CHAPTER 2 : LITERATURE REVIEW

2.0 INTRODUCTION

This chapter will present a vast of the literature of Islamic banking and past studies
related to the factor that can increase the acceptance level of individual consumers towards
Islamic banking. Other that, this chapter also will discuss few principles used in Islamic banking
and finally a conclusion.

2.1 LITERATURE REVIEW

Islamic banking is widely accepted either muslims or non-muslims consumers. To attract
more people to use Islamic banking products and services, Islamic banks have to improve their
services and makes more promotional to make sure people have more knowledge next increase
the acceptance level towards Islamic banking. In this study, acceptance level is the dependent
variable and there will have some of factors that can related to acceptance level be the
independent variables.

2.1.1 Acceptance level (Dependent Variable)

Islamic banking had been started in Malaysia since the initiated of
Lembaga Tabung Haji in 1983 by the government and the first Islamic bank had
been establish. Even almost 30 years Islamic banking had been in the industry,
banking consumers not fully accept Islamic banking because of the lacking of
exposure about Islamic banking and it can be consider Islamic banking is still new
in the industry. As to increase the acceptance level towards Islamic banking,
Islamic banks have to produce the new products that can attract to choose Islamic
banks rather than conventional banks.

According to past researcher, people

choose products to match to their experience and needs. Knowledge about the

product is not considered as the main factor on selecting the products ( Lai, 1991).
It can be concluded that, the acceptance level on Islamic banking is depends on
consumers experience, knowledge and needs.

2.1.2 Consumer Perception (Independent Variable)

2.1.2.1 Religion
In the study held by Erol, Kaynak & El-Bdor in 1990, result shown
that religion is not the main factor in selecting the banks but fast and
efficient services, reputation and confidentially towards bank.

But,

according to Haque, 2009, there have a different of perception between

races towards Islamic banking. The religious issue is also perceived as one
of the important criteria to be considered for the selection of Islamic
banking services (Erol et al., 1990; Haron et al., 1994; Metawa and
Almossawi, 1998; Naser et al., 1999). Indeed, every religion has their
own beliefs and it is different than others. It can be conclude that, people
do invest their money but they do not have enough knowledge on the
products they choose.

2.1.2.2 Knowledge
Knowledge in Islamic banking is one of important factors that can
make the demand on Islamic banking products increase.

Nowadays,

financial institution that offered Islamic banking products and services

held seminars and talk for public to help them to increase the knowledge
of Islamic banking and the level of awareness. Normally, muslims
consumer that already used Islamic banking product, all that they know is
Islamic banking product is interest-free but know not the benefits. Stated

in Quran, any transaction and business activities must free form the
trading of tobacco, alcohol and the products that contain and related to
pork, defence and weapon production and certain entertainment activities
such as gambling and pornography (Chong &Liu, 2008). Islamic finance
is not a religious status for financial institution but it responds very well to
the demands of the market and also offered the product and services to
non-muslims consumer (Zainol, Shaari, & Muhamad Ali, 2008). Indeed,
it has received wide acceptance from both Muslims and non-Muslims
(Hamid, Yaakub, Mujani, Sharizam, & Jusoff, 2011).

2.1.2.3 Age
Age can be one of the factors in selecting banks. According to
Kaynak, Kucukemoroglu & Odabasi, 1991, respondents under 40 years
old have more concern on the bank location rather than the others group
age. In can be said, respondents under 40 more preferred the convenient
and easy to reach to get the services from the bank that they choose.
Nowadays, many of the consumers are from the young adult. Normally,
young adult is not including convenient is the main factor because they are
the major consumers of the modern technology.

2.1.2.4 Marital Status

Marital status of the consumer may influence in selecting bank.
Boyd, Leonard and White held a study in 1994 that focus on the selection
of banking product between married and unmarried consumer. The result
from the study shown that, married consumers more consider the
reputation and image of the banks than unmarried consumer. Besides,
married consumer will look after the cost and benefit and efficiency of the
products that they will get in the future.

2.1.2.5 Education Level

Education level of consumer may influence in selecting bank next
the perception towards Islamic banking (Kaynak et al. , 1991). Referring
to the past studies, consumers have high level of education will look for
the convenient, fast and efficient services. It can be conclude, consumer
with high level education also calculate cost that they need to get the
services from the bank that they choose.

2.1.2.6 Income Level

Khan et al., 2007, found there is significant relationship between
bank selection and income level. But Haque, 2009, denies the result and
said monthly income level do not influence the perception towards Islamic
bank. For conclusion, same income level may have different perception
towards Islamic banking.

2.1.2.7 Friends and Family

In our community, family and friends mostly can influenced
someone to use something that they find it is good. Ones usually will
always think the recommendations of their family and friends are the good
one. The recommendations and the bank selection by the family and
friends will influence the decision making in selecting the bank.
According to Gray (1997), convenience and parental influences were
important factors in students bank selection. In our community, mostly
childrens bank will decide by the parents by select the bank that they use.
In general, customers of Islamic banking get the information about Islamic
banking based on the relatives and neighbours (Gait & Worthington,
2008).