Editor’s notes

Citation

Kabir Hassan, M. (2011), "Editor’s notes", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 4 No. 4. https://doi.org/10.1108/imefm.2011.35204daa.001

Editor’s notes

Article Type: Editorial From: International Journal of Islamic and Middle Eastern Finance and Management, Volume 4, Issue 4

The Islamic financial services industry (IFSI) has experienced tremendous growth over the last 40 years. Estimates suggest that Islamic financial services grew globally at a rate of 10-15 percent from 1995 to 2005. IFSI assets have been estimated at US$700 billion in 2005. An annual growth of 15 percent until 2010 would mean that IFSI grew to approximately US$1.4 trillion by 2010 and could grow to US$2.8 trillion by 2015 (IFSB web site, 2008).

The key institution in IFSI is the Islamic bank. Islamic banks perform similar functions of conventional banks but do so in accordance with Islamic principles. Islamic banks emerged to fulfill the need of Muslims for banking products and services that conform to Islamic principles found in the Holy Qura’n and the Hadith. The Islamic mode of banking is even gaining popularity among non-Muslim consumers around the world. Such widening appeal of Islamic finance is evident in the increasing numbers of large international banks and domestic financial institutions that now provide Islamic financial services. Approaches of Islamic banking are distinct from conventional banks. The basic principle beneath an Islamic financial system is community development based on partnership. Under this principle, Islamic banks operate various deposit, loans and commercial services for retail and corporate customers.

Customer perception has become an enduring agenda in bank research. Specialist research should be done to keep up-to-date on satisfaction because high demand for Shariàh compliant products and services means increased opportunity. Studies mainly center on service quality, customer satisfaction with Islamic financial services, behavior of customers, customer perception of existing services and policies of Islamic banks, and customer knowledge of availability of Islamic banking in specific countries. Research in Islamic legal and supervisory frameworks and knowledge of Islamic economics are also imperative to advancing Islamic financial systems and to improving customer satisfaction in the industry. Global uniform legal frameworks with respect to Islamic Shariàh to help supervise Islamic banks and monitor for compliance is a requirement for continuous growth. The Prophet Muhammad (pbuh) said that Muslims must accomplish anything in the most scientific and artistic way so it is vital to consider quality aspects that enhance customer management in Islamic banking.

Some studies suggest that customers choose Islamic banks mainly on religious grounds. However, Islamic banking has been adopted in non-Muslim countries and by non-Muslim consumers so this can only be partially true. Sustainable competitive advantage requires any firm to have a large customer base that has an enduring preference for the firm. Many writers assert that understanding and adapting to customer motivation and behavior is not an option but an absolute necessity for competitive survival. Moreover, the need for understanding bank customer behavior is indispensable as competition in the financial services industry is currently vigorous. The service menu of firms is becoming alike so providing quality customer services becomes primary to establishing a competitive advantage.

Competition among banks is not just limited to institutions within the banking industry. Banks also compete with non-bank financial institutions. Hence, the various dimensions of customer behavior of Islamic bank patrons deserve attention from researchers. Studies presently underscore the need for understanding customer satisfaction, customer bank selection criteria and customer demographics that shape consumer awareness and usage of Islamic bank products and services.

Customer satisfaction is the feeling or attitude of a consumer toward a product or service after its use. In the context of services, customer satisfaction is often related to factors like service quality or service features like convenience, competitiveness, and location of service provider. Researchers emphasize customer satisfaction in banks believing that banks must focus on understanding the needs, attitudes, satisfactions, and behavioral patterns of the market to compete successfully. Researchers also emphasize increasing customer satisfaction and retention through improved quality of services.

It is important to study customer awareness and usage when investigating customer behavior in any service industry. This type of assessment has become more important since today’s Islamic banks must not rely solely on religious factors as the strategy to secure customer allegiance. Islamic banks must also emphasize quality and efficient products and services. Perception of quality emerges from both awareness and usage of products or service in a service-oriented business like banking. Customers judge the quality of banking products and services on their continuing experience with the institution. This is different from judging the quality of a tangible product where product use occurs in an environment separate from the product’s provider. Banking products and services are experienced while they are produced. Also, service quality is highly related – though not equivalent – to customer satisfaction.

Financial industries – especially banks – are becoming highly competitive due to product differentiation, ease of service availability, culture and religion-based product offering and technology used in service delivery. Customers selecting banks consider various features of the service proposition. Banks now face increased challenges while trying to entice customers. It is crucial to know what selection criteria customers adopt when selecting banks to better attract customers. Various empirical research using different methodologies and approaches has been conducted around the world to investigate the bank selection criteria of customers.

The first paper – “Employees’ perspective of organizational service quality orientation: evidence from Islamic banking industry” by M. Ishaq Bhatti, M. Zafarullah, Hayat M. Awan, and Khuram S. Bukhari – addresses service quality using data provided by the Pakistani Islamic banking industry. Internal organizational orientation of service quality addresses the impact of service delivery performance by employees. This area has received considerable attention from financial management literature. The study provides key determinants of internal organizational orientation of service quality from the employee perspective. The data in this study came from a sample of 150 employees of pure Islamic banks and conventional banks with Islamic banking branches or windows from across the country. Principle component factor analysis and regression method were used for data analysis. Statistical results provided four internal service quality factors (ISQF) factors. Results showed that 16 percent of variation could be explained by the employee’s perception of the organization’s orientation towards employees training and development (ISQF1). About 13 percent of the variation could be traced to the employee’s perception of the organization’s orientation towards development and positioning of Islamic banking products or service (ISQF2). About 11 percent of variation was sourced to the employee’s perception of the bank’s orientation towards customer service (ISQF3). The remaining 10 percent in variation was due to employee perception of the employee’s service quality performance (ISQF4). Management of Islamic banks in Pakistan should consider these ISQFs since they have the potential to influence customer perceptions. The results suggest that human resource policies should include effective recruitment and selection criteria. Additionally, training aimed at improving service-oriented skills coupled with enhanced knowledge of Shària principles related with the products and services offered would better attract and maintain the customer base.

The paper “Determinants of customer satisfaction in Islamic banking: evidence from Iran” by Mehrdad Estiri, Farshid Hosseini, Hamidreza Yazdani, and Hooman Javidan Nejad examines measurement of customer satisfaction in the Islamic banking sector in Iran. The authors review a set of attributes that could be incorporated into measure of customer satisfactions for Islamic banks. The study also discusses grouping these attributes into dimensions of quality then applying various value alternative structures. The study uses confirmatory factor analysis methodology to test reliability and validity. Findings from this study reveal that service quality in Iranian banks adopting the commercial format of Islamic services provides a two-factor structure of value proposition quality and service delivery quality.

The paper “Organizational climate and turnover in Islamic banking in the UAE” by Abubakr M. Suliman and Hanan Al Obaidli examines the nature, strength and significance of the links between organizational climate and employee turnover. The study employs a self-administered questionnaire of 70 employees from an Islamic bank who were surveyed to examine the five main hypotheses of the study. Study results revealed that employee perceptions of corporate climate play a significant role in the rate of staff turnover. One component of corporate climate – organizational justice – was found to be the most important factor in explaining the variance in employee turnover. The theoretical and managerial implications of the findings are discussed in the paper in addition to some recommendations for managing corporate climate and turnover in today’s diverse work teams and environments.

The paper “The assessment of e-banking readiness in Jordan” by Loay Salhieh, Jamal Abu-Doleh, and Nada Hijazi validates a framework that can be used for assessing the level of banks’ readiness for providing e-banking services in Jordan. A questionnaire-based data-gathering technique, descriptive, and analytical analyses are used to construct a proposed framework to assess e-banking readiness. Three constructs were discovered. They are perceptions of bankers, perceptions of customers, and IT infrastructure in banks. There is also evidence presented demonstrating that e-banking has achieved a degree of strategic and operational importance among bank managers. The study found that customers are positive and will embrace new banking channels. Several challenges were identified. Technological aspects and IT employee skills were determined to be of paramount concern. The paper proposes a comprehensive framework that gauges bank readiness to offer e-banking services. It additionally suggests that future studies should examine readiness from financial aspects and the impact of marketing campaigns on customer acceptance of e-banking. The findings presented in this paper may be used by banks to evaluate their readiness for providing e-banking service. Banks may create a readiness profile to pinpoint strengths and weaknesses of their e-banking offerings.

The paper “An empirical study on banks’ clients’ sensitivity towards the adoption of Arabic terminology amongst Islamic banks” by Amirul Afif Muhamat, Mohamad Nizam Jaafar, and Norfaridah binti Ali Azizan measures the sensitivity of the bank customers to the adoption of Arabic terminology in the Islamic banking industry. A sample of 100 respondents – mainly bank clients – was surveyed through personally administered questionnaires. Only 60 questionnaires were usable for the study. The remaining 40 questionnaires were rejected due to incomplete answers and error. The survey used a convenience sampling method. The study was conducted at Shah Alam for nearly two and half months. The city was chosen due to the exclusivity of the city’s demographic which is the significant availability of white collar employees as residents. The sample therefore represents a population with high income, literacy and education levels. The majority of the respondents agreed that Arabic terminology gives a competitive edge to Islamic banks. At the same time, respondents indicated that a catchy Arabic name may present difficulty to gaining fast and comprehensive information on the product. Non-Muslims responded negatively on each statement provided. These answers signify a need for the Islamic bank to manage its use of Arab terminology since non-Muslims are majority clients of the industry in countries like Malaysia. This furthers insight on customers of Islamic financial institutions.

I believe the readers will enjoy reading this issue of this journal.

M. Kabir Hassan