analysis of customer satisfaction with the islamic banking sector

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  • Asian Journal of Business and Management Sciences

    ISSN: 2047-2528 Vol. 2 No. 10 [38-50]

    Society for Business Research Promotion | 38

    Analysis of Customer Satisfaction with the Islamic Banking Sector:

    Case of Brunei Darussalam

    Mohamed Sharif Bashir

    Imam Centre for Banking and Finance Al-Imam Muhammad Ibn Saud Islamic University

    Riyadh 11432, Kingdom of Saudi Arabia


    ABSTRACT During the last decade, the Islamic banking sector in Brunei Darussalam experienced remarkable and increasingly challenging development in the face of strong competition from conventional banks. The main objective of this paper

    is to examine the effects of both service quality and product quality, and of satisfaction awareness of Islamic banking in Brunei Darussalam. This study also examines the reasons that consumers select Islamic banking. A questionnaire survey was conducted among Islamic banks customers. The findings show that the indirect effects of service quality and product quality on satisfaction awareness were positive and significant. They also revealed that consumers were aware of Islamic banking products and services to a certain degree; and the reasons for preferring them were profitability and religious principles. As a result, these findings provide the Islamic banking industry with helpful guidelines in its efforts to formulate suitable promotional policies to attract more banking customers. Keywords: Islamic banking, Islamic finance, customer awareness, customer

    satisfaction, service quality, Brunei Darussalam.


    Customer satisfaction has been perceived as a key factor in finding out why customers

    leave or stay with a bank. Generally, any bank needs to know how to keep their customers, even if they seem to be satisfied. As competition within the financial services industry is

    more intense than ever, and as banking companies service menus are becoming

    increasingly comparable, the need to understand bank customer satisfaction is vital (Rose

    & Marquis, 2006). Service quality and product quality are vital elements in determining

    customer satisfaction, as is customer awareness. In this context, quality is the key factor and is synonymous with the consumers ability to select from a wide array of products and

    services that provide a closer match to his or her needs and desires (Ho, Lau, Lee & Ip,

    2005). Following this, it is argued that the increasing perception of service quality and

    product quality will increase customer awareness, which finally increases satisfaction. The

    relationship between bank customers awareness, the quality of service they receive and

    their level of satisfaction has been investigated in different countries, but there are few studies on Islamic banks. In regards to Brunei Darussalam, empirical research has never

    been done, nor have the issues of customer awareness, service quality and product quality,

    and customer satisfaction of Islamic banking been addressed. This paper aims to fill this

    gap in the literature. Its main objective is to examine the awareness and satisfaction of

    Islamic banking in Brunei Darussalam. It is interesting to note that this paper differentiates from other studies on the same topic as it investigates the indirect effects of service quality

    and product quality on satisfaction through customer awareness (Bashir, 2012).

    The remainder of the paper has been organized in the following way: Section 2 provides a

    literature review. The research method is discussed in Section 3. Section 4 presents the

    discussion and findings. The conclusion is presented in the final section.

  • Asian Journal of Business and Management Sciences

    ISSN: 2047-2528 Vol. 2 No. 10 [38-50]

    Society for Business Research Promotion | 39

    1.1 Overview of Bruneis Islamic Banking Sector

    Over the past ten years, Islamic banking industry in Brunei Darussalam has grown rapidly.

    Although it makes up a small proportion of the countrys financial market, consumer

    interest in this industry is shown by the fact that they hold 40% of whole banking sectors

    assets compared to conventional counterparts that account for 60%. Islamic bank deposits

    also constitute 36% of total bank deposits compared to conventional bank with 64%, while

    loans accounted for 48% from Islamic banks compared to 52% from conventional banks.

    Bruneis Islamic banking system is currently served primarily by two groups: the Bank

    Islam Brunei Darussalam (BIBD) and Tabung Amanah Islam Brunei (TIAB). Over the years,

    these two institutions have gone through a number of structural changes. On 23 September

    1991, the first Islamic financial institution in Brunei Darussalam, TAIB, was established.

    TAIB is not a commercial bank but an Islamic trust fund. It offers services to the public in

    mainly savings and financial accounts. All of TAIB's savings accounts are based on the

    Islamic contract of guaranteed safe custody (al-wadi'ah yad dhamanah- AWYD). The

    financial accounts are mainly based on the principles of deferred payment sales (bai'

    bithaman 'ajil- BBA) and hire-purchase contracts (al-ijarah thumma al-bai' -AITAB). These

    contracts are extended for the purchase of cars, land, building and house renovations,

    computers, for personal loans, for education and other purposes. In addition, TAIB offers

    corporate financing, such as trade financing, and asset-based financing, among others.

    TAIB also distributes its own term deposit certificates, which were introduced to create

    awareness of financial planning and to promote saving habits among the public (Tabung

    Amanah Islam Brunei, 2008).

    Since its establishment, TAIB has acquired two subsidiary companies, for both of which it

    owns 100% of shares. These companies include Insurance Islam TAIB Sdn. Bhd. (Islamic

    insurance), which provides insurance coverage in conformity with Shari'ah principles, and

    Darussalam Holdings Sdn. Bhd., which manages buildings and hotels in Mecca and

    Medina, acts as a travel-ticketing agent, and also manages the Brunei pilgrimage in the

    Holy Cities. This latter function includes ensuring pilgrims welfare and safety during

    Meccas Hajj and Umrah (Tabung Amanah Islam Brunei, 2008).

    On 13 January 1993, two years after establishing TAIBs trust fund, the Islamic Bank of

    Brunei Bhd. (IBB) was established. The bank was to assist the locals in using Islamic

    banking facilities and in depositing their funds in a fully owned government bank. The IBB

    provides a complete range of commercial banking facilities, from the basic savings account

    to more sophisticated trade financing facilities. Besides being a commercial bank, the IBB

    has invested in other related financial activities through its subsidiaries, each of which

    specializes in a separate distinct activity (Bashir & Mail, 2011; Latiff, 2007).

    On 15 July 2000, officially decreed that the Development Bank of Brunei be converted to

    the Islamic Development Bank of Brunei Bhd. (IDBB) (Islamic Bank of Brunei Bhd, 2000).

    In March 1995, the IDBB was initially established as a conventional bank known as the

    Development Bank of Brunei (DBB). On 4 April 2000, the Government of Brunei instructed

    the bank to operate on Islamic banking principles. This conversion required changes in its

    transactions processing and accounting systems. Training in Islamic banking concepts was

    also arranged for all management and staff. On 1 July 2000, successful conversion of the

    IDBB as Bruneis second Islamic bank was completed (Latiff, 2007).

    In February 2001, a year after the conversion, the IDBB opened Takaful IDBB Sdn Bhd., its

    first subsidiary company. This company is wholly owned by the bank and acts as an

    insurance company that provides a wide range of Islamic insurance products that cover

    property, business and life, and conform to Shariah principles, About three years after the

    conversion, the IDBB introduced many new Islamic products such as Eze-Net Islamic

    Internet Banking and Bruneis first Islamic credit card (Bashir & Mail, 2011; Latiff, 2007).

    On 7 July 2005, the Ministry of Finance announced that the state ruler had consented to

    the proposed merger between the Islamic Bank of Brunei Bhd (IBB) and the Islamic

  • Asian Journal of Business and Management Sciences

    ISSN: 2047-2528 Vol. 2 No. 10 [38-50]

    Society for Business Research Promotion | 40

    Development Bank of Brunei Bhd. (IDBB). On 10 September 2005, the Bank Islam Brunei

    Darussalam Bhd. (BIBD) was incorporated. On 1 May 2006, a vesting order was obtained

    from the High Court of Brunei Darussalam, and on 3 July 2006, the BIBD became a fully

    operational Islamic Bank (Bank Islam Brunei Darussalam, 2007). The BIBDs core values

    are to ensure that its personnel maintain high ethical standards in carrying out their

    responsibilities and that it adopts the standards of Shariah or Islamic law, in accordance

    with best industry practices, in offering its products and services to its customers. As a

    market-driven Islamic financial institution that constantly strives to address the needs of

    its customers in a highly competitive environment, the BIBD also aims to maximize