to provide services to the customer as needed 10. Islamic bank ability to deliver accurate information to the customer 11. Islamic bank ability to honor its commitment 12. Islamic bank ability to provide after-sale services (d) RESPONSIVENESS 13. Ability of staff to handle complaints from customer 14. Ability of staff to give proper explanation to the customer 15. Ability of staff to understand Islamic financial products 16. Ability of staff to provide customer precise personnel services

Means Importance (α = 0.870) 4.7438

Satisfaction (α = 0.909) 4.0938

Gap Analysis 0.8598

4.6625

4.1375

0.8043

4.6688

4.2063

0.7412

4.6688

4.1750

0.7703

Importance (α = 0.909) 4.3375


Gap Analysis 1.0030

4.2938

3.8438

0.9929

4.3875 4.3875

4.0813 3.8938

0.8062 0.9707

Importance (α = 0.894) 4.2875


Gap Analysis 1.3398

4.4000

3.4250

1.3860

4.3438

3.6500

1.1728

4.3375

3.3563

1.4260

Importance (α = 0.874) 4.3500


Gap Analysis 1.5660

4.3250

3.1000

1.6435

4.3250

3.0250

1.7084

4.3000

3.3125

1.4513 --Continued


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Evaluating the Service Quality of Malaysian Islamic Banks: An Importance-Performance Analysis Approach Table 2 (Cont’d) Variable Importance (α = 0.857) 4.3375

Means Satisfaction (α = 0.860) 3.2875

Gap Analysis 1.4856

4.3000

2.9375

1.7738

4.4125

3.2250

1.5664

4.2625

3.0750

1.6411

Importance (α = 0.919) 4.3688


Gap Analysis 1.5509

4.3688

2.8438

1.8840

4.4188

2.3875

2.3088

24. Easy access to Islamic bank location

4.5125

2.3438

2.3973

Grand Mean

4.4083

3.4211

(e) WEBSITE EFFICIENCY 17. Ability to navigate customer to find what he or she intends 18. Updated with latest technology requirement 19. Ability in provide believable/transparent information 20. Ability to maintain good appearance of the website (f) TANGIBILITY 21. Ability to provide proper facilities where customers feel comfortable 22. Sufficient and efficient equipment attached to Islamic bank 23. Easily approachable ATM

Gap Analysis =

(5 − µ S ) ×  µ I   5 

in which,

µ S = mean of satisfaction µ I = mean of importance Figure 3. Formula for Gap Analysis

In addition, to carrying out the validity test, the authors used several other tests in this study, including Kaiser Myer and Olkin (KMO), measures of sampling adequacy (MSA), and the determinant test. The KMO value for the overall sample is about 0.718, which is greater than the rule of thumb (0.60). This value indicates that the sample size for this study is in the acceptable range. The MSA test was International Journal of Business and Information


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used to measure the individual sample size acceptance, and the result indicates that the value for all items (above 0.50) are within the acceptable range, as well. The authors also performed the determinant test, which indicates that the value of determinant is greater than 0.00001 (0.00007921 > 0.00001), which supports the justification that no multicollinearity issues exist. From the mean analysis in Table 2, it is clear that the customers of Malaysian Islamic banks are satisfied mainly with regard to the Shariah requirement; namely, that the product is in line with Islamic principle and guidelines, that the product offered is based on Islamic philosophy, that the product has fulfilled the requirements of the Koran and Sunnah, and that the product is free from fraud and the element of Gharar. The mean analysis indicates that customers are least satisfied with the lack of update to the latest technology, insufficient and inefficient equipment, ATMs that are not easily approachable, and lack of easy access to Islamic bank locations. The grand mean in Table 2 indicates that the importance mean scores dominate the satisfaction scores (4.4083 > 3.4211). Meanwhile, the gap analysis reveals that the highest gap is found with regard to “ATM is easily approachable” (2.3088) and “easy to access the bank location” (2.3973), followed by “the equipment attached” (1.8840). In short, customers are not happy with the lack of availability of ATM machines and the difficulties in accessing Islamic bank locations because of the limited number of branches available. Proper tangibility such as physical facilities, equipment, and written documents are believed to attract new customers and satisfy existing ones [Parasurman et al., 1985; Kumar et al., 2009]. In their study, Ali and Zhou [2013] found that one of the main challenges pertaining to the service quality of Islamic banks involves technological issues and that Islamic banks have a smaller or lesser perception in this regard, compared with conventional banks. The implication is that Islamic banks can improve these perceptions or mindsets by installing more ATM machines in various locations all over Malaysia. Since the number of Islamic banks is limited, existing banks should adopt online-based transaction in order to reduce the inconvenience to customers. A study conducted by Othman and Owen [2001a] pointed out that, since Islamic banks operate under different principles and cultures, the latest technology plays a really important role in gaining popularity for the bank among customers. In addition, Islamic banks should focus on improving their physical facilities in order to overcome negative perceptions and to enhance their image among customers.


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As shown in Table 2, the lowest gap (0.7412 to 0.8598) was found with regard to Shariah requirements, which implies that customers are happy with the financial products and their compliance with Shariah. This result is consistent with the findings of Abduh et al. [2012] and Abduh et al. [2013], which indicate that one of the reasons customers choose Islamic banks is their Shariah compliance. Using the analytic hierarchy process (AHP), Abduh and Omar [2012] found, furthermore, that customers give higher priority to the matter of Shariah when selecting Islamic banks in which to place their funds. To validate the gap analysis, the authors of this study conducted the pairedsample t-test to determine whether there is any significant difference between mean of importance and mean of satisfaction. The results shown in Table 3 indicate that all of those variables are significantly statistically different at 5% and 1%. In other words, null hypothesis can be rejected. That being so, there is significant statistical difference between mean of importance and mean of satisfaction. In the gap analysis, the variable with a higher gap is tangibility. The paired-sample t-test clearly indicates that the mean difference between importance and satisfaction of this variable is significant. Hence, it can be concluded that customers are less satisfied with the tangibility of services offered by Malaysian Islamic banks. Table 3 Paired – Sampled T-Test: Mean of Importance and Satisfaction Regarding Service Quality of Malaysian Islamic Banking Variables Shariah Requirement Reliability Assurance Responsiveness Website Efficiency Tangibility

Mean Importance 4.6860 4.3516 4.3422 4.3250 4.3281 4.4172

Mean Satisfaction 4.1532 3.9157 3.4672 3.1594 3.1312 2.7000

T-Stat

P-Value

12.968 9.808 12.956 17.448 18.696 7.2777

0.001** 0.002** 0.001** 0.000*** 0.000*** 0.005**

Note: *, **, *** indicate significance at 10%, 5%, and 1%, respectively

From the gap analysis, the authors of this study developed the importanceperformance analysis (IPA) map shown in Figure 4. The map shows two important axes, X and Y. The X axis refers to mean level of satisfaction (performance), whereas the Y axis indicates the level of importance. International Journal of Business and Information


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Figure 4. Map of the Service Quality of Malaysian Islamic Banks

As explained in the methodology section, the IPA analysis is divided into four quadrants – concentrate here (quadrant 1), keep up the good work (quadrant II), low priority (quadrant III), and possible overkill (quadrant IV). As indicated in Figure 4, a total of 10 attributes fall in the category of quadrant IV (lower right corner), indicating the possible waste of business resources. In other words, from the customers’ point of view, the importance level is low, but the level of satisfaction is high. This finding means that customers are satisfied with the service provided by Islamic banks. It suggests that Islamic banks should consider restructuring current efforts in this quadrant and, if possible, deploy the resources to some other important area. The 10 attributes in quadrant IV are listed in Table 4, which also identifies the attributes occurring in the other three quadrants of the IPA analysis.


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Evaluating the Service Quality of Malaysian Islamic Banks: An Importance-Performance Analysis Approach Table 4 Importance-Performance Analysis (IPA) Classifications

Quadrant I: Concentrate Here; Areas to Improve (High Importance – Low Satisfaction) 1 Easy to access the Islamic bank locations Quadrant II: Keep up the Good Work (High Importance - High Satisfaction) 1 The product is in line with Islamic principle and guidelines. 2 The product offered is based on Islamic philosophy. 3 The product offered is based on Al-Quran and Sunnah. 4 The product offered is free from fraud and Gharar (uncertainty) element. Quadrant III: Low Priority (Low Importance - Low Satisfaction) 1 Ability of staff to handle complaints from customer 2 Ability of staff to give proper explanation to the customer 3 Ability of staff to understand Islamic financial products 4 Updated with latest technology requirement 5 Ability to provide believable/transparent information 6 Ability to maintain good appearances on the website 7 Ability to provide proper facilities where customers feel comfortable 8 The equipment attached to Islamic bank is sufficient and efficient. 9 ATM is easily approachable. Quadrant IV: Possible Overkill or Waste of Resources (Low Importance - High Satisfaction) 1 Ability to keep the transaction process secure 2 Ability to maintain accuracy of bank statement 3 Ability in keeps all information confidentially 4 Banking service that increases customer confidence and trust in quality services 5 Islamic bank ability to deliver accurate information to the customer 6 Islamic bank ability to honor its commitment 7 Islamic bank ability to provide after-sale services 8 Islamic bank ability to provide services to the customer as needed 9 Ability of staff to provide customers with precise personnel services 10 Ability to navigate customers to find what they intend



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There are nine attributes under the category of low priority in quadrant III (low importance and low satisfaction). These are minor weaknesses that do not require additional effort. This postulates that Islamic banks should not overly concentrate on these attributes, but should rather focus on other important attributes that can enhance service quality from the customers’ perspective. This is not to say that these attributes are not important; but, rather, that fewer resources should be spent on these attributes. Under quadrant II, keep up the good work, there are four attributes showing high levels in both importance and satisfaction from the perspective of the customers of Islamic banks. This finding indicates opportunities for achieving or maintaining competitive advantage and reflects major strengths. The result suggests that Islamic banks should maintain their efforts as they are already in a good position. In quadrant I, concentrate here (meaning areas to improve), there is only one attribute requiring immediate attention. This finding shows that this attribute is considered highly important but comes with low satisfaction. The result suggests that Islamic banks should take necessary action to solve the problem and increase the level of customer satisfaction.

6.

CONCLUSION

Islamic banking in Malaysia has contributed significantly to economic growth and development, especially with regard to improving the labor market and enhancing human capital development in the context of the banking sector. Since Malaysia has a dual banking system, the effort to maintain a competitive edge is always a big issue for both conventional and Islamic banks. Research has shown that Islamic banks can compete successfully by offering good services to their clients and by positioning themselves as the best banking system in terms of delivering services. Since both conventional and Islamic banks offer undifferentiated financial products, Islamic banks can increase their competitive edge by offering innovative financial products and by improving their service quality. This paper makes an important contribution by focusing on the level of importance and satisfaction from the customer’s perspective. Islamic banks and policy makers in Malaysia can use this knowledge as a blueprint for designing a policy and improvement strategy plan that would improve the service quality of Islamic banking in that country. In addition, this study is expected to provide a platform for future research, specifically with regard to creating a model to Volume 11, Number 3, September 2016

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measure the level of customer satisfaction in the context of Islamic banking. Such future research is needed because studies have revealed that there are many other factors that can influence customers other than religious motivation. This study has revealed that Shariah requirements, reliability, assurance, responsiveness, website efficiency, and tangibility significantly influence the service quality dimension of Islamic banks in Malaysia. The results of the importance–performance (satisfaction), IPA, and gap analysis indicate that Islamic banks in Malaysia should make significant efforts to provide better access to Islamic bank locations and to ensure the greater availability of ATM machines. In particular, these banks should improve online services since, at present, only a limited number of Islamic bank are available around Kuala Lumpur and Selangor. Because of the limited number of physical ATM machines, top priority should be given to innovations that would enhance online or virtual transactions, such as mobile banking, internet banking, 24-hour call center services, and electronic wallets. Previous studies have shown that ATM availability and bank accessibility are among the major challenges faced by Islamic banks [Ali and Zhou, 2013; Daniels, 1999; and Almossawi, 2001]. In order to ensure customer satisfaction, therefore, Islamic banks must upgrade and increase the number of ATMs, facilitate online transactions, update their facilities, and increase the number of branches. These developments would substantially strengthen the reputation of Islamic banks in Malaysia. In addition, this study has shown that almost a majority of Islamic banking clients have ranked their satisfaction level lower than the level of importance. As indicated earlier in Figure 4, a number of attributes fall under quadrant III (9 attributes) and quadrant IV (10 attributes). Islamic banks in Malaysia should find the best way to invest in other areas and more efficiently deploy the resources that fall under these two quadrants in order to reduce possible waste and further contribute to banking development.

7. LIMITATIONS AND SUGGESTIONS One of the main limitations of the current study is the small sample size, which was used because of time constraints. It is suggested that future research should use a larger sample in order to identify significant indicators of customer satisfaction with the service quality of Islamic banks in Malaysia. Future research should incorporate qualitative means of testing customer satisfaction with the service quality of Islamic banks. The combination of both qualitative and quantitative research methods can produce significant outcomes. Future International Journal of Business and Information


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ABOUT THE AUTHORS Hassanudin Mohd Thas Thaker has a bachelor of business degree (hons) in finance and a master of science degree in finance. His research interests include econometrics, corporate finance, Islamic banking and finance, financial economics, and the housing/properties market. He has presented and published several academic papers and journals at a number of conferences held locally and internationally. In 2014, he received the best paper award at the 2nd ASEAN International Conference on Islamic Finance and Banking, Indonesia. In 2015, he received the distinguished paper award at the International Symposium on Business and Management, Fall Session, Kyoto, Japan. Currently, he is pursuing his Ph.D. in business administration (finance) at the International Islamic University Malaysia (IIUM). His dissertation is in the field of capital market and analyst recommendation. He is a lecturer in the Department of Accounting and Finance, HELP University, Malaysia. Mohamed Asmy Mohd Thas Thaker obtained his bachelor’s degree (hons.) in economics, his master’s degree in economics, and his Ph.D. in economics from International Islamic University Malaysis (IIUM). In October 2014, he joined IIUM as assistant professor in the Department of Economics. His areas of research interest include economic development, SMEs, welfare, poverty, Waqf, Zakat, and Islamic banking and finance. He is currently a member of the Centre of Islamic Economics, IIUM, and the Malaysian Economic Association. His email address is [email protected]


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Ahmad Khaliq has a bachelor’s degree in business administration (hons.) in finance and a master of science degree in finance from International Islamic University Malaysia (IIUM). His areas of research interest include financial management, Islamic banking and finance, Waqf financing, and corporate finance. He has presented and published several academic papers and journals at a number of conferences held locally and internationally. In 2015, he received the distinguished paper award at the International Symposium on Business and Management, Fall Season, held in Kyoto, Japan. He is an Academic Fellow in the Department of Finance, Kulliyyah of Economic and Management Sciences, IIUM. He is currently pursuing his doctorate in business at the International Business School, University Technology Malaysia (UTM). His dissertation is in the field of Waqf financing and Islamic capital market integration. His email address is [email protected]


EVALUATING THE SERVICE QUALITY OF MALAYSIAN ISLAMIC BANKS: AN

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