Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)

Vol 2, No.2, 2012

www.iiste.org

Structural Investigation of Service Quality in Conventional and

Islamic Banking in Pakistan
Muhammad Imran Qureshi
Lecturer, Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad,
Pakistan.
Aamir Khan
MS Scholar, Department of Management Sciences, COMSATS Institute of Information Technology,
Abbottabad, Pakistan.
Khalid Zaman (corresponding author)
Assistant Professor, Department of Management Sciences, COMSATS Institute of Information Technology,
Abbottabad, Pakistan.
E-mail: [email protected]
Abstract
The objective of the study examines the determinants of expected service quality in conventional and Islamic
banking in Pakistan. A convenient sample of eight hundred customers from eighty branches of five conventional and
five Islamic Banks in Khyber Pakhtoonkhawa (KPK) province of Pakistan participated in the study. A self designed
questionnaire was used for data collection. Total of five hundred and thirteen filledout questionnaires were
returned, of which 38% were filled out by female customers and 62% by male customers, forming a rate of 64% of
total distributed questionnaires. The result indicates that there is a significant relationship between expected service
quality and three of their determinants i.e., banks tangibles, responsiveness and assurance, while there is a weak
relationship has been observed from reliability and empathy over service quality in commercial banks. On the other
hand, there is a significant relationship between expected service quality and its determinants i.e., tangibles,
reliability, responsiveness, assurance and empathy in case of Islamic banks. The results of the study are of value to
both academics and policy makers.
Keywords: Islamic banks; Non Islamic banks; Expected service quality; Banks tangible; Reliability; Pakistan.
1.
Introduction
The banking sector acts as the life blood of modern trade and commerce because of its increasingly integrated role in
recent years. Technological advancement and improvement in communication system have increased integration
process. According to Parasuraman et al. (1985), the key to success and survival of any business institution is the
delivering quality services to customers; therefore, the expected service quality is the subject of debate over the past
two decades. It is important for management to understand, what the pillars of expected service quality and how to
measure it, and further more what actions should be taken in order to increase the customer value. A lot of work has
been done on expected service quality dimensions and customer satisfaction across different type of business
settings. As far as banking sector is concerned, banks are performing multiple functions in order to provide a variety
of products and services and the latest facilities to their customers in current global competitive business
environment.
In Pakistan, Islamic banks and conventional banks are the two type of banking sectors providing facilities to their
customers. Because of changing policies and uncertain economic conditions, banking sector in Pakistan has
experienced very unstable environment since 1950. In 1974 Pakistani banking sector was nationalized which results
poor performance because of inferior products and services that thats why banking sector was privatized in 1992. In
2002 Meezan Islamic bank was the first registered and full fledge Islamic bank of Pakistan. Pakistani banking sector
is improving day by day with diverse patterns of ownership because of active foreign and local stakeholder
participation, which results into a growing competition among banks to attract a large number of customers by
providing services quality to get long-term benefits. Now there are 6 Islamic and 13 Conventional banks working in

11

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

Pakistan offering products and services in different parts of the country. Banks are operating in a highly competitive
environment and are trying to provide quality services matching with customers' expectations. According to Ahmad
et al. (2010), Pakistani customers of Islamic bank expect greater Expected service quality as compared to the
customers of conventional bank. Now bank customers are much aware so they are very much concerned about the
quality of services. Customer satisfaction is the only thing which makes them loyal otherwise customers switch to
other banks with out any hesitation. Islamic banks work under the rules of Sharia'h to grow business and trade
activities. Islamic banking is expanding their network, size and structure because of a rational and beautiful blending
of commercial banks, micro financing and Islamic banks in the whole country. Because of entrance of the Islamic
banks in the Pakistan, affects the monitory system by adjusting the demand and supply forces for money. According
to Khan et al. (2008), Islamic banks insures more stable financial sector as compare to the conventional banks.
According to SBP (2010), it shows that the share of Islamic banking during the quarter has increased to 6.4 percent
as there was 3.2 percent growth in its assets compared to a decline in asset base of the conventional banks. The
Islamic banking grew its branch networks 5.4 percent. In recent era, banks are more concerned about their customer
and they realized that customer not only acquire service for just only value, but the motivation behind this the
service support available after the delivering the service (Agnihothri et al. 2002). Businesses can make long term
sustainable customer relationship by offering high quality services. Customer perception of the Expected service
quality a firm is a major and dominant concept which results in competitive advantage. So there for bankers must
concentrate on improving Expected service quality to make their customer satisfied because Expected service
quality has great and positive impact on customer satisfaction in case of non-conventional or Islamic banks as
compared to conventional banks in Pakistan. Despite existing research, Pakistani banking industry is paying
attention to study the Expected service quality. More research is also needed to alter the existing gaps. The purpose
of this study is to identify the expected service quality dimensions in Islamic and conventional banking system.
The paper is organized as follows: after introduction which is provided in Section 1 above, literature review is
carried out in Section 2. Data and Methodological framework is explained in Section 3. Results are shown in Section
4. Final section concludes the study.
2.
Literature review
2.1.
Customer Satisfaction
Since early 1970s, both theory and research on consumer satisfaction have done by different researchers including
Olshavsky and Miller (1972); Anderson (1973). Most of the Theoretical as well as empirical studies during 70s
supported the concept that customer satisfaction refers to the size and direction of disconfirmation experiences,
while disconfirmation experiences are the result of a persons initial expectations. Later, in 1980s, a new dimension
was added to customer satisfaction which is an emotional response of customer to the experiences associated with
the purchase of particular products or services (Westbrook and Reilly 1983). However, further development in
research during 90s and 2000, the idea of confirmation/disconfirmation was built to describe customer satisfaction
(Davis and Heineke, 1998; Woodruff et al., 1991). Where customer satisfaction or dissatisfaction can be determined
by the difference between expectations of the product or service and actual performance. If customer expectations
are meeting with the performance of the product or service then the result is satisfaction, otherwise dissatisfaction
occurs (Vavra, 1997; Davis and Heineke, 1998). One question remain almost ignored in throughout the development
phase of research in customer satisfaction is whether customer satisfaction is different for the products and services
or it is the same? And one more related question is about the measures directly or indirectly should be used to fully
understand and measure the behavioral components of customer satisfaction which results from consumption
experience (Malhotra et al., 1994). There are some studies including Boulding et al. (1993); Mittal and Baldasare
(1996); Chandon et al. (1997) and Dobni et al. (1997) tried to analyze customer satisfaction by using multiple
behavioral measures. Furthermore, there are various studies on customer satisfaction with reference to financial
services that also reflect the inherited deficiency in literature about customer satisfaction about general services and
to define some measures of customer satisfaction analysis for their experiences of using financial services. An
organized list of dimensions provided by Howell & Shamir (2005) includes (a) availability, (b) responsiveness, (c)
timeliness, (d) completeness, (e) tangibility, (f) empathy, (g) reliability, and (h) professionalism. However, these
refer to some general dimensions to analyze the customer satisfaction experiences suggested and used by several
studies.
2.2.
Customer Satisfaction and Expected service quality
Taylor and Baker (1994) and Howard and Sheth (1969) specified an idea that the customer satisfaction may result
from any dimension which may or may not be related to quality and its judgments about customer satisfaction may
arise from some non-quality issues like needs and equity etc and experience is also required with the service or
provider. Given this nature of customer satisfaction phenomena, research directions guide us towards the popular

12

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

concept of Expected service quality through which the idea of customer satisfaction can better be analyzed.
However, it is still debatable that customer satisfaction is an antecedent of Expected service quality (Bitner, 1990;
Parasuraman, et al, 1985) or Expected service quality is an antecedent of customer satisfaction (Anderson and
Sullivan, 1993; Cronin and Taylor, 1992; Taylor and Baker (1994). The concept of Expected service quality got
significant attention in early 1980s (Lehtinen & Lehtinen, 1982). Parasuraman, et al. (1985) identified ten
dimensions of Expected service quality, which includes, Reliability, Responsiveness, Competence, Access, Courtesy,
Communication, Credibility, Security, Understanding/Knowing the customer, and Tangibles. After that these
dimensions was reduced to five that are: Reliability, Response, Assurance, Tangibles, Empathy (Parasuraman, et al.,
1988). A 22-item scale named SERVQUAL was used to measure the dimensions of Expected service quality. The
SERVQUAL was used in different service sectors like appliance repair and maintenance firm, retail banks, a long
distance telephone provider, a security broker, and credit card companies in order to measure the quality of service.
So such application and validation of Expected service quality dimensions in such diverse setting helped to develop
and design a standardized sort of scale which could be applied to the measure the Expected service quality of
different sort of services organizations. In a various type of business settings offering quality of service in products
and services like hospital, banking (Cronin and Taylor, 1992; Spreng and Singh, 1993), business school placement
center, tyre store, dental school patient clinic and acute care hospital (Carman 1990), discount and departmental
stores (Finn and Lamb, 1991; Teas, 1993; Dabholkar et al. 1996) and others have used SERVQUAL for different
research studies. Though in financial services context, the scale has seen a limited application while in other areas
SERVQUAL has been applied for the purpose of measuring Expected service quality.
3.
Data Source and Methodological Framework
A convenient sample of eight hundred customers from eighty branches of five conventional and five Islamic Banks
in Khyber Pakhtoonkhawa (KPK) province of Pakistan participated in the study namely, Allied Bank of Pakistan,
Habib Bank of Pakistan, Muslim Commercial Bank of Pakistan, National Bank of Pakistan, United Bank of
Pakistan, Meezan Bank Limited, Askari Islamic Bank, Al-baraka Islamic Bank, Alfalah Bank, Bank Islami. A total
of five hundred and thirteen filledout questionnaires were returned, of which 38% were filled out by female
customers and 62% by male customers, forming a rate of 64% of total distributed questionnaires. A five point Likert
scale structured questionnaire is filled by the sample based on their perceived bank Expected service quality
according to their personal experiences. The framework of the study is given in Figure 1.

Figure 1: Research Framework

13

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

Source: Self construct

This study used partial least square (PLS) based structural equation modeling (SEM) to investigate the role of banks
tangibles, reliability, responsiveness, assurance and empathy in determining the banks expected service quality in
Pakistan. SEM is a second generation tool for data analysis based on LIZRAL and PLS. It is used by researchers to
examine the significance of association among different variables as a major SEM technique. It reflects complex
relationships of variables regarding the whole model in a meaningful fashion.
4.
Results
The objective of the study examines the determinants of expected service quality in conventional and Islamic
banking in Pakistan. The separate results have been gathered to find an association among different determinants on
expected service quality of both conventional and Islamic banking in Pakistan. The results of the partial least square
structural models are presented in Figure 2 for conventional banks and Figure 3 for Islamic banks for Pakistan. The
PLS structural model indicates coefficients, t-values, while the standardized coefficients reflect the relative strength
of the statistical relationships. It helps to estimate t-values for the constructs and variables under study. The
coefficients are shown in Table 1 and Table 2 respectively.
4.1.
Results of Conventional Banks
Table 1 shows the testing of the structural relationships among latent variables. The result shows that banks
tangibles and responsiveness has a significant positive impact on expected service quality of commercial banks,
while there is a negative relationship between assurance and expected service quality in case of commercial banks.

Path

Table 1: Regression Weights: Conventional Banks

Estimate
S.E.
t value

TANGIBLE-SERVQUAL

1.112

.065

2.353

.000***

RELIABILITY-SERVQUAL

.331

.074

9.534

.253

RESPONSIVENESS-SERVQUAL

.175

.082

2.148

.042*

ASSURANCE-SERVQUAL

-.219

.076

2.888

.014**

EMPATHY-SERVEQUAL

.001

.037

7.026

.980

Figure 2 shows the results of commercial banks with structural equation model.

14

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

Figure 2: Structural Equation Model (SEM) technique on Conventional Banks

Source: Authors estimation
4.2.
Results of Islamic banks
Table 2 shows the results of the structural relationships among variables. Result shows that, tangibles, reliability and
assurance has a significant impact on expected service quality while there is a negative relationship between
responsiveness and empathy over expected service quality of Islamic banks in Pakistan.
Table 2: Regression Weights: Islamic Banks
Path

Estimate

S.E.

t value

TANG-SERVQUAL

1.17

.055

7.197

.000

REL-SERVQUAL

2.03

.084

4.466

.000

RESP-SERVQUAL

-0.06

.042

2.148

.032

ASSU-SERVQUAL

1.29

.066

2.888

.004

EMP-SERVEQUAL

-0.12

.075

3.026

.020

Figure 3 shows the relationship between expected service quality and their determinants in case of Islamic Banks.

15

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

Figure 3: Structural Equation Model (SEM) technique on Islamic Banks

The results are in line with the previous studies, which show that there is a significant relationship between expected
service quality and customer satisfaction in case of Islamic Banking in Pakistan (Ahmad et al., 2010).
5.
Conclusion
The objective of the study is to investigate the role of banks tangibles, reliability, responsiveness, assurance and
empathy on determining the expected service quality of conventional and Islamic baking in Pakistan. The study used
partial least square (PLS) based structural equation modeling (SEM) to investigate the relationship between them.
The result shows that banks tangible and responsiveness has a positive impact while assurance has a significant
negative impact on expected service quality of conventional banks in Pakistan. Reliability and empathy doesnt
sufficiently explain their relationship on expected service quality, as it is reported as insignificant impact over the
sample study. In case of Islamic Banks in Pakistan, banks tangible, reliability and assurance has a significant
positive impact on expected service quality while there is a negative relationship between responsive & empathy
over expected service quality of Islamic banking in Pakistan.
References
Agnihothri, S., Sivasubramaniam, N., Simmons, D., (2002), Leveraging technology to improve field service.
International Journal of Service Industry Management, 13 (1), 47-68.
Ahmad, A., Rehman, K. and Saif, M. I. (2010), Islamic Banking Experience of Pakistan: Comparison of Islamic and
Conventional Banks. International Journal of Business and Management, 5 (2), 137-144.
Anderson, E.A. & Sullivan, M.W. (1993), The antecedents and consequences of customer satisfaction for firms.
Marketing Science, 12, pp125-143.
Anderson, R. E., (1973), Consumer Dissatisfaction, the Effect of Disconfirmed Expectancy on Perceived Product
Performance. Journal of Marketing Research, 10, 38-44.
Bitner, M. J. (1990). Evaluating service encounters: the effects of physical surroundings and employee response.
Journal of Marketing, 54 (5), 69-82.
Boulding, W., Kalra, A., Staelin, R., Zeithaml, V. (1993), A dynamic model of perceived service quality: from
expectations to behavioral intentions. Journal of Marketing Research, 30 (2)7-27.
Carman, J.M. (1990), Consumer perceptions of perceived service quality: an assessment of the SERVQUAL
dimensions. Journal of Retailing, 66 (1), 33-5.

16

Industrial Engineering Letters

ISSN 2224-6096 (print) ISSN 2225-0581 (online)
Vol 2, No.2, 2012

www.iiste.org

Chandon, J-L., Leo, P.Y., Philippe, J. (1997), Service encounter dimensions a dyadic perspective: measuring the
dimensions of service encounters as perceived by customers and personnel. International Journal of Service
Industry Management, 8 (1), 65-86.
Cronin Jr, J.J. and Taylor, S.A. (1992), Measuring service quality: a reexamination and extension, Journal of
Marketing, 56, 55-68.
Dabholkar, A. Pratibha, Dayle I. Thorpe, and Joseph O. Rentz. (1996), A Measure of Perceived service quality for
Retail Stores: Scale Development and Validation. Journal of the Academy of Marketing Science, 24, 3-16.
Davis, M.M. and Heineke, J. (1998), How disconfirmation, perception and actual waiting times impact customer
satisfaction. International Journal of Service Industry Management, 9 (1), 64-73.
Dobni, D., Zerbe, W., Ritchie, J.R.B. (1997), Enhancing service personnel effectiveness through the use of
behavioral repertoires. Journal of Services Marketing, 11 (6), 427-45.
Finn, D. W. and Charles W. L. (1991), An Evaluation of the SERVQUAL Scales in a Retailing Setting. Advances in
Consumer Research, edited by R. Holman and M. R. Soloman, 483-490. Provo, UT: Association for Consumer
Research.
Howard, J. A. and Sheth, J. N. (1969), The Theory of Buyer Behavior, Wiley, New York (1969).
Howell, J.M. and Shamir B. (2005), The role of followers in the charismatic leadership process: Relationships and
their consequences. Academy of Management Review, 30(1):96-112.
Tan, K.C. (2001), A structural equation model of new product design and development. Decision Sciences 32 (2),
195226.
Khan, M.S.N., Hassan, M. K., & Shahid, A. I. (2008), Banking behavior of Islamic bank customer in Bangladesh.
Journal of Islamic Economics, Banking and Finance, .3 (2), 159-194.
Lehtinen, U. and J.R. Lehtinen. (1982), Perceived service quality: a study of quality dimensions. Working Paper.
Service Management Institute. Helsinki.
Malhotra, N.K., Francis M., Ugaldo, J.A., and Imad B. (1994), International Services Marketing: A Comparative
Evaluation of the Dimensions of Perceived service quality between Developed and Developing Countries.
International Marketing Review, 2 (11), 515.
Mittal, V., Baldasare, P. (1996), Managers should optimize rather than maximize performance to enhance patient
satisfaction. Journal of Health Care Marketing, 16 (4), 24-37.
Olshavsky, R. W., Miller J. A., (1972), Consumer Expectations, Product Performance, and Perceived Product
Quality. Journal of Marketing Research, 3,(2), 19 - 21.
Parasuraman, A., Zeithaml, V.A. & Berry, L.L. (1985), A conceptual model of perceived service quality in its
implications for future research, Journal of Marketing, 49 (4), 41-50.
Parasuraman, A., Zeithaml, V.A., Berry, L.L., (1988), SERVQUAL: A multiple-item scale for measuring consumer
perceptions of perceived service quality. Journal of Retailing, 64 (1), 12-40.
SBP (2010). State Bank of Pakistan (2010), Quarterly Performance Review of the Banking System - September
2010 [accessed on 01-01-2011].
Spreng, R.A. and Singh, A.K. (1993), An empirical assessment of the SERVQUAL scale and the relationship
between perceived service quality and satisfaction. Unpublished manuscript, Michigan State University, TN.
Taylor, S.A. & Baker, T.L. (1994), An assessment of the relationship between perceived service quality and
customer satisfaction in the formation of consumers' purchase intentions. Journal of Retailing, 70(2), 163-178.
Teas, K.R. (1994), Expectations as a comparison standard in measuring service quality: An assessment of a
reassessment. Journal of Marketing, 58(1), 132139.
Vavra, T.G. (1997), Improving Your Measurement of Customer Satisfaction, ASQS Quality Press.
Westbrook, R. A., & Reilly, M. D. (1983), Value-percept disparity: An alternative to the disconfirmation of
expectation theory of consumer satisfaction. Advances in Consumer Research, 10, 256261.
Woodruff, R.B., Clemons, D.S., Schumann, D.W., Gardial, S.F. and Bruns, M.J. (1991), The standards issue in CS/D
research: a historical perspective. Journal of Customer Satisfaction, Dissatisfaction and Complaining Behavior: 4,
103-9.

17

This academic article was published by The International Institute for Science,
Technology and Education (IISTE). The IISTE is a pioneer in the Open Access
Publishing service based in the U.S. and Europe. The aim of the institute is
Accelerating Global Knowledge Sharing.
More information about the publisher can be found in the IISTEs homepage:
http://www.iiste.org
The IISTE is currently hosting more than 30 peer-reviewed academic journals and
collaborating with academic institutions around the world. Prospective authors of
IISTE journals can find the submission instruction on the following page:
http://www.iiste.org/Journals/
The IISTE editorial team promises to the review and publish all the qualified
submissions in a fast manner. All the journals articles are available online to the
readers all over the world without financial, legal, or technical barriers other than
those inseparable from gaining access to the internet itself. Printed version of the
journals is also available upon request of readers and authors.
IISTE Knowledge Sharing Partners
EBSCO, Index Copernicus, Ulrich's Periodicals Directory, JournalTOCS, PKP Open
Archives Harvester, Bielefeld Academic Search Engine, Elektronische
Zeitschriftenbibliothek EZB, Open J-Gate, OCLC WorldCat, Universe Digtial
Library , NewJour, Google Scholar