Service Quality Perception and Its Impact on Customer Satisfaction in Islamic Banks of Malaysia

Transcription

1. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Service Quality Perception and Its Impact On Customer Satisfaction In Islamic Banks of Malaysia Hasnan Baber1 1 Endicott College of International Studies , Woosong University, Daejeon, South Korea email: h.baber@endicott.ac.kr Phone no: +8201027503750 Abstract The study is aimed to investigate the gap between the level of service quality expectations and perception and its impact on customer satisfaction in Islamic banks of Malaysia. Shariah Compliance dimension was included in the SERVQUAL model of service quality. A 29 item questionnaire was employed to collect data from 721 customers of selected banks of Malaysia. In this study, data were statistically analysed through reliability analysis, paired sample t-test, exploratory factor analysis, regression analysis and followed by confirmed factor analysis. Structural equation modelling was used to measure service quality perception and customer satisfaction. This study revealed that there is a partial significant gap between expected and perceived service quality level except in Shariah Compliance and tangibility. The study suggested that there is a positive and significant impact of modified multidimensional SERVQUAL quality scale on customer satisfaction. Addition of Shariah compliance dimension showed the highest contributing factor among all dimensions and thus its inclusion was justified. The study was original and novel to find a quality gap and its impact on Malaysian Islamic bank customers and it will help policymakers of Malaysia and other countries to improve to meet customer expectations. Keywords: Service Quality, Quality Gap, Islamic Banks, Malaysia 1.0 Introduction Service industry forms the backbone of most economies of the world and thus becomes vital for researches to understand the quality of service and customer satisfaction. Companies which render quality services usually perform better than competitors (Al-Hawari et al., 2016; Caruana et al., 2000; Ali & Raza, 2017). Many authors use the quality word interchangeably with satisfaction and suggested that service quality is directly related with customer satisfaction (Dsouza et al., 2018; Arasli et al., 2005; Avkiran, 1994; LeBlanc & Nguyen, 1988; Farooq et al., 2018). Substantial Number of studies has been done on the service industry and proposes that service quality is positively correlated to customer satisfaction. Many studies were conducted to measure the service quality and its impact on customer satisfaction in banking sector (Caruana, 2002; Siddiqi, 2011; Raza, Jawaid, & Hassan, 2015; Lewis, 1991; Lassar et al., 2000; Rod et al., 2009; Zhu et al., 2002). Though Islamic banking is just two-decade-old but significant studies has been done on service quality and customer satisfaction in Islamic banking in such short span of time (Ali et al., 2009; Othman & Owen, 2001a; Muhammad et al., 2011; Ali & Raza, 2017; Thaker et al., 2016). In the world of globalisation, the key for success is providing quality service (Al-Hawary & Metabis, 2012), and many scholars agree that the most influential competitive development presently determining business strategy is service quality (Abdullah, 2006). Thus, understanding, assessing and refining 1
2. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS quality is a daunting challenge for all organizations since competition is only on the different level of providing better service (Al-dweeri et al., 2017). The service quality model SERVQUAL came into limelight after the groundbreaking effort of Parasuraman, Zeithaml, and Berry (1985). Though, this study first proposed ten dimensions of measuring service quality which was reduced to five lately. Some several academicians and researchers have used this model to assess the quality and gaps in the service industry. Angur et al. (1999) found SERVQUAL more comprehensive and extensive measurement model for diagnosing the level of quality in the banking industry. Malaysia has been the hub of Islamic banking and has witnessed rapid growth over the years. Malaysia has the most Islamic banks operating in its economy. Thus, the experience of customers in Malaysia will help assess the service quality of Islamic banking and areas of improvement for banks in other countries. According to the report of Islamic Finance Development 2018, the global Islamic finance industry assets grew to US$ 2.4 trillion at the end of the year 2017. Islamic banking alone is expected to reach US$296.29 billion by 2019. Malaysia accounts for 36% of total global Islamic funds and highest holding and issuance of Sukuk. Baber (2018) suggested that Islamic finance is guided by principles which are oriented towards the welfare of the society rather than profit. Islamic banking and it is every product should have complained to the Shariah rules; only then well-being objective can be achieved (Baber, 2013). Compliance of Islamic banks with Shariah should increase customer satisfaction for customers who choose the bank for being compliant to Shariah regulations. In this study, Shariah compliance dimension has been added to the five constructs of SERVQUAL for studying the service quality of Islamic banks. This study investigates the gap between the service quality expectations and perception rendered by Islamic banks. Also, this study will examine the impact of each factor of modified SERVQUAL used in this study on customer satisfaction of these Islamic banks. 2.0 Literature Review 2.1 Customer Satisfaction Awan et al. (2011) concluded a study that found that both quality and nonquality dimensions can lead to customer satisfaction. When Customer expectations are fulfilled, it leads to customer satisfaction (Oliver, 1981). Tse and Walton (1988) explained customer satisfaction as “The Consumer’s response to the evaluation of the perceived discrepancy between prior expectations (or some standard performance) and the actual performance of the product as perceived after its consumption.” Taylor & Baker (1994) found that customer satisfaction turns customers loyal and these customers become word-of-mouth advertising. As the market is highly competitive in the globalization era, every business wants to satisfy its customers and wants them to spread this message all across. An unsatisfied customer not only switches to the next alternative but also blow-out bad reviews about the service experience in this informative world which any business cannot afford. 2.2 Service quality Service quality has been so far the best measurement of customer 2
3. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS satisfaction . Parasuraman et al. (1985) proposed a scale SERVQUAL to measure the service quality, which was further refined and modified by various authors according to the context and sector (Avkiran, 1994; Newman, 2001; Smith, 1995). SERVQUAL is based on the grounds that customer perception about quality can be assessed by the gap between customer’s expectation and what they actually receive. Past literature about service quality suggests that service quality helps to build customer satisfaction and help to attract and retain customers. Most of the researchers have found that quality is multi-dimensional and cannot be achieved by focussing only on one dimension. The Multi-dimensional SERVQUAL model also sometimes known for acronym RATER includes ● ● ● ● ● 2.3 Reliability Assurance Tangibility Empathy Responsiveness Service Quality in Banking Wang, Lo, & Hui, (2003) suggested that providing quality financial services is the only way for banks to survive in a highly competitive environment. Berry and thump (1982) found that service quality has the ability to retain customers and increase customer loyalty. Various studies were done to check the service quality and its impact on customers satisfaction in banking industry and proposed a strong relation between the two (Sureshchandar et al., 2002; Jamal & Naser, 2002; Siddiqi, 2011; Shanka, 2012; Lee & Moghavvemi, 2015; Kaura et al., 2015; Ngo, & Nguyen, 2016; Kant et al., 2017). Arasli et al., (2005) studied the service quality and determinants of customer satisfaction of customers in developing countries and found that there is a gap between customer perception and expectations. Moghavvemi et al. (2018) studied service quality and customer satisfaction of local and foreign banks in Malaysia and found that foreign banks have high customer satisfaction than local banks. Pakurár et al., (2019) suggested that the SERVQUAL scale has to be modified while studying quality service in the banking industry. 2.4 Compliance Dimension of Service Quality in Islamic Banks Compliance with Shariah or Islamic laws is the basic requisition of a bank to be labelled as Islamic. Many researchers have found that Shariah dimension is the basic feature in selecting Islamic bank and other variables of SERVQUAL are secondary for customers preferring Islamic finance over conventional finance. This dimension also guarantees customers that their money is not involved in any kind of prohibited activity like riba and ghara. Islamic banks are not supposed to invest their customers’ funds in any kind of unlawful business like Alcohol, gambling, pork etc (Siddiqi, 2001; Ahmad, 2000). Shariah compliance is essential and other SERVQUAL factors can bring competitive advantage among the Islamic banking industry. Haron et al., (1994) found that around 40% of Muslims in Malaysia rate Islamic banks first due to the Shariah compliance aspect. Ijaz and Ali (2013) in their study suggested that Islamic banking showed high growth in recent years and most of the studies suggest a progressive outlook by customers of satisfaction with 3
4. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS service quality . Yilmaz & Gürbüz (2018) in a recent study found a strong impact of SERVQUAL on customer satisfaction and loyalty in Turkish customers. Ahmad & AlAidaros (2017) studied customer satisfaction and awareness of Malaysian Islamic banks and found that satisfaction on Islamic banking is relatively low while suggesting improvements as well. Muhammed et. al. (2017) studied the two determinants, religion and service quality for choosing Islamic banks and found both factors are important to predict the customer preference. Various studies on Islamic banks has added Shariah compliance factor to modify SERVQUAL scale (Ahmad and Haron, 2002; Amin & Isa, 2008; Ali et al., 2009; Ramdhani et al., 2011; Abduh, & Omar, 2012; Rehman, 2012; Amirzadeh & Shoorvarzy, 2013; Ahmad et al., 2017; Baber, 2019). Fauzi, & Suryani (2019) found reliability factors as the most important variable for customer satisfaction. 3.0 Introduction The millennial generation is the newest generation to enter the global workforce (Ng, 2012). They are formed when economic mode changes are intertwined with changes in technology, society, and education systems (Kelan, 2009). The development of communication and information technology in the form of social media also has brought much impact on social life and lifestyle, especially for the millennial generation (Wang, 2011). Always following the trend and "exist", both in the real world and social media, is one example of behavioural changes that occur due to the development of communication and information technology. The urban millennial generation has become increasingly consumptive—in which they can spend IDR 250,000 for breakfast just to have it on a luxurious place with colleagues, hundreds of millions for watches or on a trip abroad (Desira, 2013). Some also spend their salaries to pay for credit cards and luxury car payments. Urban modern people are increasingly consumptive, which is more concerned with aspects of consumption than production (Desira, 2013). Urban millennial generation commonly has the above-average salary. In the beginning, they earn 7 to 10 million per month for their job, some even get more than 35 million per month after 4 years of working (Chamim, 2016). Yet, the hedonic and consumptive lifestyle seems to make them fail to apply financial literacy in making financial decisions. Mistakes in financial planning affect not only on current economic welfare but in the future as well. Many people who save less, fail to invest their money wisely and get themselves stuck in debt (Agarwalla, 2015). The results of the FINRA Investor Education Foundation survey in 2012 show that the American millennial generation has lower levels of financial literacy compared to previous generations (Mottola, 2014). Such a similar condition is found in many other countries, among urban youth in India (Agarwalla, 2015), Lithuania (Navickas, 2014), and New Zeland (Cameron, 2014). The Organization for Economic Co-operation and Development International Network on Financial Education (OECD/INFE) survey also shows that financial literacy remains low in some countries and many young adults are found to have financial problems (OECD, 2013). Based on the previous explanation, it can be seen that financial literacy has a prominent role in the stability of state finances and the financial guarantee of individuals' welfare both now and in the future. However, due to the phenomena of 4
5. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS social changes and the lifestyle of the urban millennial generation , it seems they are less concerned about financial literacy. The latest and greatest number of workforces is occupied by the millennial generation. This generation will determine the state's financial condition. Therefore, this study seeks to understand the role of changes in "newest trend" of social behaviour and lifestyle of the urban millennial generation, particularly those just entering the world of work, dealing with the level of financial literacy. 4.0 Research Design 4.1 Research Hypotheses H1: There is a significant difference in mean between expected and perceived service quality by the customers in Islamic Banks. H2: Shariah Compliance factor has a positive influence on customer satisfaction in Islamic Banks. H3: Reliability factor has a positive influence on customer satisfaction in Islamic Banks. H4: Assurance factor has a positive influence on customer satisfaction in Islamic Banks. H5: Tangibility factor has a positive influence on customer satisfaction in Islamic Banks. H6: Empathy factor has a positive influence on customer satisfaction in Islamic Banks. H7: Responsiveness factor has a positive influence on customer satisfaction in Islamic Banks. 4.2 Methodology Six dimensions for expected and perceived quality comprise Shariah compliance, reliability, assurance, tangibility, assurance, empathy and responsiveness. The expectation of customers for each dimension is compared with the actual quality received and the gap is calculated for each dimension. The impact of perceived quality on customer satisfaction is measured as shown in Fig. 1. 5
6. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Perceived Quality Expected Quality COMP COMP REL REL ASSU ASSU CUSTOMER GAP TAN TAN EMP EMP RES RES SATISFACTION Figure 1 : Research model 4.3 Measurement Instrument The five dimensions of SERVQUAL were taken from Parasuraman (1998), Jabnoun and Hassan Al-Tamimi (2003) and Othman and Owen (2001b, 2002), which are further modified and one more dimension Shariah compliance was added for this study. The items of customer satisfaction in Islamic banks were adopted from the study of Fornell et al., (1996) and Levesque & McDougall, (1996). The data was collected by non-probability sampling technique during the period of January to December 2016 from 721 respondents. There were 29 items on the questionnaire where Independent variable COMP mean compliance, ASSU mean assurance, REL means reliability, TAN mean tangibles, EMP mean empathy and RES denote responsiveness and dependent variable CS represents customer satisfaction. A 5-point Likert scale was used to measure the items where 1 denotes ‘strongly disagree’ and 5 means ‘strongly agree’. 5.0 Estimations and results Table 1. shows the overall demographic statistics of 721 residents of this study. Most of the respondents were male 65% and the rest of the respondents were female. Percentage of the married respondents was 58% and 42% were single. Respondents were mostly in the age group of 41–50 years (64%), followed by 31– 40 (27%), 20–30 (5%), less than 20 (2%) and 50 and above (3%). The inter-correlation between independent variables is shown in Table 2. The 6
7. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS regression results may not be absolute if there is a linear association between the independent predictors . To check be this, Variance inflation factor (VIF) should be less than 10 and at the same time tolerance level should be greater than 0.1, which is followed by the data of this study so there is no problem of multi-collinearity. Table 1 : Profile of respondents Demographic items Gender Male Female Marital status Single Married Age Less than 20 20–30 31–40 41–50 50 and above Frequency Per cent (%) 468 253 64.9 35.1 305 416 42.3 57.7 11 33 192 462 23 1.5 4.6 26.6 64.1 3.2 Table 2 : Correlations between independent variables Independent variables Collinearity Statistics Tolerance VIF Shariah Compliance .577 1.732 Tangibility .859 1.164 Reliability .865 1.156 Responsiveness .213 4.690 Assurance .213 4.704 Empathy .548 1.825 Table 3 : Reliability Analysis Dimension Items Expectation Perception Shariah Compliance 4 .703 .744 Tangibility 4 .701 .788 Reliability 5 .713 .811 Responsiveness 4 .761 .781 Assurance 4 .718 .748 Empathy 5 .784 .852 Customer Satisfaction 3 Combined scale 29 .737 .788 .843 Data were scrutinised in line with scale validity and reliability literature (Churchill, 1979). Coefficient alphas were used to measure: internal reliability for each expectation and perception subscale and overall expectation and perception 7
8. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS scales (see Table 3). All alphas were > 0.70 which is standard. 5.1 Kaiser–Meyer–Olkin and Bartlett’s Tests of Sampling Adequacy In Table 4, Kaiser–Meyer–Olkin (KMO) and Bartlett’s tests were conducted to check sample adequacy. The value of KMO for all items is 0.730, which is considered reasonable compared with 0.5 standards (Leech, Barrett, & Morgan, 2005). Bartlett’s test of sphericity confirms the significant differences in the properties of the identity matrix and correlation matrix. If the probability value of this test is less than 0.05, then it shows the significant difference in the properties of the correlation matrix and identity matrix, which is desirable. In a table, the value of Bartlett's test of sphericity shows significance at the 1% level, which implies that our sample data are appropriate for factor analysis (Bartletts, 1954). Table 4 : KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity 5.2 .730 Approx. Chi-Square 14838.980 Degree of freedom 1485 Probability .000 Total Variance Explained For the elucidation of variance partition among the likely variables, the total variance explained is checked. The utility of a factor can be determined by the general criteria of Eigenvalues, which must be better than 1.0 for all factors. All the variables in this study have a value greater than 1. Thus, Table 5 presents the results of the total variance explained. In this table, the cumulative variance explained by all seven factors is above 78%, which is very good and considerable. Table 5 : Results of variance explained Dimension Items Variance Cumulative Variance Cumulative explained by variance explained by variance each factor in explained in each factor in explained in the percentage the percentage percentage percentage Expectation Perception Shariah Compliance 4 20 20 21 21 Tangibility 4 17 37 16 37 Reliability 5 14 51 13 50 Responsiveness 4 11 62 10 60 Assurance 4 9 71 9 69 Empathy 5 8 79 7 76 Customer Satisfaction 3 5 81 8
9. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS 5 .3 Factor Analysis To authenticate the paradigm of dependent and independent variables, factor analysis is used which has the characteristics to reduce factors into a similar construct. In this study, we have principal component method is used with Varimax rotation. A total of 29 questionnaire items related to SERVQUAL and customer satisfaction in seven groups of items have been categorised. In addition, factor loadings in this study for all items are greater than 0.50, which is significant and is considered for analysis (Kaiser, 1974) shown in table 6. Table 6 : Principal Components Analysis EXPtan4 .606 EXPrel1 .700 EXPrel2 .760 EXPrel3 .648 EXPrel4 .726 EXPrel5 .769 EXPresp1 .621 EXPresp2 .654 EXPresp3 .697 EXPresp4 .549 EXPassu1 .688 EXPassu2 .634 EXPassu3 .689 EXPassu4 .713 EXPemp1 Customer .779 satisfaction EXPtan3 Compliance .732 Empathy EXPtan2 Assurance .571 Responsiveness EXPtan1 Reliability Tangibles Items .622 9
10. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS EXPemp3 .669 EXPemp4 .750 EXPemp5 .707 Excomp1 .521 Excomp2 .656 Excomp3 .656 Excomp4 .602 PERtan1 .659 PERtan2 .734 PERtan3 .682 PERtan4 .662 PERrel1 .698 PERrel2 .650 PERrel3 .646 PERrel4 .658 PERrel5 .700 PERresp1 .610 PERresp2 .656 PERresp3 .685 PERresp4 .628 PERassu1 .694 PERassu2 .765 PERassu3 .719 PERassu4 .684 Customer .647 satisfaction EXPemp2 Compliance Empathy Assurance Responsiveness Reliability Tangibles Items 10
11. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS PERemp2 .853 PERemp3 .822 PERemp4 .798 PERemp5 .814 PERcom1 .787 PERcom2 .766 PERcom3 .727 PERcom4 .715 CS1 .678 CS2 .825 CS3 .812 5.4 Customer .788 satisfaction PERemp1 Compliance Empathy Assurance Responsiveness Reliability Tangibles Items Structural Equation Modelling The first-order confirmatory analysis was supported using a statistical software package AMOS 7.0. The model studies how well service perception and expectation indicator variables fit the data. The model was evaluated using maximum probability procedure and evaluated using chi-square, GFI, CFI and REMSA. The first-order model retains all its original variables (see Table 7). Chisquare was significant 58.386; df 72; p= 0:01. Other indices also indicate that both CFI (0.97) and NFI (0.966) are excellent fits. The RMSEA was 0.041, indicating an excellent fit as it is close to 0. (Hu and Bentler, 1999). Finally, the data were tested for second-order confirmatory analysis to demonstrate that service quality is a two-factor model (service expectation and perception). This was important to achieve a valid model as well as theoretical support. To resolve the identification problem at the second-order CFA, error terms SEREXP and SERPER were equally constrained. Chi-square was significant 58.386; df 72; p, 0:01. Other indices also indicate that both CFI (0.954) and NFI (0.966) are an excellent fit. The RMSEA was less than 0.08 i.e. 0.043, indicating an excellent fit (Hu and Bentler, 1999). 11
12. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Table 7 : Model fit statistics Model fit indices Chisquare 58.386 Measurement model Structural model 58.386 df p CMIN/df GFI AGFI CFI NFI RMSEA 72 0.01 0.816 0.978 0.956 0.972 0.966 0.041 72 0.01 0.816 0.976 0.992 0.954 0.966 0.041 Table 8 : Result of Paired t-Test Values for H1 Factor Mean rating Mean Gap Calculated z Tabulated z value value (α = 0.05) 1.96 Expected Perceived Result Shariah Compliance 6.4404 6.5992 -.15881 -5.960 Insignificant Tangibility 5.0679 5.8350 -.76704 -8.442 Insignificant Reliability 6.4821 5.8269 .65523 18.713 Significant Responsiveness 6.5759 5.8273 .74861 23.330 Significant Assurance 6.5437 5.9331 .61061 19.730 Significant Empathy 6.2935 5.9984 .29503 9.234 Significant In the above test, samples used are dependent and the effect of actual working conditions (perceived quality) on service quality is tested. So the above hypothesis is tested by using the paired t-test. The mean ratings for six service quality dimensions given by customers of Islamic bank and tabulated t value are shown in table no.8. The difference between mean ratings of expected and perceived compliance and tangibility factors is statistically not significant, which means there is no gap between perceived and expected service quality in these two factors. In case of compliance, the reason is that customers choose Islamic banks for being compliant with Shariah so there is no scope of deviation from the expectation of a customer being Shariah-compliant else banks will lose customers. Customers perceive that banks provide Shariah-compliant services more than what are expecting. The observed reason for tangibility factors is that customers have lower expectations of tangibility. Islamic banks are meant to provide Shariah-based services rather than tangible experience. The dissatisfaction about other services maybe banks are new in origin and hence less reliable. Bank staff is not well trained so they are not so responsive towards their customers. Other reasons may be lack of knowledge among staff, strict Shariah rules which bank has to follow, less profit, no much product variation and customization, the experience of conventional banks etc. 12
13. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Table 9 : Standardised regression weights for the research model Hypothesis Variables Dependent variable Standardised regression weights p-Value Result H2 Shariah Compliance Customer satisfaction (CS) 0.532 .000*** Significant H3 Tangibility Customer satisfaction (CS) 0.465 .000*** Significant H4 Reliability Customer satisfaction (CS) 0.387 .000*** Significant H5 Responsiveness Customer satisfaction (CS) 0.121 .021** Significant H6 Assurance Customer satisfaction (CS) 0.256 .000*** Significant H7 Empathy Customer satisfaction (CS) 0.419 .000*** Significant Significance at: *p<0.01, **p<0.05 R²= 0.43, adjusted R²=0.41.8. Table 9 shows the regression weights and suggest that all six dimensions of modified SERVQUAL have a positive and significant impact on customer satisfaction in Islamic banks of Malaysia. This finding is in tune with past studies (Arasli et al., 2005; Levesque & McDougall, 1996; Othman & Owen, 2002; Parasuraman et al., 1988; Taylor & Baker, 1994; Rehman, 2012; Amirzadeh and Shoorvarzy, 2013; Ali & Raza, 2017). The coefficient value of Shariah compliance dimension is the highest (0.532) among all the six dimensions, which supports Haron et al.’s (1994) findings as well. This implies that Malaysian Islamic bank customers' satisfaction is associated with the perception that Islamic banks follow sharia-based products and services. Customers are very much satisfied with the working and products of these banks and perceive that these are in according to the Shariah laws. For Malaysian Islamic banks, the key driver of customer satisfaction is Shariah Compliance dimension followed by tangibles (0.465), empathy (0.419), reliability (0.387), assurance (0.256), and responsiveness (0.121). Overall, findings confirm that there is q significant difference between the expected service quality and perception except in Shariah compliance and tangibility dimensions, so we partially accept H1. All other hypotheses, that is, H2–H7, of this study are accepted. Hence, all the six variables of the modified SERVQUAL model have a positive and significant impact on customer satisfaction which is opposite of the findings of Ahmad & Al-Aidaros (2017). 6.0 Conclusion Islamic banking is the backbone of the Malaysian economy and is one of the largest bases of Islamic banks in the world. Malaysia has a dual banking system so there is an implicit competition between two systems. The aim of this study was to investigate the level of Service quality in Malaysian Islamic banks. The service quality was measured by a modified SERVQUAL model and adding the Shariah compliance dimension to the model. The questionnaire has been adopted and modified with 29 items and sample 721 walk-in customers. Various statistical tools were employed to test the means of expectation and perceived level of quality and 13
14. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS its association on customer satisfaction . The study found a significant difference between the level of expected and actual service received by customers except in the case of Shariah compliance and tangibility. Banks follow Islamic rules of financing quite strictly and are quite visible and tangibility expectation is quite low for these customers. All six dimensions had a positive and significant association with customer satisfaction. Shariah compliance dimension having the highest impact and is more important for customers. Customers believe that their bank has completely complied to Shariah rules and regulations which make them satisfy about Islamic banking services. This study will also help Islamic banks in other parts of the world to improve and provide service quality to meet customer expectation. Also, it is evident from this study and past literature that Shariah compliance is really important in the eyes of customers and Islamic banks cannot afford to deviate in this aspect. 7.0 Implications and Future research This study will help Islamic bank managers to better understand the factors which lead to customer satisfaction in Islamic banks. Islamic banks will also realize that following Shariah regulations creates a good image of the bank in the eyes of the customer and it is also one of the main determinants for their satisfaction. While the SERVQUAL model still holds its relevance in Islamic banks, Sharia Compliance adds to customer satisfaction as most the customers choose Islamic bank for that purpose. Service quality gap will help managers to find the areas of focus so that this gap can be reduced by offering expected services. Further research can be done by comparing customer satisfaction in Conventional and Islamic banks to assess which system provides service better. References Abduh, M., & Omar, M. A. (2012). Islamic-bank selection criteria in Malaysia: An AHP approach. Business Intelligence Journal (19182325), 5(2). Abdullah, F. (2006). Measuring service quality in higher education: HEdPERF versus SERVPERF. Marketing Intelligence and Planning, 24(1), 31-47. https://doi.org/10.1108/02634500610641543 Ahmad, K. (2000). Islamic finance and banking: The challenge and prospects, Review of Islamic Economics 9(1), 57-82. Ahmad, N., and S. Haron. (2002). Perceptions of Malaysian corporate customers towards Islamic banking products and services, Journal of Islamic Financial Services 3(4), 13-29. Ahmed, S., Islam, R., & Mohiuddin, M. (2017). Service Quality, Shariah Compliance and Customer Satisfaction of Islamic Banking Services in Malaysia. Turkish Journal of Islamic Economics, 4(2), 71-82. Ahmad, S. A., & Al-Aidaros, A. H. (2017). CUSTOMER AWARENESS AND SATISFACTION OF LOCAL ISLAMIC BANKS IN MALAYSIA. IJIB, 2(2), 37. Al-dweeri, R. M., Obeidat, Z. M., Al-dwiry, M. A., Alshurideh, M. T., & Alhorani, A. M. (2017). The Impact of E-Service Quality and E-Loyalty on Online Shopping: Moderating Effect of E-Satisfaction and E-Trust. International Journal of Marketing Studies, 9(2), 92-103.https://doi.org/10.5539/ijms.v9n2p92 14
15. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Al-Hawary , S.I.S., & Metabis, A. (2012). Service quality at Jordanian commercial banks: what do their customers say? International Journal of Productivity and Quality Management, 10(3), 307-334. Al-Hawary, S.I.S., & Hadad, T.F.S. (2016). The Effect of Strategic Thinking Styles on the Enhancement Competitive Capabilities of Commercial Banks in Jordan. International Journal of Business and Social Science, 7(10), 133-144. Ali, H., Zainuddin, A., Rashid, W. E. W., & Jusoff, K. (2009). Customers satisfaction in Malaysian Islamic banking. International Journal of Economics and Finance. Ali, M., & Raza, S. A. (2017). Service quality perception and customer satisfaction in Islamic banks of Pakistan: the modified SERVQUAL model. Total Quality Management & Business Excellence, 28(5-6), 559-577. Amin, M., & Isa, Z. (2008). An examination of the relationship between service quality perception and customer satisfaction: A SEM approach towards Malaysian Islamic banking. International Journal of Islamic and Middle Eastern Finance and Management, 1(3), 191–209. Amirzadeh, R., and R.S. Mohammad. (2013). Prioritizing service quality factors in Iranian Islamic banking using a fuzzy approach, International Journal of Islamic and Middle Eastern Finance and Management 6(1), 64-78. Angur, M. G., Nataraajan, R., & Jahera Jr, J. S. (1999). Service quality in the banking industry: An assessment in a developing economy. International Journal of Bank Marketing, 17(3), 116–125. Arasli, H., Mehtap-Smadi, S., & Katircioglu, S. T. (2005). Customer service quality in the Greek Cypriot banking industry. Managing Service Quality, 15(1), 41–56. Avkiran, N. K. (1994). Developing an instrument to measure customer service quality in-branch banking. International Journal of Bank Marketing, 12(6), 10–18. Awan, H. M., Bukhari, K. S., & Iqbal, A. (2011). Service quality and customer satisfaction in the banking sector: A comparative study of conventional and Islamic banks in Pakistan. Journal of Islamic Marketing, 2(3), 203–224. Baber, H. (2019). E-SERVQUAL and Its Impact on the Performance of Islamic Banks in Malaysia from the Customer’s Perspective. The Journal of Asian Finance, Economics and Business (JAFEB), 6(1), 169-175. Baber, H. (2018). How crisis-proof is Islamic finance? A comparative study of Islamic finance and conventional finance during and post-financial crisis. Qualitative Research in Financial Markets, 10(4), 415-426. Baber, H. (2013). Islamic banking in Indian economy-An empirical approach of a future crisis. International Monthly Refereed Journal of Research In Management & Technology, 2(1), 34-47. Bartlett, M. S. (1954). A note on the multiplying factors for various x 2 approximations. Journal of the Royal Statistical Society. Series B (Methodological), 16, 296– 298. Berry, L. L. & Thompson, T. W. (1982). Relationship banking: The art of turning customers into clients. Journal of Retail Banking, 4(2), 64–73. Caruana, A., Money, A. H., & Berthon, P. R. (2000). Service quality and the satisfaction-the moderating role of value. European Journal of Marketing, 34(11/12), 1338–1353. Caruana, A. (2002). Service loyalty: The effects of service quality and the mediating role of customer satisfaction. European journal of marketing, 36(7/8), 811828. 15
16. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Churchill Jr , G. A. (1979). A paradigm for developing better measures of marketing constructs. Journal of marketing research, 16(1), 64-73. Dsouza, R. S., Subhash, K. B., Chen, R. F., & Weiermair, K. (2018). Service quality and customer satisfaction: An empirical analysis of banking sector in Goa. Farooq, M. S., Salam, M., Fayolle, A., Jaafar, N., & Ayupp, K. (2018). Impact of service quality on customer satisfaction in Malaysia airlines: A PLS-SEM approach. Journal of Air Transport Management, 67, 169-180. Fauzi, A. A., & Suryani, T. (2019). Measuring the effects of service quality by using CARTER model towards customer satisfaction, trust and loyalty in Indonesian Islamic banking. Journal of Islamic Marketing, 10(1), 269-289. Fornell, C., Johnson, M. D., Anderson, E. W., Cha, J., & Bryant, B. E. (1996). The American customer satisfaction index: Nature, purpose and findings. Journal of Marketing, 60, 7–18. Haron, S., Ahmad, N., & Planisek, S. L. (1994). Bank patronage factors of Muslim and non-Muslim customers. International Journal of Bank Marketing, 12(1), 32-40. Hu, L. T., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural equation modelling: a multidisciplinary journal, 6(1), 1-55. Ijaz, A. T., & Ali, A. (2013). Assessing service attitude: Service quality measures taken by Islamic banks in Pakistan. Journal of Business and Management, 8(5), 61-68. Jabnoun, N., & Hassan Al-Tamimi, H. A. (2003). Measuring perceived service quality at UAE commercial banks. International Journal of Quality & Reliability Management, 20(4), 458–472. Jamal, A., & Naser, K. (2002). Customer satisfaction and retail banking: An assessment of some of the key antecedents of customer satisfaction in retail banking. International Journal of Bank Marketing, 20(4), 146–160. Kaiser, H. F. (1974). An index of factorial simplicity. Psychometrika, 39(1), 31–36. Kant, R., Jaiswal, D., & Mishra, S. (2017). The investigation of service quality dimensions, customer satisfaction and corporate image in Indian public sector banks: An application of Structural Equation Model (SEM). Vision, 21(1), 7685. Kaura, V., Durga Prasad, C. S., & Sharma, S. (2015). Service quality, service convenience, price and fairness, customer loyalty, and the mediating role of customer satisfaction. International Journal of Bank Marketing, 33(4), 404422. LeBlanc, G., & Nguyen, N. (1988). Customers’ perceptions of service quality in financial institutions. International Journal of Bank Marketing, 6(4), 7–18. Lassar, W. M., Manolis, C., & Winsor, R. D. (2000). Service quality perspectives and satisfaction in private banking. Journal of services marketing, 14(3), 244-271. Lee, S.P., & Moghavvemi, S. (2015). The dimension of service quality and its impact on customer satisfaction, trust, and loyalty: A case of Malaysian banks. Asian Journal of Business and Accounting, 8(2), 91–122. Leech, N. L., Barrett, K. C., & Morgan, G. A. (2005). SPSS for intermediate statistics use and interpretation. Job Characteristics and Organizational Commitments of Taiwanese Expatriates Working in Mainland China Li-Fen Tsai 180 Mahwah, Lawrence Erlbaum, USA. Levesque, T., & McDougall, G. H. (1996b). Determinants of customer satisfaction in retail banking. International Journal of Bank Marketing, 14(7), 12–20. 16
17. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Lewis , A., & Pescetto, G. (1996). EU and US Banking in the 1990s. London: Academic Press. Moghavvemi, S., Lee, S. T., & Lee, S. P. (2018). Perceived overall service quality and customer satisfaction: a comparative analysis between local and foreign banks in Malaysia. International Journal of Bank Marketing, 36(5), 908-930. Muhammad Awan, H., Shahzad Bukhari, K., & Iqbal, A. (2011). Service quality and customer satisfaction in the banking sector: A comparative study of conventional and Islamic banks in Pakistan. Journal of Islamic Marketing, 2(3), 203-224. Muhammed, A. M., Shahrinaz, I., Ali, K. J., Nordin, J., & Kassim, S. A. (2017). Does Religions and Service Quality Determine Customers’ Preference in Selecting Islamic Bank?. ICOPS2017 eProceedings, 833. Newman, K. (2001). Interrogating SERVQUAL: A critical assessment of service quality measurement in a high street retail bank. International Journal of Bank Marketing, 19 (3), 126–139. Ngo, V. M., & Nguyen, H. H. (2016). The relationship between service quality, customer satisfaction and customer loyalty: An investigation in the Vietnamese retail banking sector. Journal of Competitiveness. Oliver, R. L. (1981). Measurement and evaluation of satisfaction processes in retail settings. Journal of Retailing, 57(3), 25–48. Othman, A., & Owen, L. (2001a). Adopting and measuring customer service quality (SQ) in Islamic banks: a case study in Kuwait finance house. international journal of Islamic financial services, 3(1), 1-26. Othman, A., & Owen, L. (2001b). The multi dimensionality of Carter Model to measure customer service quality (SQ) in Islamic banking industry: A study in Kuwait finance house.International Journal of Islamic Financial Services, 3(4), 1–12. Othman, A., & Owen, L. (2002). The multidimensionality of CARTER model to measure customer service quality in Islamic banking industry: A study in Kuwait Finance House. International Journal of Islamic Financial Services, 3(1). Parasuraman, A. (1998). Customer service in business-to-business markets: An agenda for research. The Journal of Business & Industrial Marketing, 13(4), 309. Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). A conceptual model of service quality and its implications for future research. The Journal of Marketing, 49, 41–50. Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1988). Servqual. Journal of Retailing, 64(1), 12–40. Pakurár, M., Haddad, H., Nagy, J., Popp, J., & Oláh, J. (2019). The Service Quality Dimensions that Affect Customer Satisfaction in the Jordanian Banking Sector. Sustainability, 11(4), 1113. Ramdhani, M. A., Ramdhani, A., & Kurniati, D. M. (2011). The influence of service quality toward customer satisfaction of Islamic sharia bank. Australian Journal of Basic and Applied Sciences, 5(9), 1099-1104. Raza, S. A., Jawaid, S. T., & Hassan, A. (2015). Internet banking and customer satisfaction in Pakistan. Qualitative Research in Financial Markets, 7(1), 24– 36. 17
18. MALAYSIAN JOURNAL OF CONSUMER AND FAMILY ECONOMICS Rehman , A.A. (2012). Customer satisfaction and service quality in Islamic banking: A comparative study in Pakistan, United Arab Emirates and United Kingdom, Qualitative Research in Financial Markets 4 (2/3), 165-175. Rod, M., Ashill, N. J., Shao, J., & Carruthers, J. (2009). An examination of the relationship between service quality dimensions, overall internet banking service quality and customer satisfaction: A New Zealand study. Marketing Intelligence & Planning, 27(1), 103-126. Shanka, M.S. (2012). Bank service quality, customer satisfaction and loyalty in Ethiopian banking sector. Journal of Business Administration and Management Sciences Research, 1(1), 1–9. Siddiqi, K.O. (2011). Interrelations between service quality attributes, customer satisfaction and customer loyalty in the retail banking sector in Bangladesh. International Journal of Business and Management, 6(3), 12. Siddiqui, S. H. (2001). Islamic banking: true modes of financing. New Horizon, 109(2), 15-20. Smith, A. M. (1995). Measuring service quality: Is SERVQUAL now redundant? Journal of Marketing Management, 11(1–3), 257–276. Sureshchandar, G.S., Rajendran, C., & Anantharaman, R.N. (2002). The relationship between service quality and customer satisfaction—a factor specific approach. Journal of Services Marketing, 16(4), 363–379. Taylor, S. A., & Baker, T. L. (1994). An assessment of the relationship between service quality and customer satisfaction in the formation of consumers’ purchase intentions. Journal of Retailing, 70(2), 163–178. Thaker, H. M. T., Khaliq, A., & Thaker, M. A. M. T. (2016). Evaluating the service quality of Malaysian Islamic Banks: An importance-performance analysis approach. International Journal of Business and Information, 11(3), 341. Tse, D.K. and Wilton, P.C (1988), “Models of consumer satisfaction formation: an extension”, Journal of Marketing Research, Vol. XVII, November, pp.460-9. Wang, Y., Lo, H. P., & Hui, Y. V. (2003). The antecedents of service quality and product quality and their influences on bank reputation: Evidence from the banking industry in China. Managing Service Quality: An International Journal, 13(1), 72–83. Yilmaz, V., Ari, E., & Gürbüz, H. (2018). Investigating the relationship between service quality dimensions, customer satisfaction and loyalty in Turkish banking sector: An application of structural equation model. International Journal of Bank Marketing, 36(3), 423-440. Zhu, F. X., Wymer, W., & Chen, I. (2002). IT-based services and service quality in consumer banking. International Journal of Service Industry Management, 13(1), 69–90. 18