Islamic finance: Factors influencing the perception of muslim individuals in Perth

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1. Paper ID : 2017.1502.004 Islamic finance: Factors influencing the perception of muslim individuals in Perth Rehman Javaid*, Ian Austin, and Helen Cripps Edith Cowan University, Australia. Abstract The purpose of this study is to investigate the factors that influence the perception of Muslim individuals living Australia of Islamic banking and Finance. A structured close-ended questionnaire was adopted to investigate the perception of Muslim individuals from the different suburbs of Perth with 300 usable responses received. Regression analysis was used to test the impact of Islamic knowledge, financial concepts and service quality on customers’ perception toward Islamic banking. The findings of the study suggest that Religious inclination, understanding of Islamic financial concepts and brand image & quality has a significant impact on the respondent’s perception. In addition, it is found that there is significant potential for Islamic banking and Finance in Perth due to increasing Muslim population and the current low level of utilisation. These findings can be helpful for Australian Islamic Financial Institutions to better target their potential market in Perth. Keywords: Perception, Islamic Banking & Finance, Perth. *Corresponding author Email: RJAVAID@our.ecu.edu.au INTRODUCTION History of Muslims in Australia starts from 16th century. Mirza and Halabi (2003), states that “Some of Australia’s earliest visitors were in fact Muslim fishermen from the island of Makassar from the east Indonesian archipelago”. According to Cleland (2001), Afghan Muslims have played vital role is the exploration of central Australia in nineteenth century. In addition, population growth was needed in Australia after the Second World War; as a result, around 10,000 Turks came to Australia under an agreement between Turkey and Australia (Saeed, 2004). Currently from more than sixty countries Muslims have come to Australia and settled down. Majority of the Muslims came from the countries including Turkey, Lebanon, Indonesia, Iraq, Iran, Pakistan and India (Saeed, 2004). 138
2. According to the Australian Bureau of Statistics (2016 census), Australia has Islam as the second biggest religion after Christianity with a population of 2.6 percent. This increasing population comes to Australia with Islamic social and financial needs. Although, currently no major Australian bank is offering Islamic Finance option, several Islamic Financial institutions have been operating in Australia since 1989. These institutions include; MCCA (Muslim Community Co-operative Australia), ICFAL (Islamic Co-operative Finance Australia Limited) and Iskan Finance (Farrar, 2011). The entrance of Islamic finance into the Australian market, it has been a difficult journey throughout because of the stiff regulations faced by Islamic Financial Institutions in Australia (Farrar, 2011). The study suggests that it is difficult for Islamic Banking and Finance (IBF) to penetrate in Australian market until the Australian government make legislative changes. However, the study of Sadiq and Black (2012), illustrates that there is continuous growth for Islamic Banking and Finance in Australia without having any amendments or alterations in legislation. Keeping in mind that Islamic Financial System is relatively a new concept particularly in Australia, previous research on perceptions regarding Islamic Banking and finance in Australia is scarce. Rammal and Zurbruegg (2007), conducted their study in Adelaide on the behaviour of individual customers and found that there is a deficiency of awareness regarding Islamic banking products and Islamic financing ,however, real interest is shown by the practicing Muslim for the products of Islamic Banking. Jalaluddin (1999), examined the behaviour and attitude of total of 385 small businesses in Sydney regarding Profit and Loss Sharing (PLS) system. The study found that the respondents would be interested in PLS system if they have business support, shared risk between lender and borrower and default risk in interest-based banking. There is a dearth in contemporary literature on Islamic Banking in Australia and this study is first to investigate the perception of Perth Muslims of Islamic Banking and finance. Furthermore, the study highlights the factors that influence the perception of Muslim individuals. DATA & METHODOLOGY Instrument A self-administered questionnaire was used to collect the responses. The questionnaire was divided into four sections. The first three sections were based on the questions related to independent variables i.e. religious inclination, Islamic financial concepts and service quality. The fourth section was based on questions related to customer perception toward Islamic Banking and finance. The impact of independent variable on dependent variable was analyzed using regression analysis. Data Collection Random convenience sampling technique was used and respondents were contacted at the Mosques and Islamic centers in the different suburbs of Perth. For the higher probability of responses, respondents were approached after the prayer time at the mosques. Sample A structured questionnaire was distributed among 350 Muslims individuals residing in different suburbs of Perth. Only 318 were returned out of which 300 were selected for data analysis. 139
3. Figure I : Conceptual Framework Religious Inclination Muslim Individuals’ Perception of Islamic Banking Islamic Financial Concepts Brand Image and Quality RESULTS AND DISCUSSION Reliability Statistics The instrument adopted for the data collection was tested for reliability. The value of Cronbach’s alpha is reported as 75.5 percent that implies that the instrument used to test the customer’s perception is reliable. Table I: Reliability Table Cronbach's Alpha N of Items .754 4 Item total statistics The reliability of each variable in the table shows that service quality is the most reliable variable among all variables with the value .762 of Cronbach’s Alpha followed by Perception. The values of individual Cronbach’s alpha depict that all the variables formulated in the study are acceptable and reliable. 140
4. Table II : Item Wise reliability of the variables Scale Corrected Cronbach's Scale Mean if Variance if Item-Total Alpha if Item Item Deleted Item Deleted Correlation Deleted REL_INCL 6.5509 3.623 .707 .625 CONC_OF_IF 6.4902 3.306 .608 .663 SERV_QUAL 5.7412 4.033 .423 .762 PERCEPTION 6.3473 3.582 .501 .727 Model Summary Table 3 of model summary shows r=.619 and standard error of estimate = .684. The value of R square indicates that 38% of dependent variable can be explained by the independent variables. Table III: Model Summary Model 1 R .619a R Square .383 Adjusted R Std. Error of the Square Estimate .375 .68478 Durbin-Watson .908 a. Predictors: (Constant), SERV_QUAL, CONC_OF_IF, REL_INCL b. Dependent Variable: PERCEPTION ANOVA: The value of significance in table 4 is .000 which shows that the independent variables (Religious Inclination, Islamic Financial Concepts and Service Quality) can significantly impact the dependant variable (Perception of Muslims regarding Islamic Banking) 141
5. Table IV : ANOVA Model 1 Sum of Squares Regression df Mean Square 69.220 3 23.073 Residual 111.605 238 .469 Total 180.825 241 F Sig. 49.205 .000b a. Dependent Variable: PERCEPTION b. Predictors: (Constant), SERV_QUAL, CONC_OF_IF, REL_INCL Regression Results: The regression model showed a positive and significant relationship between religious inclination and respondents’ perception toward Islamic banking. It means that the customers who are more inclined toward their religion tend to perceive Islamic banking more positively, as compared to those who are not that much inclined towards the religion. In addition, knowledge of concepts and different products of Islamic finance also have positive relation with perception. Brand image and service quality provided by the bank have significant but negative relation with the perception of Muslims about Islamic banking and finance. This contradicts the previous research of Dusuki & Abdullah (2007) who found brand image and service quality to be the most influential factors for choosing an Islamic bank in Malaysian customers. Table V: Regression Coefficients Standardized Unstandardized Coefficients Model 1 a. B Std. Error (Constant) .915 .163 REL_INCL .593 .082 CONC_OF_IF .317 SERV_QUAL -.215 Coefficients Beta t Sig. 5.604 .000 .476 7.208 .000 .061 .318 5.207 .000 .067 -.195 -3.223 .001 Dependent Variable: PERCEPTION CONCLUSIONS AND RECOMMENDATIONS The literature presented in this study suggests that Islamic Banking and finance is still evolving in Australia. The purpose of this study was to focus on the factors that influence the perception of Muslim individuals about Islamic Banking and finance. On the basis of the findings, it can be argued that the religious inclination of respondents and knowledge about the concepts of Islamic finance had significant positive impact on the perception of the Muslims regarding Islamic banking and finance. In addition, there is a high potential for Islamic Banking and finance in Perth because of increasing population of Muslims. The results also indicate that more marketing is required done by Australian Islamic financial institutions to engage the more devout Muslim customers. 142
6. The findings suggest that if more clarity was provided on the concepts of Islamic finance provided by the Islamic Financial Institutions , it could impact positively on the perception of the Muslims, which may result in increased demand of Islamic financial products and services. In addition, targeting the more religiously inclined Muslims can also help capture the potential market. The high potential for Islamic banking is significant for the Australian banks in a way that they may offer Islamic banking window to the Muslim customers. Further studies are needed to explore the customer perception and need of Islamic finance in Australia. In addition, studies to provide a better insight into the kinds of communication strategies relating to Islamic Financial products and services that will help Muslim customers to understand clearly the concepts of Islamic finance. ACKNOWLEDGMENTS I would like to thank specially my colleague Mr. Irfan Haider Shakri in helping me refining this project and data collection. I would also like to thank my supervisors, Dr. Austin and Dr. Cripps for their help and support and their critical review and feedback on the project REFERENCES Cleland, B. 2001. The history of Muslims in Australia. Muslim Communities in Australia, 12-32. Farrar, S. 2011. Accommodating Islamic banking and finance in Australia. UNSWLJ, 34, 413. Jalaluddin, A. & Metwally, M. M. 1999. Profit/loss sharing: an alternative method of financing small businesses in Australia. Middle East Business and Economic Review, 11, 8-14. Mirza, A. M. & Halabi, A.-K. 2003. Islamic banking in Australia: Challenges and opportunities. Journal of Muslim Minority Affairs, 23, 347-359. Rammal, H. G. & Zurbruegg, R. 2007. Awareness of Islamic banking products among Muslims: The case of Australia. Journal of Financial Services Marketing, 12, 65-74. Sadiq, K. & Black, A. 2012. Embracing Sharia-Compliant Products through Regulatory Amendment to Achieve Party of Treatment. Sydney L. Rev., 34, 189. Saeed, A. 2004. Muslim Australians: Their beliefs, practices and institutions, Department of Immigration and Multicultural and Indigenous Affairs and Australian Multicultural Foundation. Wajdi Dusuki, A. & Irwani Abdullah, N. 2007. Why do Malaysian customers patronise Islamic banks? International Journal of Bank Marketing, 25, 142-160. (2017, June 28) Census of Population and Housing: Reflecting Australia - Stories from the Census, 2016. Retrievedfrom: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/2071.0~2016~Main%20Features~ Religion%20Data%20Summary~25 143