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Comparative Study of Islamic Banking150

CHAPTER 6

Conclusion, Implications and Suggestions

Conclusion Suggestions Limitations and Future Research Contribution of the Study Practical Implications Unique Status of the Study

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Chapter 6

Conclusions, Implications and Suggestions

6.1 Conclusion

Financial services industry especially banking sector witnessed unprecedented growth

during the last few years in every part of the world. Pakistani economy experienced an

increase in the contribution of the banking sector towards GDP due to an expansion of

the market and diversification of products/service to meet customers' expectations. A

large number of new banks have started operations in Pakistan. Similarly, inception of

Islamic banking operations in 2002 opened new avenues to exploit the opportunities.

Islamic banks are getting popularity due to interest free products, risk sharing activities

and strong ties with the religion. Islamic banks work as welfare organization to promote

trade and economic activities in line with the instructions of Islam to provide a number of

interest-free products/service.

The existence of Islamic and conventional banks in Pakistan created stiff competition

among banks to attract and retain greater number of customers by the provision of quality

services. This study examined the relationship among service quality, customer

satisfaction and bank performance by comparing Islamic and conventional banks

operating in Pakistan. The researcher developed and tested a model of service quality,

customer satisfaction and bank performance in the light of existing literature.

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It is concluded that there is significant difference in the perception of customers of

Islamic banks about service quality on the basis of gender. While in case of conventional

banks, there is no significant difference in the perception of male and female bank

customers. The results show that there is strong direct and positive relationship between

service quality and customer satisfaction in Pakistani banking sector. The magnitude of

relationship between service quality and customer satisfaction is greater in Islamic banks

as compared to conventional banks.

It is proved that service quality also influence the bank performance while there is weaker

relationship between customer satisfaction and bank performance. However is found that

that four dimensions of service quality i.e. tangibility, reliability, responsiveness and

assurance have significant impact on service quality except empathy in case of Islamic

banks. Similarly four dimension namely tangibility, reliability; responsiveness and

empathy have significant impact on customer satisfaction in case of CB but assurance has

no significant influence on customer satisfaction.

The study identified significant positive impact of service quality on customer

satisfaction in case of CB but a gap is identified between customer satisfaction and bank

performance in case of Islamic banks. The gap between customer satisfaction and

performance of Islamic banks may be due to the lack of customer orientation. Islamic

banks are more concerned towards expansion of their branch network instead of customer

orientation. Finally, it is proved that customer satisfaction partially mediate the

relationship between service quality and bank performance in Pakistan as shown by the

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results of structural models. The results of proposed model reflect that customer

satisfaction does not play the mediating role between service quality and performance of

Islamic banks. On the other hand, customer satisfaction mediates the relationship

between service quality and performance of conventional banks in Pakistan.

It is concluded that managers should improve the quality of services to retain their

customers as satisfied customers for long-term benefits. Similarly, they should make

arrangements to enhance awareness among customers and employees of banks for

improvement of their products/services to enhance performance. Islamic banks should

develop marketable products according to Islamic instructions to compete with

conventional banks. The study has developed an understanding about the relationship

among service quality, customer satisfaction and bank performance regarding Islamic and

conventional bank in Pakistan.

6.2 Suggestions

This study examines the service quality, customer satisfaction and bank performance by

comparing a number of selected Islamic and conventional banks in Pakistan. IB should

enhance awareness regarding its products (services) to compete with CB for long term

benefits and should introduce new products/services according to Shariah principles to

attract greater number of customers. The results show that CS does not mediate the

relationship between SQL and PRF in case of IB. So IB should focus on customer

orientation to have satisfied customers to reduce the gap between CS and PRF.bankers

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are required to develop a mechanism to evaluate their services in relation to customer

satisfaction for corrective action by conducting surveys etc. Bankers should introduce

new, diversified and marketable products to meet requirements of different segments of

the economy as weak relationship between SQL and PRF is identified in this study.

Bankers should improve their services by blending of traditional facilities and modern

technology to meet customers expectation for better performance in future as service

quality has strong positive effect on customer satisfaction. It is suggested that Islamic

banks should create awareness among bank customers by attractive advertising tactics to

attract greater number of customers. Islamic bank should actively introduce innovative

products and services according to principles of Shariah. Islamic banks and conventional

should improve quality of service to meet customer expectations for long term benefits.

They are required to implement an effective mechanism to measure the customer

satisfaction for corrective action.

Bankers should introduce new, diversified and marketable products to meet the

requirements of the different segments of the economy. There is significant difference in

the perception of male and female customers in case of IB. So bankers are should develop

an effective strategy to attract female customers by meeting their specific requirements.

They are required to introduce specific products to meet the expectations of different

segments on the basis of gender, age, qualification etc. They should take initiatives for

active participation of female customer due to remarkable potential as they represent 51%

of total population. Bankers should improve their services by blending traditional

facilities and modern technology to meet customers expectation for better performance

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in future as service quality has strong positive effect on customer satisfaction as evident

from the results.

Conventional banks could be transformed towards Islamic banking practices to play a

positive role for the welfare of the society to deal in profit and loss basis. IB is better than

CB because Islamic Bank provide its products/services according to principles of

Shariah. While conventional bank provides interest-oriented products/services that are

strictly prohibited by Allah Almighty and His prophet Muhammad (Peace be Upon Him).

Similarly, equity based contracts are highly recommended due to long term benefits

towards economy and society (Wieltzman, 1984; Chapra, 1985). However, profit and loss

based equity transactions stimulate investment and productive activities in the economy

(Haque and Mirakhor, 1986; Arby, 2003). Bankers should patch up the service quality

and customer satisfaction towards better performance of the banks especially in case of

Islamic banks to gain substantial benefits.

6.3 Limitations and Future Research

This study has some limitations that might be addressed in future research. Firstly,

subjective dimensions like open-internal process model, rational model and human

relations model were used to measure the bank performance. On the other hand, objective

measures such as profitability (ROE, ROI) and liquidity (Current Ratio, Acid-test Ratio)

might be used to assess the influence of service quality and customer satisfaction on

financial performance of the banks.

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Secondly, regression analysis and PLS tools are used to test the proposed model. These

techniques have certain limitations, as simple regression is unable to support the analysis

of all paths at the same time and PLS also has some limitations. LISREL can investigate

the relationship among constructs and variables of the model more appropriately, so this

model might be tested by LISREL for further research. The scope of this study is limited

to banking sector by comparing conventional and Islamic banks in Pakistan. Similar

study may be carried out to compare the practices of conventional and Islamic Leasing

companies and Insurance companies etc. The model should be tested in other services

sectors to check the generalizability of the findings.

Finally, this study only considered the full fledged Islamic banks to compare with the

conventional banks. The researcher does not include the Islamic bank branches (Stand

alone Islamic banking branches-SAIBBS) of conventional banks for sake of precision.

These branches may be taken for further research. Despite the limitations, the study

makes a meaningful contribution in the literature with reference to Pakistan.

6.4 Contribution of the Study

This study contributes towards the body of knowledge to address the issues as identified

in the knowledge gap. It contributes towards theoretical as well as practical fronts.

Several countries especially Muslim countries have initiated Islamic banking practices

along with conventional banking during last two decades that requires a study to compare

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the both banking systems. The findings of the study are strong because it covers a large

sample of 144 (72 IB and 72CB) bank branches to collect data from 1728 respondents to

investigate the service quality, customer satisfaction and bank performance of selected

Islamic and conventional banks in Pakistan. Similarly, sample was drawn from the 12

most populous cities of Pakistan from four provinces and capital territory to enhance

generalizeability of the findings.

6.5 Theoretical and Practical Implications

This study has theoretical and practical implications for bank managers, policy makers

and academicians. This study incorporated bank performance with service quality and

customer satisfaction. It helps to enhance the understanding towards the relationship

among service quality, customer satisfaction and bank performance regarding Islamic and

conventional banks in Pakistan. There is lack of customer orientation as well as lack of

awareness about customer rights. Bank managers should take quality initiatives to

improve their products by considering demographic characteristics of the customers to

retain them as satisfied customers for better performance.

The results showed that perception of customers of Islamic banks is greater than the

perception of customer using service of conventional banks. Bankers are required to

concentrate on different dimensions of service quality i.e. tangibility, reliability,

responsiveness, assurance and empathy to improve their products/services to have

satisfied customers. Similarly, banker dealing with Islamic banking should enhance the

awareness about products/services by launching an effective marketing campaign. They

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should also introduce new products and improve existing products/service by innovation

according to principles of Shariah. On the other hand, conventional bankers should offer

profit and loss based products/services to meet the expectation of bank customers in

Pakistan, a country with population of more than 96% Muslims. They should also

improve the services offered by their special branches offering Islamic banking

products/services. The study could help the bankers to understand the bank customers for

provision of better quality services to retain satisfied customer for better performance.

6.6

Unique Status of the Study

This study is unique in its nature due to a number of reasons. It focused on different

dimensions of service quality and customer satisfaction in Pakistani banking sector. It

incorporated bank performance with service quality and customer satisfaction. It

compared Islamic banks with conventional bank with reference to selected constructs and

variables. It addressed the customers and employees of selected banks for empirical

investigation. The study examined the service quality, customer satisfaction and bank

performance in Pakistani environment. It tested a local model of the SQL, CS and PRF

by considering different constructs/variables empirically.

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