Abstract
Dubai, in the United Arab Emirates (UAE), has a vibrant Islamic banking sector. The region has over 50 banks with upwards of 40 foreign banks office representatives. Largely oil revenues fuel the United Arab Emirates economy, which serves as an enhancement for profitability of these banks.
The key aspects of the Islamic banks in the region are the profit and loss sharing, transparent dealing, lack of interest, lack of speculation and no gambling. The banks also do not deal with unethical business and have just policies of employment.
Dubai bank is the example used to support the Islamic bank concept in the Middle East. Many previous works have been undertaken in this field with no clear-cut research on its drawbacks. This document aims to support research on the customer perspective of the benefits and loops of the Islamic banking concept.
Customers of the Islamic banks weigh various options while considering the services offered. The banks are non-remunerative with extra returns for depositors of deposit accounts. There is greater risk in adjusted returns for customers who invest in Islamic banks indices.
This study aims to characterize the problems endured by the Islamic banks and together with their customers. Secondary data studies were used as customer sample from Dubai bank.
Findings will indicate the problems encountered by the Islamic banks. The study will look into the legal system, political issues, risks, low profitability, loans, lending rates, management and limited transparency. The quality of service that is offered and client problems will also be looked into.
Introduction
Background Information
The new millennia brought in new features and changes in the banking industry key of them being banking systems. The tremendous changes in the industry can be linked to the need for better customer friendly service.
These custom-made changes were to aligned to maintain completion with other institutions in the same field and keep up with economic and political developments globally. The Islamic banks were developed due to religious requirements; hence, the competitive edge in the global field was edged out. The Islamic banks cannot compete globally and are ranked poorly out of the top hundred brackets.
It is inevitable for the Islamic banking industry to explore future limits for a clearer vision to predict challenges obstacles and effective counter measures. Most of these banks operate well in specific environments. It is estimated that Islamic banking systems manage over US$ 250 billion with clientele around the world.
Their client base is not restricted to Muslim countries but is spread well over Europe. The Islamic banking system continues to grow tremendously. There are more than 260 worldwide Islam financial institutions in operation.
Dubai Islamic Bank is the first fully-fledged Islamic bank. It has combined the best Islamic values and their traditional values as well. This is coupled with advanced technology and innovations of modern banking at its best. Dubai Islamic Bank was formed in 1975 and is established as a leader in the field of Islamic banking.
The trend of Islamic banking is on the rise in the Arab world, and the Dubai Bank is a front-runner for others. Islamic banking is the fastest-growing economic agent in the world that comprises of many institutions with billions of dollars in assets under management.
The role of Dubai Islamic Bank is impressive and the bank is true to its clients and roots. It is religiously and customer-centered institution with personal service and understanding.
Significance of the study
This study is vital for it will create information on the Islamic bank clients’ reaction towards the Islamic institutions system of banking. The main consideration is the prohibiting of interest generation as per Islamic laws. The study is also aimed to provide more information on client benefits in the Islamic system compared to those in conventional systems of banking.
The benefits of the Islamic banking system are also subject to customer satisfaction, therefore, it is vital that the customers opinion on this area be viewed which the study aims to do.
The study aims to make contributions, based on client responses, to socio-economic grasp on the Islamic banking systems and assist the clients make decisions on which system comprehensive choice in conventional systems of banking or Islamic systems of banking.
Problem Statement
The key aspects of the Islamic systems of banking in the region are the profit and loss sharing, transparent dealing, lack of interest, lack of speculation and no gambling. The banks also do not deal with unethical business and have just policies of employment Dubai bank is the example used to support the Islamic bank concept in the Middle East.
Many previous works have been undertaken in this field with no clear-cut research on its drawbacks. This document aims to support research on the customer perspective of the benefits and loops of the Islamic banking concept. Customers of the Islamic banks weigh various options while considering the services offered.
The banks are non-remunerative with extra returns for depositors of deposit accounts. There is greater risk in adjusted returns for customers who invest in Islamic banks indices. The findings of the study will aim to assist clients and potential clients make a clear decision on the banking systems.
The Islamic banks are flourishing due to demand rather than supply. Therefore, their customer feedback will give a clear picture of customer satisfaction. This will assist it attaining indicator from the banks growth.
Sharia laws have been enforced in many Arab nations and its teachings and laws propel more and more Muslims to be clients of the Islamic banking systems. This can be seen as the driving factor to the banks development.
This will therefore, mean that the banks are profiting from a client base that dejects it. The faith based concept of the Islamic banking system drives of many potential non-Muslim clients. The fact that religious wars in Islam have caused many grievances to the rest of the society, many perceive association of the banks with funding of unjustified holy wars.
The concept of behind running the Islamic banks is a key indicator of the clients’ belief in the system. If the clients do not comprehend the working of the system, they will feel oppressed in that their money does not earn interest and yet the banks gain from their deposits. Policies of customer assistance in Islamic products will seek to address their reaction towards the Islamic system and the understanding of its functionality.
Objective of the Study
The general objective of this comprehensive study is to examine the customer awareness of Islamic systems of banking; this will look into their reaction of the performance and profit-and-loss sharing and recommendations for improvement generated.
Specific Objectives
- To understand the customer reaction towards the Islam banking system
- To create recommendations of Islamic banking improvement based of the client feedback
Hypotheses
- What are the customers’ views on Islamic banking system?
- In which way do the Islamic banking clients want their banking institution to change?
Literature Review
Islamic banking uses the principle of moneys not earning interest (Duncan 97). This ban is based upon Islamic ruling called Shariah. Since Muslims are not allowed to gain or pay interest, they are cannot conduct business with many conventional banks.
To service the Muslim market, Islamic institutions of banking developed a wide range of financing instruments that do not gain interest (halal). The halal conforms to the Shariah ruling and is acceptable to the Muslim fraternity. Many Arabians before Islam, and later in Islam practiced this interest-free concept.
For centuries, the banking system was used on a small scale, in the early 1970’s its commercial application started being used in the public domain. From this time, the concept has become a worldwide phenomenon. The concept has succeeded in many Islam countries, hence, the study on customer opinion and recommendations on growth.
The lack of awareness of the key principle is the main point behind the constricted growth. The system would have achieved worldwide success amongst non Muslim and Muslims if the principles were highlighted clearly to impending clients. The religious concept has kept constricting the growth of the institution.
Several surveys have been undertaken in the area to assist researchers understand the attitudes towards Islamic banking systems (Gafoor 69). These researches provide useful background information in the area of study.
Most of these researches show that the client would generally be accepting of the Islamic banking systems if they were educated on their policies. Better understanding of their policies would establish a good relationship between clients and the organization.
Ghannadian (41) conducted a study on perceptions customers toward Islamic banking in Malaysia. Many respondents proclaimed the main reasons for Islamic banking selection are based equally on economic considerations and religion. Majority of the clients also found the marketing of the product to be vague. The media has also errantly portrayed the Islamic banking concept.
The international media perception of the Islamic banking system is hostile and undermining according to Arab news chief editor. Despite this fact, many respondents of that study believed that the industry had grown tremendously. Ghannadian (32) put forward that Islamic banking organizations should tremendously improve their services for customers’ satisfaction in their wants and requirements.
In another study, quality of service is portrayed to be very important as an indicator for customer understanding and customer satisfaction. Quality service delivery as per to customers’ expectations is vital.
Gounaris (64) looked into the quality of service in the banking industry in greece and found an alternating influence per dimension of quality of service to the customer satisfaction. To retain the long-term customers and maintain an edge in the market service quality, it is vital and the key differentiation.
In the financial sector, understanding customer’s expectations and needs is essential as a prerequisite. In Dubai, customer perception of quality of service is significantly different from conventional banks in the Islamic banking system.
There are four dimensions reflected when comparing the Islamic banking systems and conventional system of banking. The values, image, reliability and personal skills are significant for the running of the conventional banking system. On the other hand, only value and skills are important in the Islamic banking system.
Better service delivery will in turn generate a lot o satisfied clients and consequent growth of the organization and its concepts. There were investigations by Boyd on selection criteria used by the institution. He based the ideas on demography and found many differences in quality of service and demography. In Muslim countries, males are made to do the financial obligations.
Methodology
There is a requirement for convincing evidence base to carry out this study. The evidence will guide the general process that generates the document. This process will use information sources extensively utilizing both traditional and other sources.
It will make sure that adequate resources and information on Islamic banking systems is sort from a large collection of literature on the subject matter. To gain the objectives targeted, a process will be put in place that fast tracks attainment materials.
These processes will be interlinked, for efficiently generated information. The process will involve both quantitative methods and qualitative methods for the generation of information.
The qualitative methods will entail
Methods used quantitatively will entail the following:
Desk reviews of important data and previously complied reports available to gain a variety of aspects to be analyzed.
The process will need consideration before hand of data available and more information on the Islamic banks to assess their quality, efficiency and effectiveness.
Study Design
This will be a descriptive study. It will also contain cross-sectional study to determine the opinions of customers on Islamic banking systems. The study targets customers of Dubai bank in the United Arab Emirates.
The Study Population
The study will target a general cross-section of customers of the Islamic banks. This is to attain first hand information from the situation experienced by customers of these banks. A specific target population of customers of the Islamic bank of Dubai will be used.
Sample size Determination
There will be a sample size of 500 Islamic bank customers.The sample size will be determined using Fisher et al, (1999) formula, i.e. n =Z²*pq/d².
Where n is the needed sample size, z is the normal standard deviate which is given as a constant of 3.24 which corresponds to 99% confidence interval, p is percentage of targetable customers. This gives a prevalence of 45% d is the degree of accuracy, and q is given as (1-p) which is 1-0.45=0.55
The sample size will be based on the precision (p- value = 0.45), and so
n= {(3.24)²*0.045*0.55}/ 0.05²
n= 380
The sample size is increased to 600 in order to account for potential missing clients, refusals, and spoilt questionnaires. (5% of 380)
Data collection instruments
The study will utilize highly structured interviewer administered questionnaires will be used. The tool will be subdivided into sections. It will be written both in multiple languages including Arabic and English.
Pre-Testing of Tools
The data collection tool will be pre-tested in selected areas in to assess its effectiveness and the feedback from the pre-test will be used to make the necessary adjustments on the tool.
Training of Research Assistants
To ensure quality data is collected, the researcher will recruit exceptionally qualified local enumerators. They will be trained for 4 days to attain certain skills and knowledge required to enable them produces results.
They will be made familiar with interview conditions and variables being studied. They will be taken through interview schedules, question by question and they will be shown how to conduct interviews.
Data Analysis
Different analytical techniques will be used. The analysis on the awareness level on cervical cancer among women will be analysed using percentages. This approach has been used to explain the determinants of customer relations in Islamic banks in India.
Relationships between categories of variables will be analysed using the Chi-square test. Chi-square testing has been used to explain relationship of determinants of willingness to go for screening for breast cancer among women in United Kingdom (Bose 68).
The data analysis was both manual and electronic. The initial exercise of the data analysis started with the harmonization of dummy tables required to guide on the variables for electronic manipulation.
Frequencies of identified variables were run in SPSS some of which were exported to Microsoft Excel for generation of graphs and charts. Various variables were also summarized manually in tables to assist in the analysis.
Data Computerization and Verification
- I entered the data.
- Data was entered into Key Informant Questionnaire (KHI) files.
- Quality control was conducted by systematic checking for outliers, coding errors, and impossible results.
- Statistical Package for the Social Sciences (SPSS) was used for data analysis.
Data cleaning
At the end, of the data collection Manual data cleaning of questionnaires’ conducted. All queries and concerns were harmonized to ensure uniformity as prepared to develop the data entry screen.
Data entry screen
Data entry and manipulation was to be done in the Statistical Package for Social Scientists (SPSS). The screen merged and harmonized into one Master sheet.
Data entry Data entry was conducted. All the entered data was merged into one data set Master sheet.
Ethical Considerations
The research will be presented to Universities administration for clearance and approval. The document will be presented to other interested stakeholders. Participants in the research will be required to consent to participate.
The purpose and objectives of the study, assurance of confidentiality and voluntary participation, anonymity, perceived benefits and possible risks before participating in the study will be explained to them. The participation will be voluntary.
Dissemination Plan
The result will be disseminated to the University and required Islamic banks institution. Further dissemination shall be through seminar presentations, workshops and report prints
Limitations, delimitations and assumptions
Assumptions
For the project, the researcher assumes that the participants of his survey differ in attitude, experiences and perceptions. Other assumptions are that the participants understand the purpose of the survey and they respond accurately and honestly to the survey.
Delimitations
The study delimits to a specific banking institution. The customers come from one institution for easier control of participants.
Works Cited
Bose, McGee. Islamic Investment: Risks and Returns. New York: Cengage Learning, 2008. Print.
Duncan, Edmund. Efficiency, customer service and financial performance. Dhabi: Inter. J. Bank Mark, 2004). Print.
Gafoor , Michael. Commercial Banking Interest-Free. Washington: Noordeen, 2006. print.
Ghannadian , Fred. Economy banking development: Islamic banks. New York: Sage, 2004. Print.
Gounaris Seth. Service quality: Islamic Banking. New York: Routlegde, 2006. Print.