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Islamic Banking And The Islamic Loan

In order to have better understanding towards this research, in this chapter I will describe the development of Islamic Loan in Malaysia, and discuss about the different between theories and practical of Islamic Loan. At the same time, this chapter will preferably describe in details regards on Islamic Loan. This research is to study the effectiveness of Islamic Loan consumers within in Malaysia. Equally, the purpose of this research will be discussed in this chapter.

Introduction research background

In the past few decades, Muslim countries have experienced considerable economic growth. The markets of these countries, spanning from North Africa to Southeast Asia, are expanding at a rapid pace and are gradually evolving into important international economic centers. The expansion and sophistication of the Islamic markets, as well as the increasing demand for Islamic financial products by borrowers and investors, have spurred a movement toward Islamization of various aspects of the economic activities in these markets. Hence, this movement has resulted in the creation of an Islamic financial market alongside conventional financial markets.

The concepts of modern Islamic banking start in the mid of 1940s, Model for Islamic banking is in the mid of 1950s. In 1960s, the details of the concepts for interest-free banking and comprehensive of Islamic banking established. In addition, during 1960s, the political environment of almost all the Muslim countries was hardly favorable for a change in the banking and finance entire system. So, the first establishment of Islamic banking was in Mit Ghamr, Egypt in 1963. The model for the first Islamic banking was the German Savings bank modified to comply with the Islamic principles, but the charter of the Bank did not refer to Shariah Law.

In 1973, the second Islamic Conference of Foreign Ministers adopted a document on the “Institution of an Islamic Bank, Economics and Islamic Doctrines�. Besides that, The Islamic Development Bank named as (IDB) was established after the second Islamic Conference. The purpose of IDB is to help the economic development and the social progress of the member countries and Muslims communities individually accord with the principles of Syariah Law. Apart from that, IDB helped to establish a number of Islamic banks in the member countries. During that year, the Islamic banks have been establish which include: Dubai Islamic Bank in 1975, Faisal Islamic Banks of Sudan in 1977, Faisal Islamic Egyptian Bank and Islamic Bank of Jordan in 1978, Islamic Bank of Bahrain in 1979, The International Islamic Bank of Investment and Development, Luxembourg in 1980 and BIMB in 1983. Until today, there are more than hundred financial institutions which apply to operate on an interest-free basis in 34 countries.

In 1983, after enacting of the Islamic Banking Act (IBA) of Malaysia, the first Islamic bank in Malaysia was establish which named as Bank Islam Malaysia Berhad (BIMB). BIMB start with a RM 100 million of paid up capital and RM 500 million as an authorized capital to carrying out its activities on an interest-free basis with a permit of IBA. According to the newspaper New Straight Times on 6th July 1982, the Finance Minister, Tengku Razaleigh described the Islamic Bank as the “First step in the government’s efforts to instill Islamic values into the country’s economic and financial systems as a replacement for the current Western-base economic system�.

In 1993, the commercial banks, merchant banks and finance companies in Malaysia began to offer Islamic banking products and services under the Islamic Banking Scheme (IBS Banks). All the IBS banks should separate their Islamic business activities fund from the conventional business activities. They shall not mixed up both business activities and operate the business activities together. They should operate the business activities separately as well as two companies which is not related at all.

The main different between conventional banks and Islamic banks is that Islamic banks is based on Shariah Law which conventional bank do not. So, all the transaction, dealings, investment, product features and business approach of Islamic banks are derived from the Shariah Law. This will make significant different in many part of operations with the comparison to conventional banks. Islamic banks use Syariah Law principles to governing of their businesses activities. For example, the principles are as below:

The absence of interest-based transactions (riba).

The avoidance of economic activities involving oppression (zulm).

The introduction of an Islamic tax (zakat).

The avoidance of economic activities involving speculation (gharar).

The discouragement of the production of goods and services which contradict the Islamic value (haram).

Besides that, the relationship between the banks and the customers is different for conventional banks and Islamic banks. Conventional banks are based on the debtor and creditor relationship between the depositors or borrowers and the banks respectively. The price of credit is the interest which reflecting the opportunity cost of money. Based on Syariah Law first principle (2:279) stated that “deal not unjustly and shall not be dealt with unjustly� which have explained the Islamic banks is not based on the debtor-creditor relationship. In Islamic banking systems, the creditor should not take any advantage of the borrowers and the loan to be given or taken by the borrowers is free of charge and to meet any contingency.

Background of the Islamic Loan

Many conventional banks in Malaysia have Islamic banking system such as Maybank Islamic Banking, CIMB Islamic Banking and so on. And provide to their customers a variety of Islamic Banking services. Therefore, in order to form a basis for current study, literatures regarding to service quality of Islamic Loan and customer satisfaction are reviewed to further uphold the research title which is the effectiveness of the Islamic Loan.

Islamic Loan also named as Islamic financing. Islamic banks is different from conventional banks because Islamic banks is followed Syariah Law which the conventional banks do not have. The law that known as Syariah Law is complies by the world Islamic banks not only Islamic banks in Malaysia. It is an international law that must be followed by all the Islamic banks. In Syariah Law, it has few common terminologies in it. For example, Wadiah which allows the safe of the deposits in the banks and when the depositor demands for it, the banks must refund to the depositors. Hibah is the gift which means the borrowers give a token of appreciation after loan or benefit obtained in return. Besides that, it has Qardrul Hassan for benevolent loan, Mudharabah for profit sharing, Murabahah for cost plus, Musyarakah joint venture, Ijaran Thumma al-Bai’ for hire purchase.

Islamic Loan is using Base Financing Rate (BFR) while conventional loan package is used Base Lending Rate (BLR) in Malaysia. According to Bank Negara Malaysia, current Base Lending Rate and Base Financing Rate is 6.30 % effective from 13th July 2010 until now. The different between conventional loan package and Islamic loan is in an Islamic Financing transaction, a bank can buy the property from the seller in case of refinancing. Then, they will resell it to the seller plus profit while allowing the seller to pay for the purchase in installments. The reason Islamic banks use BFR is because Islamic banks are not lender as of other types of bank that offers term loan to consumer. Islamic banks only apply financing service to the borrowers because Islamic banks have rule to be followed which is the Syariah Law. Islamic banks apply the same as other banks which is the BLR but as for Islamic bank, they used BFR as their reference. The rate is mainly to check the market interest rate.

Islamic loan nowadays is popular among loan borrowers. This is because numerous of commercial banks did apply this financing in their organization. For example, Maybank, CIMB Bank , etc. With this current financing, many loan borrowers attracted to this type of loan which does not affect their loan even the fluctuation of BLR but in Islamic financing is BFR. Bank officers will introduce this type of loan to loan borrowers and explain its advantages to the loan borrowers. This type of loan does not meant for Muslim only but now it is applicable to non-Muslim as well. When they attached to this type of loan, they are not affected by the fluctuation of BFR because Islamic loan are on fixed rate basis.

Based on Parasuraman etal. (1985), service quality has been identified as a critical success factors for organizations to build their competitive advantage and increase their competitiveness. The five dimension of SERQUAL instrument are as below:

1. Tangible

2. Reliability

3. Responsiveness

4. Assurance,

5. Empathy.

Problem Statement

Basically, there are research been done on Islamic Loan, nevertheless at most it focus on the attributes of Islamic Loan. There is lack of study on the service quality and customer satisfaction of existing Islamic financing borrowers.

As the economy of Malaysia is recovering, the Malaysia citizen lifestyle is going uptrend. Everybody is effort to buy a property in the future, house for example. This will heighten the expectation and perceptions of customers, thus making Islamic financing service quality an increasingly important issue. So, understanding Islamic financing service quality issues for Islamic banks becomes crucial.

Therefore, this study is expected to provide an insight of the customers’ experience on overall Islamic financing service quality. In this research, the quality dimensions regarding to Islamic financing service quality is determined to study the customer satisfaction in adopting the Islamic financing service. The problem statement has been developed.

Research Objective

The research objectives are as follows:-

To identify the key dimensions of Islamic finance service quality.

To explore the level of customer satisfaction on adopting Islamic finance.

To measure the quality dimensions that influence customer satisfaction in the Islamic finance adoption context.

Significance of study

Until today, most studies that have been done previously are all emphasizing on the factors that influencing the Islamic banking adoption in developed countries as well as under developed countries also. In Malaysia, it is the same as above mentioned. However, there is rare research on the quality dimension and customer satisfaction on the Islamic financing. Therefore, this research is beneficial as it generates new knowledge regarding to the factors influence of overall service quality of the Islamic financing and its relationship with customer satisfaction on Islamic financing.

The research findings will lead us to have more in-depth understand the customer perception and experience on Islamic financing service quality. In addition, there is also benefits to Islamic banks that could derived from this research is they are able to identify the important elements which could improve the Islamic financing service quality and which can later lead to customer satisfaction. Besides that, is also helps to promotion of Islamic financing because the customers are willing to promote the Islamic financing to their family, friends and relatives as well.

Apart from the above mentioned, this research also provide the insight of customer satisfaction in service industry and apply it in the Islamic financing service. This is a extra benefits in doing this research. However, the only satisfaction is not sufficient but extra effort like create a good relationship with the customer is very essential in the business strategies which will generate more customer excitement.

As we learn from the books, the cost of obtaining a new customer is much more higher than retaining the existing customer in the organizations. the Islamic banks could retain their existing customer from shifting to their competitors by having understanding of the customer satisfaction on the Islamic financing service quality. Moreover, the banks have their existing customers promoting their Islamic financing to the others.

Besides the benefits of helping the banking industry to have broader customer base and bank customers experiencing quality service, this research is also expected to provide a fundamental concept for future research in this area by the other researchers.

Scope of study

This study is for the customers of the Islamic banks who are taking Islamic financing within Taiping. The study will focus on took before or existing customers who are taking Islamic financing. Those people who are under age are not included in this study.

As an ethical and responsible researcher, the respondent personal details will not be disclosed to the third party except the people who are involved in conducting this study.

Operational Definition

In this study, there are a few factors that are influencing the service quality and the customer satisfaction of adopting Islamic financing. There are five dimensions in SERQUAL which have mentioned above. There are Tangible, Reliability, Responsiveness, Assurance and Empathy.





The Appearance of physical facilities, equipment, personnel, printed and visual materials.




The ability of the Islamic banks to perform the promised service dependently and accurately.

Zeithaml etal.



Convenience, speed, and timeliness of service delivery to the customers.

Johnston (1997)


The safety of promises of the firms provides its customers.




Caring, individualized attention the firms provides its customers.

Parasuraman, Zeithaml & Berry (1988)

Organization Research

The organization of this research is designed based on the following chapters to studying the effectiveness of the Islamic Loan which is the service quality that provided by the Islamic banks and the customer satisfaction of the Islamic banks.

Chapter 1 normally is explains the introduction of the proposed study. Besides that, it also explains the problem statement of the research as well. The objective and background of the study are described in this chapter.

Chapter 2 is explained about the literature review. The independent and dependent variables are also discussed in this chapter. In addition, the relationship between independent and dependent variables is also analyzed in this chapter.

Chapter 3 is discussing the way to do conduct the research. Hypotheses and research framework would be developed. The sampling method, data collection and the data analysis method are explained in this chapter.

Chapter 4 is described the research findings and discussion. In this chapter, the results of the findings will be analyzed which include the demographic analysis of the respondents and the reliability. Besides that, the hypothesis would be tested out with certain measurement method.

Chapter 5 is the conclusion and the recommendation of the research study which include the overall findings that derived from the analysis, and the suggestions for the Islamic banks to enhance their service quality on the Islamic loan. In addition, a recommendation for the future researchers to conduct a further study will also include in this chapter.


In this chapter, the independent variables and dependent variables are both explained based on certain theories that fit to apply in this research. The dimensions of service quality in each of the independent variable are discussed in this chapter as well. After that, I will discuss the relationship between the independent variables and dependent variable in accordance with the literature reviewed.

2.1 Islamic Loan

Islamic Loan is any form of financing made according to Islamic law, which forbids the payment or receipt of interest. An Islamic loan may be an interest-free loan, but often it is a more complex transaction. The technology can have a considerable impact on service delivery, hence avoiding the issue or problem pertinent in face to face settings (Dabholkar & Bagozzi, 2002). According to Akinci et al. (2004), Islamic financing provides the option to offer convenient and economic service without reducing the quality of services to the customers.

As in literature from Zineldin (2000), it indicates that it is difficult in developing a strong relationship with customers if the businesses fail to provide distribution channels that their modern customers value and demand. Though there is no direct interaction between the customer and the service provider, however, Zeithaml (2000) contends that each service element offered in electronic environment represents an opportunity for organization to reinforce its level of quality to the customers. He also further argues that organizations should emphasize on every encounter that may occur prior to, during, and after the loan transaction. The overall service quality can be improved after the organizations focus on developing efficient and effective upfront service (Driff & Palmer, 1999). As a result, it may contribute to enhancing the image and reputation of the company which will further lead to increase the trust of customers.

2.2 Front Desk Customer Service Quality

Customers’ perceptions of service quality and their satisfaction are profoundly influenced by the service they encounter. This concept as described by Meuter et al. (2000) encompasses all aspects of services company with which the customer may interact, including its personnel, its physical facilities and other tangible elements during a period of time. Therefore in order to form a basis for the current study, service quality and customer satisfaction literature focused on interpersonal service encounter regarding to the matter of Islamic financing were reviewed.

Service quality has been identified as a critical success for organizations to build their competitive advantage and increase their competitiveness. Service quality is an essential research topic in view of its significant relationship to cost, profitability, customer satisfaction, customer retention, service guarantee and competitive capabilities (Oliveira et al., 2002). Unlike the manufacturing product quality that can be easily assessed, service quality is kind of intangible and abstract things that can be very difficult in measuring it. As described in Parasuraman et al., (1985), the literature has proposed that service quality is determined by the discrepancy between customers’ expectation and service provider’s performance and the service they received. Their studies have uncovered the key service quality attributes that significantly affect the customers’ perception of overall service quality.

A lot of studies have been done which focused on the dimensions of traditional service quality. Parasuraman et al. (1985) are regarded the best well known among the researchers in service quality. They have built a conceptual model of service quality that can well describe the source of quality problem. Their hard work led to a list of five determinants of service quality as a result of their focus group studies with service providers and customers. Namely,

1. reliability,

2. responsiveness,

3. empathy

4. tangible

5. assurance

In their research, Parasuraman et al. (1991) developed the SERVQUAL instrument that included 22 item tool used to measure the service quality level by the gap which exist between customers’ expectations and perceptions of the service received through the five dimensions. Customer satisfaction can be gained by the service quality provided by the business, while meeting the need and expectation of the customers is the key priority of businesses. The definition of customer perceptions of service quality is the belief of customers concerning to the received and experienced service (Yang et al., 2004). In the service industry, the goal of the service marketer is to close or narrow the gap between customers’ expectations and perceptions.

Although the SERVQUAL instrument has been applied to measure service quality in a variety of contexts, however, it has been criticized as it is just a generic tool and not appropriate to measure certain service quality in varied settings (Brown et al., 1993). The SERVQUAL might overlook the interaction between the reliability of Islamic financing and customer because Islamic financing were not existed when this instrument was developed in 1980s. However, the concept of Islamic financing service quality has emerged from this original service quality.

Despite of Islamic financing has existed with the benefits it brings, there is still a quest of the low adopting rate or lake of retention of customer remain applying Islamic financing provided by particular bank. A major problem of Islamic financing is that banks are forgetting the traditional rules of business like listening to their customers and delivering the satisfaction that they are willing to pay for.

Banks need to know who they are serving, what they need and their problems are, and what their financial priorities are Weeldreyer (2002). Research has indicated that Islamic loan service quality is an important element in the success of Islamic financing (Akinci et al., 2004). Intuitively, in order to enhance a bank’s reputation, improve its customer retention, and attract new customers, banks should offer quality service to their customers. Therefore, based on the traditional dimensions of service quality, recent studies attempt to identify the dimensions of Islamic financing quality. Studies from Cronin and Taylor (1992) have indicated that high level of customer service quality can result in a positive influence on customer satisfaction.

Traditionally, SERVQUAL (Parasuraman et al., 1988, 1991) has been used as a generic instrument for measuring service quality of service firms with modifications to suit individual needs. It has been widely used to assess the service quality of various service organizations including banks (Cowling & Newman, 1995). For example, based on Cowling and Newman (1995), one bank found that among the 5 quality dimensions in SERVQUAL, the discrepancy between the customers’ expectations and their perceptions was the highest for responsiveness, empathy, and reliability and the lowest for tangibles. Business and academic researchers have been trying to conceptualize and measure electronic service quality, but the issue has not been examined as a whole. WebQual for example which was developed by Loiacono et al (2000) for rating website on 12 dimensions but the focuses on the operationalization are on the technical quality of website rather than on the service quality as experienced by customers through the website. In addition, Lassar et al. (2000) examined the effects of service quality on customer satisfaction in private banking by using the well known SERVQUAL and the functional-quality based model. They found that the functional-quality based model did a better job of predicting customer satisfaction than SERVQUAL instrument for those customers actively involved or highly interested in service quality.

Besides those, other attributes such as customer confidence, online resources and relationship service to evaluate online service quality were found in Cox and Dale’s (2001) study. Santos (2003) uncovered communication, support, efficiency, security, reliability and incentive as dimensions of online service quality. According to a research done by Iraq Islamic financing users, White and Nteli (2004) found that assurance is the most important attribute among the users, followed by responsiveness of service delivery, ease of use, credibility of the bank and product variety.

2.3 Islamic Financing Information System Quality

Other than front desk customer service quality, the Islamic loan information system quality can also affect the overall Islamic financing service quality. By dividing the financing service quality into 3 categories, therefore, some of the quality dimensions in online information system quality are overlapped and discussed above.

Yang et al. (2004) explained that the primary goal of information system service is to ensure that the customers are able to function independently and to do numerous transactions on their own. Derived from the above literature, the current study defines Islamic information system quality as the extent to which the information system performs its intended function of enabling the customers to carry out transactions and information searches at nearby branches.

In addition, the research regarding information system quality in an end-user computing environment may be regarded as a good reference for discussing the online system quality. The term end-user can be defined as a user that directly interacts with the application financing in order to source out the information or prepare output report (Doll & Torkzadeh, 1988).

Similarly as the situation can be applied to when a customer attached to Islamic financing, it can be considered as an information system, whereas the customer as an end-user of the information system. Therefore, the data processing is regarded as an important issue in an end-user environment where the users seldom have direct interaction with the operation staffs of the websites. In order to measure the end-user computing satisfaction, there were 5 quality dimensions proposed by Doll and Torkzadeh (1988) that affect the end-user satisfaction which are below,




ease of use;


Since the Web site functions as an information system, the organization and structure of Islamic financing should be easy to follow and navigate. The sequencing, placement and naming of hyperlinks and navigational menus should be based on customer intuition. A well-designed navigational structure can facilitate consumers’ perceptions of bank control and enjoyment (Jun & Yang, 2004).

Besides, according to Goldfinger (2001), assurance was seen as a major obstacle to Islamic financing. Assurance issues have been identified as significant determinants of Islamic financing quality as proposed by Jun and Cai (2001). Banks were concerned about unauthorized access to their systems, and customers were concerned with the safety of their personal data and the risk of fraudulent transactions. Thus the bank information system assurance could be an important quality dimension in system quality as well. While other (Jayawardhena & Foley, 2000) suggested following 5 critical features of Islamic financing websites to enhance customer satisfaction. There are:-






2.4 Islamic Loan Service Quality

Besides the review of literatures regarding to front desk customer service quality and Islamic financing information system quality that contribute to the study of Islamic financing service quality, another category of which is Islamic loan service product quality.

Previous researchers have found that banking service product quality has an important role in determining banking customers’ perception of the overall banking service quality. According to Yang et al. (2004), we can define banking service product quality as the number and relevance of the islamic financing product and services to customers. From the bank product quality perspective, it is mainly associated with diverse features and product variety. Strieter et al. (1999) depicted that the increased emphasis on marketing a variety of financial services is one of the most development in banking.

The same could apply to the base of banking service as Dixon (1999) also argued that the main reason to getting more customers attached to islamic loan is not the attraction of the financing itself but the services and products provided and available to the customers. Latimore et al. (2000) supported the argument.

It should be noted that with the advent of the internet technology, the present banking customers can have unlimited access to financial information and enjoy a wider range of options in selecting the financial institutions and competitive products than ever before. Therefore, the subtle differentiation in quality level of bank products and their timely introduction into the marketplace have become a vital driving force to attract new customers and enhancing customers’ satisfaction (Mols, 2000).

2.5 Overall Islamic Financing Service Quality and Customer Satisfaction

For banks to retain and expand the customer base, it is crucial for banks to understand the criteria the customers use to evaluate Islamic financing service and how these can influence the customers’ perception of overall Islamic financing service quality and satisfaction with the service and banking overall. As such, it leads to the relationship between service quality and satisfaction.

There are a number of studies that have empirically and theoretically investigated the relationship between service quality and satisfaction in the context of traditional banking service (Sureshchandar et al., 2002). Customer satisfaction towards the products and services offered by organization is often perceived as the determinant to an organization’s long-term competitiveness and success and that is highly related to the service quality (Taylor & Baker, 1994). The satisfaction of customer is influenced by two factors which are experience and expectation with the service performance (Yi, 1900).

As a result, we can say that the quality dimensions discussed in previous sections could be regarded as the criteria that customers expected and customers evaluating those criteria after the service they received, hence the customer satisfaction towards the expectation of those quality dimensions and real experience by adopting the Islamic financing create the sense of satisfaction and dissatisfaction.

In literature of satisfaction and dissatisfaction, disconfirmation has been given attention where it refers to the gap between expectation before purchase and perception of after purchase (Peter & Olson, 1990). There are two types of disconfirmation which is positive and negative disconfirmation. Positive disconfirmation occurs when product performance is better than expected, thus it is more likely lead to satisfaction, and the negative disconfirmation occurs when product performance is less than expected, which is more likely to be dissatisfied. Another explanation by McQuitty et al., (2000), that consumer satisfaction is the result of an evaluative process that compares expectation of prepurchase and perceptions of the performance during and after the consumption experience. If the dissatisfaction gap between their expectations and actual experience is wide, customers are likely never returned to the organization or in worst case as to communicate negative word-of-mouth (Blodgett & Wakefield, 1995).

These are the reasons that service companies nowadays are aiming for customer satisfaction by providing quality service to customers in order to increase customer satisfaction which leads to favorable word-of-mouth, customer retention and customer loyalty (Newman, 2001). In fact, few studies have examined the relationship between service quality and customer satisfaction in a context of Islamic financing. Al Hawari and Ward (2006) showed that service quality affects customer satisfaction and then bank profitability. Besides, service quality has also been related to customer satisfaction and customer behavioral intentions. Satisfaction often acts as a mediating role between customer perceptions of service quality and the creation of behavioral intentions (Cronin, Brady & Hult, 2000). And those intentions can be measured by word-of-mouth, repurchase intention, loyalty, price sensitivity and complaining behavior (Zeithaml et al., 1996.).

2.6 Customer Satisfaction vs. Customer Delight

Academic and practitioners have recognized that merely satisfying the customer is not sufficient to create exceptional behavioral consequences such as positive word-of-mouth and loyalty (Oliver, Rust, & Varki, 1997). Recently, the customer delight that goes beyond the satisfaction has given more attention in the service industry research field (Berman, 2005). As distinct to satisfaction, (Berman, 2005) depicted that customer delight is defined as positive response to surprising product attributes or services encounter. It is also argued that only service and product that fall outside the zone of tolerance and exceed the customer’s expectations lead to loyalty-driven profit.

However, outrage and pain can result when a customer encounters unanticipated poor service, and dissatisfaction occurs when the service could not meet the customer’s expectations. When expectation of customer are met or exceeded, the customer will feel satisfied and have a moderately high repeat intent. While delight is the mixture of surprise and happiness when one exceeds customer expectations on main criteria that create memorable and emotional responses that more strongly drive overall satisfaction and repeat purchase intention (Berman, 2005).

As argued by Berman (2005), not all product and service attributes are able to result in customer delight. Product or service attributes that enhance utility beyond that which is expected and leads to surprising pleasant are often called excitement factors. For example, hospitality service context, a highly level of novelty and entertainment in a resort or exceptionally good service in a restaurant can be such excitement attributes. They differ to such as the cleanliness of a room or freshness of the food in a restaurant which are considered a “must� for customer and this example of basic requirements are not able to elicit satisfaction but merely prevent dissatisfaction.


In this chapter, the research process will be discussed. This chapter will cover the scope of research firstly, following by the research design. Thirdly, theoretical framework will be discussed and the hypothesis will be developed for the variables. After that, the questionnaire for the research will be designed. Besides that, this chapter also explains the sampling design and techniques. Data collection techniques and data analysis & measurement will also discuss in this chapter.

3.1 Scope of Study

This study intends to evaluate the effectiveness of Islamic loan among consumer within Malaysia towards the service quality provided by Islamic banks. From the findings of the study, we expect that the factors that contribute to the effectiveness of Islamic Loan after experiencing the service provided by Islamic banks can be identified. The respondents of this study are the consumer in Taiping, Perak. The dependent variable in this study is the effectiveness of Islamic Loan among consumer within Malaysia towards Islamic banks while the independent variables are tangible, realibility, responsiveness, assurance and empathy.

3.2 Research Design

According to Sekaran (2003), a research is always start with developing the theoretical framework by identifying the variables, then only design the research procedure for the data is able to collected and analyzed. Research design is a blueprint or framework for conducting the project of marketing research according to Malholtra (2004). It identifies the way for collecting the data which is needed and resolved the marketing research problems. It is consider as a foundation of a researcher to conduct a project. Moreover, a well research design will result the marketing research project which is conducted become effectively and efficiently.

The descriptive study will be used as research design in this study. This is because the research problem and the variables which are related to the research problem will have a better description in the study. According to Sekaran 2003, a descriptive study is able to describe the characteristics of the variables of interest in a situation. Based on this descriptive study, the independent variables of this study which have been described above after reviewed from the literature will have a better explain towards the dependent variable of this study.

3.3 Theoretical Framework

After the review of literatures, the reliable variables to be study are identified. For developing in-depth understanding of effectiveness of Islamic loan among consumers within Malaysia, a research framework (Figure 1) is built up based on previous related research.



Customer satisfaction on adopting Islamic Loan




Independent Variables Dependent Variable

3.4 Hypothesis Development

Due to the constraints of real-life evaluation in the current study, the service quality dimension had to be simplified and adjusted for survey. Thus, not all of the dimensions that discussed in literature review are included in this hypothesis testing.

3.4.1 Tangible

As described earlier, tangible is the appearance of physical facilities, equipment, personnel, printed and visual materials (Parasuraman, 1991). Intuitively, the valuable information of Islamic financing and the physical facilities in the bank that provided by Islamic banks will leads to customer satisfaction.

H1: Tangible is positively affecting customer satisfaction towards adopting Islamic financing.

3.4.2 Reliability

As referred to Zeithaml et al. (1990), reliability in banking industry is referred to the ability of the Islamic bank to perform the promised service dependently and accurately. When the customers are adopting with the Islamic Financing, the problem or issue arisen will need to be resolve by the Islamic banks’ staffs.

H2: Reliability is positively affecting customer satisfaction towards adopting Islamic financing.

3.4.3 Responsiveness

Responsiveness as one of the service quality dimensions can be refers to the reaction time of the service. The reaction time of service that reflecting the responsiveness can be as a result of convenience, speed, and timeliness of service delivery. (Zeithaml et al. 1990) Intuitively, the responsiveness is also a service quality dimensions for Islamic financing area. The customers expect the Islamic banking staffs provide a convenience, speed and timeliness of service delivery for them to avoid wasting their time to the Islamic financing procedures.

H3: Responsiveness is positively affecting customer satisfaction towards adopting Islamic financing.

3.4.4 Assurance

According to Zeithaml et al. (1990), Assurance is the knowledge and courtesy of the Islamic banks’ staffs and their ability to convey trust and confidence towards the customers. Customers are very concern with the safety of their personal data and the risk of fraudulent transactions.

H4: Assurance is positively affecting customer satisfaction towards adopting Islamic financing.

3.4.5 Empathy

A story of Zappo’s show online store, famous for its customer service, described an employee who not only refunded an order for a recently deceased customer when requested by a family member, but went on to send flowers for the funeral. Instead of maintaining a transactional relationship with customers, empathy means never forgetting to have concern to customers even in their lives aspects. (Articlebase, 2009) Intuitively, it applies to Islamic financing area which is a type of service, and customer expect the banking staffs provide caring and understand their needs in Islamic financing and any other fulfillment of humanity for example.

H5: Empathy is positively affecting customer satisfaction towards adopting Islamic financing.

3.5 Questionnaire Design

Questionnaire design is an integral part of a research project. A good questionnaire design enables the researcher to collect the data which is related to the purpose study. Besides that, a questionnaire design divide into 2 types of question which is open-ended questionnaire and close-ended questionnaire. In this study, all questions are close-ended, because it will help to enable the quantitative analysis to generate result from the findings. Besides that, a closed-ended questionnaire can produce the data in more objective opinion rather than subjective and it can obtain the data in quick by distributed to many respondents at the same time.

Moreover, in the questionnaire of this study, it will have a statement which is explains the purpose of this study and the collected data will only being used for academic purposes. Apart from that, the questionnaire workability will be enhanced by review to the published related journals. The language used in the questionnaire is English. Furthermore, the questionnaire consists of 2 sections. The first section will be the respondent’s demographic data which is used for the classification. Second section will measure the quality of the independent variable towards the effectiveness of the Islamic loan.

3.6 Sampling Design and Techniques

As referred to Sekaran 2003, sampling is the process of selecting a sufficient number of elements from the population. The sample will represent the population elements and provide an understanding of the population elements characteristic.

3.6.1 Sample Unit

As we learn from the research book, population refers to the entire group of peoples, events or things of interest that researchers wishes to investigate. The populations of this study consist of all the consumer in Taiping, Perak. In addition, the sampling units would be citizens who are taking Islamic loan now or before in Taiping.

3.6.2 Sample Size

The size of sample size of a research is very important, because an appropriate sample size will ensure representativeness of the study and enough cases to run the multivariate analysis, such as pearson correlation analysis. In this study, a sample size of 200 will be selected as the respondents and multiple linear regressions analysis will be used.

3.6.3 Sampling Technique

The sampling technique of this study is by means of a convenience sampling to study the effectiveness of Islamic loan. The respondents of this study are randomly selected according to their availability. Besides that, this sampling method is able to collect the data from diverse citizens in Taiping instead of just focus on a particular bank of consumers. This helps to increase the generalization of result to the entire Taiping citizens.

3.7 Data Collection Techniques

In a good research design, data collection techniques are also play an important role of it. There are 2 types of data collections method which are qualitative and quantitative method. Quantitative method will be used as a data collection mean in this study. As referred to Sekaran (2003), quantitative data refers to information gathered in the narrative form through interview and questionnaire.

3.7.1 Primary Data

Primary data is data gathered for research from the actual site of occurrence of events or simply called firsthand data. For this study, the primary data will be form distribution of questionnaire. A questionnaire was used as the main form of data collection in this study. The details of the primary data collection by using questionnaire have been discussed in questionnaire design above.

3.7.2 Secondary Data

Secondary data is the data collected through such existing sources. Secondary data are the data collected and recorded by someone else to the needs of the researcher. It can be articles, books, journals, newspaper and online sources to enhance the knowledge in the issue of the topic.

The benefit of seeking secondary data sources is time saving and cost efficiency. However, secondary data as the sole source of information has the disadvantages of becoming obsolete, and not meeting the specific needs of the particular situation or setting. Hence, it is important to refer to sources of information that are up-to-date.

In this study, the most used secondary data are the online sources and journals. In addition, secondary data helps the researcher to reach the idea of doing the research in preliminary stage.

3.8 Data Analysis and Measurement

3.8.1 Data Measurement Scale

According to the social sciences, scaling is the process of measuring or ordering entities with respect to quantitative attributes or traits. For example, a scaling technique might involve estimating individuals’ levels of extraversion, or the perceived quality of products. The techniques of scaling used are necessary study to obtain the behavior responses or preferred choices of subjects towards objects, events or persons. In this study, the questionnaire is designed in 2 types of rating scale which are the category scale and likert scale. Category scale

This scale presents a sequence of numbers or words which only serve to identify certain entities or observation and have no quantitative significance. It helps to elicit a single response and assign subjects to certain categories or groups. Thus, the category scale is normally generating to obtain the demographic data of respondents. As a result, it can help to calculate the frequency or percentage. Likert Scale.

Likert scale is constructed to examine how strongly the respondents agree or disagree with the particular statements on the scale from 1 to 7. However, in this study, only scale from 1 to 5 is used. For example:

Strongly Disagree Strongly Agree

1 2 3 4 5

3.8.2 Data Analysis

The data collected are then processed by using the Statistical package of Social Science (SPSS) software. The function of SPSS is to assist researcher to analyze the result of the questionnaire and then to be interpreted in the finding section. Several analysis methods will be applied are descriptive statistics, reliability analysis, distribution analysis, Pearson correlation analysis and multiple regression. Descriptive Statistics

A descriptive statistics is a statistics that describes the phenomenon of interest. It is used when the researcher is interested to know what is the average score when a set of figures are involved as well as extend of variability in the set. For example, frequency analysis will be conduct by determine the demographic characteristic of the respondents towards the dimensions of service quality provided the Islamic banks. Reliability Analysis (Cronbach’s Alpha)

The reliability of measure is established by testing for both consistency and stability. It is used to measures the consistency of the questionnaires for each variable. Consistency indicates how well the items measuring a concept hang together as a set. Cronbach’s Alpha is a reliability coefficient that indicates how well the items in a set are positively correlated to one another. Cronbach’s alpha is computed in items of the average intercorrelations among the items measuring the concept. The closer Cronbachs’ alpha is to 1, the higher the internal consistency reliability. Pearson Correlation Analysis

The Pearson correlation analysis helps to evaluate the correlation between the independent variables and dependent variables in this study whether it has significance, negatively correlated or positively correlated relationship. Multiple Regression Analysis

It is a powerful and flexible procedure for analyzing associative relationships between a metric dependent variable and one or more independent variables. It is also to determine whether the independent variables explain a significant variation in the dependent variable: whether a relationship exists and set the mathematical equation relationship relating the independent and dependent variables.

3.9 Pilot Test

When the survey questionnaire was drafted, there were many assumptions and pre-judgments about what respondents were both able and willing to do. Accordingly, there was a need to pilot-test the questions with non-target respondents to gain objective views. Pilot-testing a questionnaire can help to guard against faulty assumptions and detect mistakes in the questionnaire and identify and correct potential impediments before the survey instrument is used for collecting data of value.