Employees' Perceptions About Islamic Banking and Its Growth Potential in Pakistan
Employees' Perceptions About Islamic Banking and Its Growth Potential in Pakistan
Employees' Perceptions About Islamic Banking and Its Growth Potential in Pakistan
53-76
53
Abstract
This paper investigates the perceptions of employees in Islamic banks and Islamic
branches of conventional banks regarding practices and growth of Islamic banking in
Pakistan. For this purpose, questionnaires were distributed to employees working in these
banks. The results reveal that bankers in Islamic banks perceive that Islamic banking is in
accordance with Shariah and Islamic principles. They hold positive perceptions regarding the practices, objectives and growth of Islamic banking and believe that banks and
government are committed towards the development of Islamic banking in the country.
Results also show that bankers are confident that Islamic banking will grow and expand in
the country in future. The study suggests that the issue of availability of well-trained and
skilled employees must be addressed by government and stakeholders for the sustainable
growth of Islamic banking in Pakistan.
Keywords: Perceptions, practices, growth, bankers, Islamic banking
1. Introduction
Islamic banking has gained tremendous growth in last three decades (Chapra,
2007; Ramzan et al., 2012). In certain markets such as Saudi Arabia, market share
of Islamic banking is more than 50 percent (Ernst & Young, 2014) which is a great
achievement on part of Islamic banking. However, top twenty Islamic banks in the
world consist of 55 percent of total Islamic banking assets and are concentrated in
seven countries including Gulf Cooperation Countries (GCC), Malaysia, and Turkey
(Ernst & Young, 2012). Other Islamic countries including Pakistan, Egypt, Jordan,
Sudan, and Iran also have initiated supportive infrastructure for development of
Islamic banking.
The beginning of Islamic banking in Pakistan can be traced back to 1958 with
the establishment of a cooperative bank in the then West Pakistan (Wilson, 2002).
However, the formal Islamic banking operations started in 1981 when all branches
of commercial banks opened profit and loss sharing (PLS) counters in Pakistan in
compliance with SBPs BCD Circular No. 26, issued on December 24, 1980. The
1 Assistant Professor, Quaid-i-Azam University, Islamabad
2 Professor & Head of Department, Leadership and Management Studies, National Defense University
Islamabad
3 Quaid-i-Azam School of Management Sciences, Quaid-i-Azam University, Islamabad
54
progress of Islamic banking in Pakistan continued but faced different difficulties for
establishing a full-fledged Islamic bank in the country.
Khan (2008) found that from 1980 to 2006, contributions of institutions including government, judiciary and politicians in the development of Islamic banking in
Pakistan gave only meagre solution to restore Islamic financial system in the country
despite its real effectiveness due to the existence of a deep rooted conventional system
in the financial sectors of Pakistan. He suggested revolutionary steps to be initiated
by the government to support and implement Islamic banking system in Pakistan.
The State Bank of Pakistan issued license for the establishment of the first
full-fledged Islamic bank in 2002. Consequently, Meezan Bank Ltd. commenced
its operation in 2002 as the first full-fledged Islamic commercial bank in Pakistan.
Presently, there are six full-fledged Islamic banks and seventeen conventional banks
with Islamic branches working in the country (SBP, Quarterly Compendium: Banking
Statistics, December 2015). The list of these banks is attached in appendix-A. Presently
there are a total of 2075 Islamic banking branches and sub-branches operational in
the country (SPB, 2015).
Table 1 shows that Islamic banking (IB) gained 9% to 10% share in banking
industry of Pakistan. According to SBP (2013), assets and deposits of Islamic banks
reached to Rs.926 billion and Rs.775 billion respectively by end of September, 2013. In
the same period the share of Islamic banking industry in terms of assets and deposits
reached to 9.5% and 10.1% of the total banking sector of Pakistan, respectively. Net
financing and investment of Islamic banking also reached Rs.711 billion at the end
of September, 2013 and gained 9.1% share of the total banking industry in Pakistan.
Table 1: Industry Progress and Market Share (Rupees in Billions)
Industry Progress
Growth (YoY)
Share in Industry
742
903
926
8.1%
9.0%
9.5%
Deposits
628
771
775
9.3%
9.9%
10.1%
571
700
711
7.8%
8.8%
9.1%
18
19
19
Total No. of
Branches
977
1115
1161
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
55
56
2. Literature Review
This section presents the review of literature regarding Islamic banking practices,
performance, growth, and employees perceptions towards Islamic banking. Theoretical
framework and hypothesis are also presented at the end of this section.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
57
Khan and Bhatti (2008), on the other hand, observed that Islamic finance has
successfully drawn worldwide attention of investors in recent years. Islamic banking
emerged as a hub of finance in Middle East, South Asia and Indian subcontinent with
an unexpected growth. It has the potential to capture major Muslim countries and
financial markets. It further will extend ahead to grab other ethical groups in future.
58
The development of Islamic banking, like other banks, significantly depends upon
the human resource which is responsible for successful operations of Islamic banks.
Their knowledge and skills are important for further development of Islamic Banks.
The perceptions of Islamic bankers are important to be investigated for knowing
their understanding. As Islamic banking is still in its infancy and its growth mainly
depends upon the employees and management of banks, therefore the perceptions
of service providers at branch level towards practices and growth of Islamic banks are
very important to be explored. Consequently, this study would help to understand
the perceptions of Islamic bankers regarding Islamic banking products and services,
experience and skills they gain in Islamic banks, marketing of Islamic banks products
and services, and future potential of Islamic banks in the country.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
59
60
employees experience and skills have a positive relationship with growth of Islamic
banks. Based on these arguments, the following hypothesis is formulated.
H2: Bankers perceptions towards experience and skills gained in Islamic banks
affect potential growth of Islamic banking in Pakistan.
3. Research Methodology
3.1. Sample Size and Selection Procedure
Islamic banks and conventional banks with Islamic banking branches constituted the population of this study. There were 1161 of such branches in total in whole
Pakistan for this purpose. Geographically, Islamabad, Karachi, Peshawar, Lahore and
Quetta had the concentration of 56 percent of all Islamic banking branches in the
country.
The study uses purposive (non-probability) sampling technique following Fauziah, Taib, Ramayah, and Abdul Razak (2008), and Marimuthu, Wai Jing, Phei Gie,
Pey Mun, and Yew Ping (2010). The reason for this sampling technique was to select
bankers in Islamic banks who play a front-line role in providing services to customers.
This is because their perceptions were much important for this study rather than
randomly selecting all Islamic banks employees whose perceptions were not relevant
to the purpose of the study.
300 employees from 42 Islamic banking branches in Islamabad are selected as
sample for the purpose of this study. However, only 239 employees responded affirmatively and returned the questionnaires duly filled.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
61
62
3.4.2. Bankers Perceptions towards Experience and Skills Gained in Islamic Banks
Second variable of the study is measured through a set of five items adopted
from the study of Zainol et al. (2008). These include: employees training and exposure on products and services, employees capability to solve customers problems,
knowledge of employees, training and exposure before assuming the current seat, and
encouragement to attain short-courses, seminars and conferences. Figure 4 shows the
perceptions of bankers towards experience and skills schematically.
3.4.3. Bankers Perceptions towards Marketing of Islamic Banking Products and Services
Third variable is measured by a set of five items. Three of the items, i.e. marketing and promotion of Islamic banking products and services, marketing in effective
manner of products and services, and governments commitment for the development
of Islamic banking, are adopted from the study of Zainol et al. (2008) with little modifications. The remaining two items, marketing tools utilized by Islamic banks, and
public awareness creations, are derived from the literature review and SBP published
report (Islamic Banking Bulletin July-Sep, 2013). Figure 5 shows the perceptions of
bankers towards marketing of Islamic banking products and services schematically.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
63
3.5. Scale
Following Zainol et al. (2008), the current study uses a five-point Likert scale for
its items, ranging from Strongly Disagree = 1 to Strongly Agree = 5.
N of
Items
Cronbach
Alpha
(BPTES)
N of
Items
Cronbach
Alpha
(BPTES)
N of
Items
Cronbach
Alpha
(BPTES)
N of
Items
.758
.788
.830
.730
64
(1)
Where,
BPTPGi = Bankers perceptions towards potential growth of Islamic banking in
Pakistan.
BPTPSi = Bankers perceptions towards Islamic banking products and services.
BPTESi = Bankers perceptions towards experience and skills gained in Islamic
banks.
BPTMPSi = Bankers perceptions towards marketing of Islamic banking products
and services
Categories / Brackets
Proportion in Total
Gender
Male
78.7%
Female
21.3%
20-25
18.4%
26-30
40.2%
31-35
23.8%
36-40
11.3%
41-45
4.6%
Above 45
1.7%
Bachelors degree
24%
Master
62.8%
MS/M.Phil,
9.6%
PhDs
0.8%
Others
2.1%
Branch manager
9.6%
Age in years
Education levels
Designation
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
Bank category
Operation officers
29.3%
Lending officers
8.5%
Seniors officers
26.8%
Relationship manager
7.9%
Others
18.0%
59.4%
40.6%
65
Minimum
Maximum
Mean
Std. Deviation
BPTPS_1
239
4.61
.539
BPTPS_2
239
4.43
.559
BPTPS_3
239
4.49
.628
BPTPS_4
239
4.17
.728
BPTPS_5
239
4.19
.765
BPTPS_6
239
4.06
.692
BPTPS_7
239
4.07
.691
BPTPS_8
239
4.00
.830
239
4.2.2. Bankers Perceptions towards Experience and Skills Gained in Islamic Banks
Table 5 presents descriptive statistics for five items of the second variable, i.e.
bankers perceptions towards experience and skills gained in Islamic banks (BPTES).
From the mean values of items it is observed that employees perceptions about their
experience and skills gained during job are positive.
66
Minimum
Maximum
Mean
Std. Deviation
BPTES_1
239
4.26
.696
BPTES_2
239
4.06
.639
BPTES_3
239
4.32
.629
BPTES_4
239
4.15
.704
BPTES_5
239
4.32
.715
239
4.2.3. Bankers Perceptions towards Marketing of Islamic Banking Products and Services
Table 6 presents descriptive statistics for five items of the third variable, i.e.
bankers perceptions towards marketing of Islamic banking products and services
(BPTMPS). From the mean values of items it is observed that Islamic banks are
committed to market, promote and create awareness regarding their products and
services in Pakistan.
Table 6: Descriptive Statistics (BPTMPS)
N
Minimum
Maximum
Mean
Std. Deviation
BPTMPS_1
239
4.25
.729
BPTMPS_2
239
4.22
.730
BPTMPS_3
239
4.11
.742
BPTMPS_4
239
4.05
.763
BPTMPS_5
239
4.19
.828
239
Minimum
Maximum
Mean
Std. Deviation
BPTPG_1
239
4.40
.584
BPTPG_2
239
4.23
.638
BPTPG_3
239
4.11
.759
BPTPG_4
239
4.48
.673
239
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
67
the mean values of items it is observed that employees are confident about potential
growth of Islamic banking in Pakistan.
4.3. Correlations
Table 8 presents results of correlations among all the variables. As evident from
the table, all variables bear a positive relationship with each other, and are significant
at 1% significance level.
Table 8: Correlations Coefficients (N=239)
BPTPG
BPTPG
Pearson Correlation
BPTPS
BPTES
BPTMPS
Sig. (2-tailed)
BPTPS
BPTES
BPTMPS
Pearson Correlation
.462**
Sig. (2-tailed)
.000
Pearson Correlation
.433**
.412**
Sig. (2-tailed)
.000
.000
Pearson Correlation
.488**
.396**
.518**
Sig. (2-tailed)
.000
.000
.000
Unstandardized Coefficients
Standardized Coefficients
Sig.
3.859
.000
Std. Error
Beta
(Constant)
1.155
.299
BPTPS
.332
.071
.278
4.655
.000
BPTES
.167
.064
.168
2.621
.009
BPTMPS
.248
.054
.291
4.577
.000
68
and adjusted R square 0.335 which means that the model explains almost 34% of
variation in the dependent variable. It means that more than 60% of the variation
in the dependent variable is caused by other factors contributing to the error term.
F statistic value is 40.90, significant at a level of .000. It is concluded that there is
significant relationship between independent variables and dependent variable.
The results support all our hypotheses. Here is the summary for the results and
the hypotheses acceptance:
H1: T-value of BPTPS is 4.65 and adjusted beta was 0.27 with p-value .000, indicating a significant relationship between BPTPS and BPTPG. Therefore, H1 is accepted.
H2: T-value of BPTES is 2.61 and adjusted beta is 0.16, with p-value 0.009 showing significant relationship between BPTES and BPTPG. Therefore, H2 is accepted.
H3: T-value of BPTMPS is 4.57 and adjusted beta was 0.29 with p-value .000,
reflecting significant relationship between BPTMPS and BPTPG. Therefore, H3 is
accepted.
The findings seem to be in line with Zainol et al. (2008) who also observed positive perception of employees about the products and services of Islamic banks, their
experience and skills and potential of Islamic banks. They however observed that
significant number of employees did not have sufficient knowledge about Islamic
banking prior to joining Islamic banks. The current study was different from Zainol
et al. (2008) in examining the effects of bankers perceptions on the potential growth
of Islamic banking in Pakistan. The significant relationship between the employees
perceptions and potential growth of Islamic banks presents an optimistic view about
the future of Islamic banks in the country.
5. Conclusion
Bankers working in Islamic banks appear well-informed and knowledgeable towards products and services offered by Islamic banks, reflecting positive perceptions
regarding their compliance with Shariah principles and objectives of Islamic banking.
They are found quite confident that current practices of Islamic banking are according
to the teachings of Islam. Bankers perceive to have gained sufficient experience and
skills in Islamic banking. They appear to have extensive knowledge of products and
services under their supervision and have received adequate training and exposure
before assuming their current post. They also appear confident to solve respective
inquiries and problems while dealing with customers and are also encouraged by banks
to attend short courses, seminars, and conferences related to their work.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
69
It is also observed from the bankers perceptions that the top management of
Islamic banks and the government are committed to the development and promotion
of Islamic banking products and services in the country. Our survey results also show
that bankers are optimistic about the future growth of Islamic banking in Pakistan.
They believe that the number of customers including individuals and corporate
would increase in the country. However, they are more confident that the numbers
of individual customers would increase at a greater rate than the corporate customers.
They are also confident about the expansion of Islamic banks in small towns and
villages of Pakistan, achieving a target of 20% market share by the year 2020 as set by
the State Bank of Pakistan (SBP, 2013).
Though the bankers working in Islamic banks appear knowledgeable, their
performance may further be improved through training and education in Islamic
banking. Adequate and proper training regarding products and services of Islamic
banking can enhance confidence in employees to deal with customers. Public awareness regarding products and services of Islamic banks in small towns and villages
should be created by Islamic banks in order to encourage the expansion of Islamic
banking in such places too.
References
Abdullah, A. A., Sidek, R., & Adnan, A. A. (2012). Perception of non-Muslims customers towards Islamic
banks in Malaysia. International Journal of Business and Social Science, 3(11), 151-163.
Ahmad, N., & Haron, S. (2008). Perceptions of corporate customers towards Islamic banking products
and services in Malaysia. International Journal of Islamic Financial Services, 3(4), 13-19.
Ahmed, G. A. (2008). The implication of using profit and loss sharing modes of finance in the banking
system, with a particular reference to equity participation (partnership) method in Sudan. The
Journal of Humanomics, 24(3), 182-206.
Ali, S., & Farrukh, F. (2013). Islamic banking: Is the confidence level of being an Islamic banking
employee better than conventional banking employee? An exploratory study regarding Islamic
banking. Journal of Business Studies Quarterly, 4(3), 28-42.
Alserhan, B. A., Forstenlechner, I., & Nakeeb, A. A. (2010). Employees attitudes towards diversity in
a non-western context. The Journal of Employee Relations, 32(1), 42-55.
Anwar, Y. (2013, August 27). Developments of Islamic banking in Pakistan. Speech presented at the
Islamic Finance News Pakistan Road Show, Karachi, Pakistan.
Chapra, M. U. (2007). 21 Challenges facing the Islamic financial industry. Handbook of Islamic Banking,
325-357.
70
Dusuki, A. W., & Abdullah, N. I. (2007). Why do Malaysian customers patronize Islamic banks? International Journal of Bank Marketing, 25(3), 142-160.
Echchabi, A. & Olaniyi, O. F. (2012). Malaysian consumers preferences for Islamic banking attributes.
International Journal of Social Economics, 39(11), 859-874.
Ernst & Young. (2012). World Islamic banking competitiveness report 2013: Growing beyond DNA of successful
transformation.
Ernst & Young. (2014). The World Islamic Banking Competitiveness Report, 201314, The
Transition Begins.
Fauziah, Taib, M., Ramayah, T., & Abdul Razak, D. (2008). Factors influencing intention to use diminishing partnership home financing. International Journal of Islamic and Middle Eastern Finance
and Management, 1(3), 235-248.
Gait, A., & Worthington, A. C. (2015). Attitudes of Libyan retail consumers toward Islamic methods
of finance.International Journal of Islamic and Middle Eastern Finance and Management,8(4), 439-454.
Hassan, A. & Latif, H. S. B. A. (2009). Corporate social responsibility of Islamic financial institutions
and businesses optimizing charity value. The Journal of Humanomics, 25(3), 177-188.
Khan, M. M. (2008). Main features of the interest-free banking movement in Pakistan (1980-2006). The
Journal of Managerial Finance, 34(9), 660-674.
Khan, M. M., & Bhatti, M. I. (2008). Islamic banking and finance: On its way to globalization. The
Journal of Managerial Finance, 34(10), 708-725.
Laldin, M. A. (2008). Islamic financial system: The Malaysian experience and the way forward. The
Journal of Humanomics, 24(3), 217-238.
Loo, M. (2010). Attitudes and perceptions towards Islamic banking among Muslims and non-Muslims
in Malaysia: implications for marketing to baby boomers and x-generation. International Journal of
Arts and Sciences, 3(13), 453-485.
Mahomedy, A. C. (2013). Islamic economics: Still in search of an identity. International Journal of Social
Economics, 40(6), 556-578.
Malik, M. S., Malik, A., & Mustafa, W. (2011). Controversies that make Islamic banking controversial:
An analysis of issues and challenges. American Journal of Social and Management Sciences, 2(1), 41-46.
Marimuthu, M., Wai Jing, C., Phei Gie, L., Pey Mun, L., & Yew Ping, T. (2010). Islamic banking: Selection
criteria and implications. Global Journal of Human-Social Science Research, 10(4), 52-62.
Mellahi, K., & Budhwar, P. S. (2010). Introduction: Islam and human resource management. Personnel
Review, 39(6), 685-691.
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
71
Mokhtar, H. S. A., Abdullah N., & Alhabshi, S. M. (2008). Efficiency and competition of Islamic
banking in Malaysia. The Journal of Humanomics, 24(1), 28-48.
Muhamad, R., Melewar, T. C. & Alwi, S. F. S. (2012). Segmentation and brand positioning for Islamic
financial services. European Journal of Marketing, 46(7/8), 900-921.
Ramzan, M., Zahid, A., Hussain, N., Islam, K., Aziz, F. & Ghazenfer, S. K. (2012). Growth of Islamic
banking in Pakistan by Using AID model. International Journal of Business and Social Science, 3(23),
152-164.
Rostamy, A. A. A. (2009). Toward understanding conflicts between customers and employees perceptions and expectations: Evidence of Iranian bank. Journal of Business Economics and Management,
10(3), 241-254.
Rustam, S., Bibi, S., Zaman, K., Rustam, A., & Haq, Z. U. (2011). Perceptions of corporate customers towards Islamic banking products and services in Pakistan. The Romanian Economic Journal, 41, 107-123.
Santos, J. R. A. (1999). Cronbachs alpha: A tool for assessing the reliability of scales. Journal of extension,
37(2), 1-5.
Shah, B. A., & Niazi, G. S. K. (2009). Contemporary practices of Islamic banks in Pakistan: A critical
appraisal. Int. J. Monetary Economics and Finance, 2(3/4), 302-316.
Shakespear, R., & Harahap, S. (2009). The comparative role of banking in binary and Islamic economy.
The Journal of Humanomics, 25(2), 142-162.
Siddiqi, M. N. (2001). Recent history of Islamic banking and finance. Islamic Economic Studies, 13(2), 1-48.
State Bank of Pakistan. (2013). Islamic Banking Bulletin: 2013. Retrieved from http://www.sbp.org.pk/
ibd/bulletin/2013/IBB-Sep-2013.pdf.
State Bank of Pakistan. (1980). BCD Circular No. 26 dated 24.12.1980.
Trabelsi, M. A. (2011). The impact of the financial crisis on the global economy: Can the Islamic financial
system help. The Journal of Risk Finance, 12(1), 15-25.
Usmani, T. M. (2011). An introduction to Islamic finance. Maktabah Maariful Quran, Karachi.
Vahed, G., & Vawda, S. (2008). The viability of Islamic banking and finance in a capitalist economy: A
South African case study. Journal of Muslim Minority Affairs, 28(3), 453-472.
Wilson, R. (2002). The evolution of the Islamic financial system. In Archer S., & Abdel Karim, R. A.
(Eds.), Islamic Finance: Innovation and Growth. (pp. 29-41). Euromoney books: London.
Zamil, N. A. M. (2014). An empirical investigation into the problems and challenges facing Islamic banking in
Malaysia (Doctoral dissertation, Cardiff Business School).
Zainol, Z., Shaari, R., & Ali, H. M. (2008). A comparative analysis of bankers perceptions on Islamic
banking. International Journal of Business and Management, 3(4), 157-168.
72
Appendix-A
List of Islamic Banking Institutions
As of December 31, 2015
A. Islamic Banks
1. AlBaraka Bank (Pakistan) Ltd.
2. BankIslami Pakistan Ltd.
3. Burj Bank Ltd.
4. Dubai Islamic Bank Pakistan Ltd
5. MCB Islamic Bank Ltd.
6. Meezan Bank Ltd
B. Conventional Banks having Islamic Banking Branches
1. Askari Bank Ltd.
2. Allied Bank Ltd.
3. Bank Al Habib Ltd
4. Bank Alfalah Ltd
5. Faysal Bank Ltd.
6. Habib Bank Ltd
7. Habib Metropolitan Bank
8. MCB Bank Ltd
9. National Bank of Pakistan
10. Silk Bank Ltd 10 Silk Bank Ltd
11. Sindh Bank Ltd
12. Soneri Bank Ltd
13. Standard Chartered Bank
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
73
Appendix-B
Questionnaire
Dear Respondent!
Thank you for agreeing to fulfill this questioner. This survey is being conducted to study Determining Bankers Perception towards Islamic Banking Practices
and Growth in Pakistan, for purely academic purpose. I would like to ensure that
the information /feedback provided by you will be kept confidential and will only
be used for the purpose of research. Your cooperation in this regard shall be highly
appreciated.
Please read each question carefully and tick a box to indicate the answer
74
Age
Education
Designation
Bank
Male
20-25
Diploma and
below
Branch Manager
Full-fledged Islamic
Bank
Female
26-30
Bachelors Degree
Operation Officers
Conventional Bank
with Islamic Branch
31-35
Master Degree
Lending Officers
36-40
MS/M.Phil
Senior Officers
41-45
PhD
Relationship Manager
46-50
Other__________
Other_________
Above 50
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
Employees Perceptions about Islamic Banking and its Growth Potential in Pakistan
75
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
Islamic banks market their Islamic banking products and services in an effective
manner.
Strongly
Agree
Agree
Neutral
Disagree
Strongly
Disagree
76