Bank Employees Perceptions on Islamic Banking Acceptance

Abstract This research was conducted to investigate bank employee perceptions on Islamic banking acceptance. The questionnaires were distributed to bank employee at Maybank Islamic Wangsa Maju (Islamic bank) and Maybank Setapak (Islamic window) Kuala Lumpur. Interestingly, few of the bank employees possessed a relevant academic background or relevant experience in banking on this career. The bank employee also claimed that they had very limited knowledge in this area prior to working with the banks; thus, the issue of the availability of well-trained and skilled employees must be addressed critically by the government, industry players and educationists for the sustainable growth of Islamic banking in Malaysia, and to meet the target set for the year 2011. Keywords: Bank Employees perceptions, Islamic Banking, Product & Service,

Training & Experience 1.0 1.1 INTRODUCTION Background of study

In 1970, Islamic banking was almost unknown and considered to be wishful thinking. By the early years of the twenty-first century, however, Islamic banking the deniable truth has emerged, for it is growing at a steady pace. The size of the industry, which amounted to a few hundred thousand dollars in 1975, had reached billions of dollars by 2004. The value of Shariah-compliant accounts worldwide is estimated between US$200 billion and US$500 billion and is growing at an average annual rate of 10-15 per cent. It is predicted that Islamic banks will control around 40-50 per cent of Muslims savings by 2009/10, for the population of Muslims in the world in 2006 has been calculated to be more than 1.2 billion (Zaher and Hassan, 2001). The establishment of Islamic banks is associated with the Islamic revolution and the escalating awareness of Muslim society in embracing Islam as its way of life, in the fields of finance and banking, as well as in other aspects. However, it should be borne in mind that although the emergence of Islamic banking was in response to the market needs of Muslims, these banks are not religious institutions, as they provide banking services for nonMuslim customers as well. Further proof of the viability of Islamic banking is the fact that 1

many conventional banks, including some major multinational Western banks, have also started using Islamic banking techniques. Malaysia is among the countries that have chosen to operate Islamic banking alongside the conventional system. This is achieved by the opening of Islamic windows in conventional institutions, or the establishment of separate banks or branches and subsidiaries specializing in Islamic financial products. Serious research over the past two-and-a-half decades has shown that Islamic banking is not only feasible and viable, but is an efficient and productive form of financial intermediation. It has been stated that the idea of creating actual Islamic financial institutions was visualized as early as the 1940s (Khan, 1987). However, it is stated that the first attempt to establish such institutions was in Pakistan in the late 1950s, with the establishment of a local bank in a rural area, although this did not have a lasting impact (Wilson, 1983). The second attempt to establish an Islamic bank took place in Egypt, in Mit Ghamr .In the Nile delta from 1963 to 1967, this model being adopted by its founder, Ahmed Al-Najjar, from the concepts of the German savings bank (Scharf, 1983). The experiment of the Mit Ghamr Savings Bank came to an end for political reasons in late 1967, when its operations were undertaken by the National Bank of Egypt and the Central Bank. Such an undertaking had a significant impact on the Mit Ghamr Savings Bank; operational policies consequently changed, with the operations of the bank being run on an interest basis, so that interest-free banking was deserted. However, the Mit Ghamr experiment had opened the way for the establishment of the Nasser Social Bank in 1971, which was a kind of revival (El-Ashker, 1990). Islamic banking in Malaysia started back in 1983 with the establishment of the first Islamic bank; Bank Islam Malaysia Berhad (BIMB). In March 1993, introduction of the Interest-free Banking Scheme in the conventional banks, which then saw the emergence of the dualbanking system in Malaysia. This scheme allows conventional banks to offer Islamic banking products and services under the same roof, utilizing the same infrastructures and employees. The interest free banking scheme was changed to the Islamic Banking System to reflect the importance and specific roles of the Islamic banking system in Malaysia in 1998. The second Islamic bank was added to the list as the second Islamic bank is Bank Muamalat in 1999. To date, there are 12 full-fledged Islamic Banks, including 2 foreign banks, Al-Rajhi Banking & Investment Corporation (Malaysia) Berhad and Kuwait Finance House (Malaysia) Berhad. 2

To strengthen the industry, Bank Negara Malaysia has formulated a 10 year strategic plan in its Financial Sector Master Plan to achieve the goal that 20% of banking assets are held in Islamic banking by the year 2010. At the end of 2006, Islamic banking only held 12.2% of banking assets, which promises a greater potential to be exploited. The problem in Islamic banking that can potentially affect the overall Islamic banking system: (i) Intense competition arising from financial globalization and liberalization due to the emergence of other conventional players in the Islamic banking market globally and locally, especially in the structuring of investment deals and financing based on Shariah principles. (ii) Increase in technological advancement in structuring the micro aspects of businesses, and development of the financial market, which contributes towards stiff competition; in addition, an increase in the skills and expertise of the employees. (iii) A new generation of customers, who are knowledgeable and well-educated, demanding superior and innovative products and services. In the study, the objectives are: To examine the perceptions of bank employees in Islamic banks and conventional To evaluate the perceptions of bank employees in Islamic banks and conventional To investigate the perceptions of bank employees in Islamic banks and conventional banks (Islamic Window) towards Islamic banking products and services. banks (Islamic Window) towards the training and experience gained in Islamic banking. banks (Islamic Window) towards the future potential of Islamic banking in Malaysia. The scope of study is the respondents from Maybank Islamic (Wangsa Maju) and Maybank Setapak (Islamic Window) that offering Islamic banking product and services. Respondents from the said bank were chosen because of the fact that they are expertise in deliver the products and services directly to customers at the branch level, therefore would create greater accuracy for the study. In our study, there are some limitations such as the study is only limited to determine bank employees perception on Islamic Banking acceptance. The sample of this study is only limited to the bank employees who are working at Maybank Islamic Wangsa Maju and Maybank Setapak (Islamic Window) Kuala Lumpur.

The outcomes of this study will help the management to determine the bank employee level of knowledge in Islamic Banking and finance and to improve their services to the customers. The other limitations of the study are the constraints of time. This is because the study took only less than three weeks to be completed. The significance of the study is to increase knowledge of Islamic banking and key motivational for banker to increase business sustainability and enhance competitive advantage, to bridge knowledge and application in real business environment and to gain hands on experience and to apply the knowledge gained throughout the MBA courses; to acquire the necessary information on the actual processes and challenges. 2.0 LITERATURE REVIEW

Research conducted by Bowen and Scheider (1988) discovered that employees working on the front-line play prominent roles in representing an organization to the outside world, and influence the awareness and behavior, as well as the assessment made by customers. The importance of the front-line employees in delivering a quality service is further confirmed by Congram and Friedman (1991). They listed ten principal criteria to determine success in an organization. Of importance is whether the employees are empowered to assist or deliver the service to the customers in any way they deem fit, in addition to employees who are able to meet the customers expectation. Zeithaml (2000) further reaffirms this point: the employees relative strength of identification with an organizations goals, objectives and values could impact on service delivery. Identification with the organizations goals, objectives and values is referred to as organizational commitment. Zeithaml (2000) stress that the inside customer and outside customer have a similar view regarding the service dimension and the way a customer accesses the services. The outside customer is an individual or business entity that purchases or uses the service from suppliers, while the inside customer refers to the organizations staff. Hence, service quality is an important factor in creating a competitive advantage; a bank must acknowledge its customers perception and then provide the desired service to meet the customers needs. This is supported by Donelly et al. (1985), who urge that: employees who make the discretionary effort who are friendly and responsive, who ask the extra question or suggest the extra services, who take time to listen - provide the competitive edge!.

The employees can better deliver excellent services to customers when the organization provides them with the necessary resources, including logistic, administrative, equipment, and management support (Schneider and Bowen, 1985). Zeithaml (2000) also confirm this by stating that satisfied employees make for satisfied customers (and a satisfied customer can, in turn, reinforce employees sense of satisfaction in their jobs). According to Buchanan (1974), Cook and Wall (1980), and Katz (1996), loyalty towards the organization is one of the components which creates, or is associated with, commitment to the organization. As highlighted by Dessler (1988) and Davis (1989), organizational factors can actually create employee loyalty towards the organization, and this is attributed to several elements, namely employees roles in decision making, fair and adequate compensation, open communication, an ideal and comfortable workplace, and training and work development. In respect to the above, Katz (1996) urges that compensation in the form of financial reward and training helps create employee loyalty towards organizations. Ismail and Makhbul (2000), on the other hand, have discovered that training and work development have a significant and positive relationship vis--vis employee loyalty in comparison with other factors. According to Zeithaml (2000), the power given to the employees should not only be limited to the power to react; employees must also be equipped with suitable and adequate knowledge to execute accurate decisions. From the Islamic banking viewpoint, Haron (1996) emphasizes the contradictory objectives in conventional banks versus Islamic banks. The objectives of Islamic banks are based on two fundamental objectives: the religion factor and the profitability factor. If the religion factor alone is accentuated, the banks will be driven into insolvency and bankruptcy, thus damaging the situation of the depositors and Muslim society as a whole. Conversely, if the profitability factor is given more priority, it will certainly divert from the true Islamic line that is based on the concepts of justice. Haron (1996) also further reaffirms that, in line with the objective of establishment, all business activities associated with financial transactions and Islamic banking must be conducted in accordance to Islamic principles and Islamic legal practices. As such, Islamic banks are prohibited from engaging in any business that is based on riba. Hamid and Nordin (2001) conducted research to determine the importance of education in Islamic banking, and a viable strategy by which Islamic banks could face the new millennium. They discovered that customers possess very limited knowledge of Islamic banking, in that 60% of the 5

respondents could not differentiate between Islamic banking products and conventional banking products. Interestingly, a study completed by Hassan and Ahmed (2002) on the customers and employees of the Islamic bank in Dhaka, Bangladesh, found that the respondents were not interested in conducting banking transactions in Islamic banks because they believed that only the name of the bank had been changed to reflect that it was an Islamic-based bank; they believed that interest, which is prohibited in Islam, was still practiced. Overall, the researchers determined that the customers and employees understanding of the concepts and practices of Islamic banking is still vague. From the research, they recommend that to prevent any misunderstanding, adequate training must be given to the employees, future researchers and also the customers. This issue support by Makiyan (2002), who revealed that the infrastructure problem experienced by banks employees in Iran was due to inadequate knowledge and training. Additionally, Haron and Ahmad (2002) have highlighted that nearly 65% of corporate banking customers clarified that they had very limited knowledge of Islamic banking. The researcher further stressed that the banks do not put much effort into marketing their products or educating their customers. Thus, based on the abovementioned issues and the importance of Islamic banking in Malaysia, the current research has been conducted to assess the perceptions of the Islamic service provider.

3.0 3.1

Research Method Theoretical Framework

Source: Zainol, Shaari, & Ali, (2008) Figure 1: Research framework of bank employee perceptions towards Islamic Banking and Finance in Malaysia. The Research design will study the relationship between two or more variables also referred as co-relational analysis the existence of relationship between those variables. In gathering data for analysis research questions is used as instrument to acquire the necessary information as It takes less time to fill up a simple questionnaire. Therefore, the bank employees will not be reluctant in providing accurate data. The data gathered through questionnaire is easy to put in quantitative analysis. Therefore, questionnaire is the most useful method to collect data for this study. The research population consists of bank employees in Islamic banks as well as bank employees in conventional banks offering Islamic banking products and services (Islamic window). We select Maybank Islamic and Islamic Window that offering Islamic banking products and services. A simple random sampling method was employed in which 60 questionnaires were distributed to bankers at Maybank Islamic Wangsa Maju and Maybank Setapak (Islamic Window) is a conventional banks offering Islamic banking products and services only 60 questionnaires will distribute to the bank employees.

For research instrument, the structured questionnaires were used in this research to collect data from the respondent. Questionnaires were divided into four sections namely, 7

demographic profile questions, Islamic Product & Service, Training & Experience and Potential for Islamic Banking in Malaysia. The questions on independent and dependent variables were tapped using 5 point likert-scale method from (1) STD=strongly disagree, (2) SD=somewhat disagree, (3) UD=undecided, (4) SA=somewhat agree and (5) STA=strongly agree. The data was analyzed using Statistical Packages for Social Science (SPSS). The statistical techniques employed in this study were mean, standard deviation and correlation analysis.

4.0 4.1

Findings Demographics

Table 1 Demographic Profile of Respondents (Bank Employees) 8

Variables Religion Muslim Non-Muslim <30 31 - 39 Age 40 - 49 50 and above Diploma and above Qualifications SPM and below <1 year Working Experience 1 -5 Year 6 - 10 year >10 years The respondents profile is presented in Table 1.

Frequency 32 18 17 20 9 4 21 29 10 25 10 5

Percent 64 36 34 40 18 8 42 58 20 50 20 10

A total of 60 questionnaires have been distributed to Maybank employees. However, only 50 bank employees have responded. The majority of respondents were Muslims (64%), while the balanced of the respondents were Non-Muslims (36%). Out of the total respondents, 40% of them were from the age group between 31 39 years, 34% were below 30 years, 18% were between 40 49 years and the 8% were from 50 years of age. From the 50 respondents, 42% of them were graduates (possessed Diploma and above), while 58% of the respondents were school leavers (possessed SPM and below). In terms of working experience, 25% of the respondents had working experience between 1 5 years, 10% of them had working experience of 6 -10 years and less than 1 year, and the balanced of 5 % had working experience of more than 10 years. 4.2 Analysis on Perceptions of Products & Services

Table 2 Analysis on Perceptions of Bank Employees towards Islamic Banking Products & Services 9

No 1 2

Statements The Islamic banking system was introduced because Muslims are prohibited to take riba. Your bank management shows commitment in marketing and promoting Islamic banking products and services Islamic banks and conventional PA banks market their Islamic banking products and services in an effective manner The Malaysian government shows commitment to further developing Islamic banking in Malaysia Products and services in Islamic banks are more expensive than in conventional banking The Islamic banking system must adhere to the profit maximization principles. Products and services in Islamic banks are similar to the products and services of conventional banks with the exception that the banks use different names to differentiate the products and services Customers choose Islamic banking products and services because they are more interested in the Arabic concepts applied to these products and services Non-Muslim customers are not interested in utilizing the Islamic products and services

Mean 4.5 4.2

STE Deviation 0.6776 0.9258

4.1

0.8999

4.1

1.0956

3.4

1.1445

3.3

1.4514

3.1

1.5388

3.0

1.3845

2.5

1.2249

Based on Table 2, it was revealed that majority of respondents (Mean of 4.5) were strongly agreed that the Islamic Banking System was being introduced because Muslims are prohibited to take riba apart from the aggressive efforts in marketing and promoting Islamic Banking products (Mean of 4.2). In addition, the Islamic Banking products were being promoted pararelly with conventional banking system effectively (Mean of 4.1) despite of government efforts in embarking for the Islamic Banking System with (Mean of 4.1).

On the other hand, respondents were not sure (undecided) to statements as to whether Islamic banking system adhered to profit maximization principles, products were similar with revealed banking system, selecting Islamic Banking products due to customers preference on Arabic concepts or Non-Muslim customers were not interested in utilizing Islamic products and services as those statements were tapped at mean of 3.0.

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4.3

Analysis on Perceptions of Training & Experience

Table 3 Analysis Perceptions of Bank Employees towards Training & Experience in Islamic Banking No 1 2 Statements Bankers are encouraged to attend short-courses, seminars and conferences in related field Capable to solve customers problems. Adequate training and exposure before assuming the current post Clear and efficient training and exposure on the products and services before they are launched Extensive knowledge on the products and services under my supervision Extensive academic background prior to working with the bank Extensive work experience prior to working with the present bank Mean 4.9 4.6 STE Deviation 0.40457 0.5771

4.5

0.76238

4.2

1.1337

4.1

1.0069

4.0

1.3553

3.4

1.4299

In responding to bank employees perceptions towards training and gaining experience in Islamic Banking, based on Table 3, it was found out that they were encouraged to attend short courses, seminars and conference in the said field (Mean of 4.9) and that lead to the employees capabilities in addressing Islamic Banking issues (Mean of 4.6). Besides, they were being exposed on adequate training before assuming posts that involve Islamic Banking transactions (Mean of 4.5).

The respondents also claimed that they were knowledgeable on the relevant products and services under their supervision (Mean of 4.1). Additionally, this was supported with effective product launching training (Mean of 4.2) and extensive academic background prior to working with the bank (Mean of 4.0). However, they were undecided with prior working experience relates to their competencies in handling Islamic Banking system (Mean of 3.4). 4.4 Analysis on Perceptions of Acceptance 11

Table 4 Analysis on Perceptions of Bank Employees towards Potential Acceptance of Islamic Banking No 1 2 Statements Potential usage of Islamic banking products and services by non-Muslims Potential usage of Islamic banking products and services by Muslims Potential usage of Islamic banking products and services by the corporate sectors Mean 4.5 4.2 STE Deviation 1.01439 1.03726

3.6

1.29615

Based on Table 4, in average, bank employees were of the opinion that the Islamic Banking System could be accepted by Non Muslims (the highest in the rank with Mean of 4.5), of course, the Muslims population ( usage of Islamic Banking products and services. 4.5 Analysis on Religions vs Perceptions of Acceptance

Table 5 Analysis Religions vs Perceptions of Acceptance Religion Muslim Non Muslim Total Usaged by Non-Muslim STD UD SA STA 2 3 6 21 0 8 6 4 2 11 12 25 Total 32 18 50

Based on Table 5, from the cross-tabulation analysis, it was found out that 21 Muslim and 4 Non Muslim respondents were strongly agreed, 6 Muslims and 6 Non Muslims were somewhat agreed while the balanced of 3 Muslim and 8 Non Muslim respondents were undecided that Islamic Banking product and services will be used by Non Muslims. The implication from the cross-tabulation analysis revealed that the Islamic banking products and services have attracted the Non Muslims and developed the said market tremendously. 4.6 Analysis on Correlation Factors

Table 6 Correlation Coefficients 12

PA PA PS TE Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N 1 50 .383** .006 50 .341* .015 50

PS .383** .006 50 1 50 .454** .001 50

TE .341* .015 50 .454** .001 50 1 50

**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

Note: PS - Product & Services TE - Training & Experience PA - Perceptions of Acceptance

The test of significance relates to the assumption on existence of relationship between two or more variables. If the tested variable is significant, the assumption is proven. As for this study, the assumption lies on the relationship of the two independent variables (PS and TE) as influencing factors towards the dependent variable (PA). Based on Correlation Coefficient Table above, it was found out that PS and TE have significant relationship with PA. In fact, PS also has significant relationship with TE. PS was revealed to have slightly strong relationship with PA (r = .383) at suggested correlation coefficient of 0.01. Subsequently, TE was revealed to have moderate relationship (r = 0.341) with PA at suggested correlation coefficient of 0.05. Consequently, PS has strong relationship with TE (r = .454) at suggested correlation coefficient of 0.01. Thus, knowledge in PS and the acquisition on the relevant TE in Islamic Banking will influence the PA of such banking system. The better the TE will lead to betterment in PS that might influence PA. 5.0 Discussion This study is conducted to explore the perceptions on acceptance of Islamic banking system by bank employees. The findings implied that Islamic Banking System has captured interests from Muslims & Non-Muslims regardless of individual or corporate sectors. This positive acceptance has made Islamic banking widely developed in Malaysia. To-date it has been 13

reported that there are about 17 banks that offer Islamic banking financial assistance. The perceptions of acceptance are being influenced by factors such as the offered product and services, training and experience of bank employees in acquiring the necessary language about Islamic banking system especially about Shariah principles. From the finding, it shows that the most of the respondents have positive perceptions of the Islamic products and services. However, employees in Islamic banks are more optimistic than their counterparts. Based on the undesirable outcome in terms of the level of knowledge of employees in the Islamic banking field, it is recommended that the banks management take greater initiative in providing their employees with sufficient knowledge of and exposure to rules of the Shariah and the principles governing Islamic banking in particular. This is to certify that the employees are well equipped with knowledge to handle their customers and to perform their duties. Therefore, moving forward, bank management must be considerably proactive in organizing seminars and workshops to expose their employees to innovations in Islamic banking products and services. This research should be expanded further to gauge the perceptions of employees in Islamic banks as well as in conventional banks (Islamic window) and it is suggested that intensive marketing should be involved to expand and offering Islamic banking products and services and it must exposed to non-muslim due to no hidden chargers and it was calculated in future value.

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