Determinants of low adoption of Islamic banking in Pakistan

Abstract

Purpose The purpose of this paper is to examine the reasons behind low penetration of Islamic banking in Pakistan. Specifically, the study investigates the differentiation of Islamic banks (IBs) from conventional banks, the role of religion in choosing Islamic banking and the perception of IBs amongst the consumers. Design/methodology/approach The study uses a mixed-method approach, qualitative research along with a survey of users of conventional and Islamic banking. Factor analysis identified underlying dimensions and cluster analysis ascertained the differences between users and non-users of Islamic banking. Inferential statistics were used to test purported hypotheses. Findings The study finds that the users and non-users both perceive that Islamic banking is not completely interest-free. Furthermore, consumers presume that IBs are more of eyewash and are not truly practicing Islamic banking. Moreover, religion is not a major factor that attracts new users but there are also other important factors in marketing Islamic banking, such as service quality, convenience, branch network, etc. Originality/value This is one of the sparse studies in the field of Islamic banking consumer behaviour, which uses focus groups of users and non-users, and in-depth interviews of experts, to identify the issues and factors considered relevant and important by the users rather than relying only on literature review. Furthermore, it also provides a profile of users versus non-users of Islamic banking which is very useful for segmentation and targeting of customers.

Marketing Islamic Financial Services: A Review, Critique, and Agenda for Future Research

“…As a result, we restrict our review as it relates only to some of the key marketing areas and issues, as summarized in Table 1. (Zebal 2018), and Pakistan (Butt et al 2018;Imran et al 2011). Most of these studies also focus mainly on the performance and efficiency of Islamic financial institutions.…”

“…The findings from our present review also support these conclusions. For example, most studies in the Muslim majority countries have focused only on the issue of efficiency of the Islamic finance system and customer satisfaction (e.g., Moktar et al 2006;Sufian 2010;Kaabachi and Obeid 2016;Ltifi et al 2016;Chazi et al 2018;Hussein 2010;Butt et al 2018;Estiri et al 2011). We have identified numerous critically important yet unexplored opportunities to integrate insights from the global Islamic finance literature with a focus on Muslim majority countries.…”

“…Consequently, research on Islamic finance has sharply accelerated within the past two decades, first in management, finance, and economics (see, Al Rahahleh et al 2019;Ayub 2018;Fang 2014;Khan and Bhatti 2008a;Kurpad 2016) and more recently, in international business and marketing literature (see, Belwal and Maqbali 2019;Butt et al 2018;Fang 2016;Amin et al 2014;Khaliq et al 2011). Despite its robustness, the literature on Islamic finance remains fragmented, offering little guidance for researchers attempting to conceptualize the marketing strategies of Islamic finance.…”

Examining the Determinant Factors on Consumer Switching Intention Toward Islamic Bank in Central Java, Indonesia

“…Different results on consumer trust can only affect consumer attitudes on Islamic banks but cannot contribute to consumers to increase intention to move to Islamic banks. One possibility is that consumers assume that Islamic banks do not really practice Islamic banking (Butt et al, 2018), this is what makes consumers hesitant and do not intend to switch to Islamic banks.…”

“…Several previous studies have shown that consumers have the intention to move from conventional banks to Islam which is influenced by religiosity (Saleh et al, 2017; Islam & Rahman, 2017; Suhartanto, 2019) but not all research results state that religion is the only factor that influences how many customers choose their financial institutions (Butt et al, 2018). Based on this gap, the purpose of this study is to examine how the concept of religiosity can influence the intention to switch from conventional banks to Islamic banks.…”