Bank image in the UAE: Comparing Islamic and conventional banks Received (in revised form): 13th August 2009

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1 Original Article Bank image in the UAE: Comparing Islamic and conventional banks Received (in revised form): 13th August 2009 Hussein A. Hassan Al-Tamimi is an associate professor of Finance at University of Sharjah, where he teaches fi nancial management, corporate fi nance, investment analysis, fi nancial markets and institutions, banking operations and risk management. His current research focuses on capital budgeting, risk management, corporate governance, fi nancial performance and fi nancial markets. Adel Shehadah Lafi is a chief fi nancial offi cer at Al Habtoor Engineering Enterprises Company. His current research interest focuses on capital budgeting, service quality and Islamic fi nance. Md Hamid Uddin is an associate professor of Finance at University of Sharjah. His area of research includes corporate fi nance, asset pricing, portfolio investments, IPO price behavior and so on. He teaches investment and portfolio management, corporate fi nance, fi nancial markets and institutions, and international fi nance at both graduate and undergraduate levels. ABSTRACT This study investigates how bank customers in the UAE view Islamic banks versus conventional banks and whether this image affects customer loyalties or selection of a bank. We distributed a questionnaire to a convenient sample of UAE bank customers that focused on five areas: bank image, bank products, service quality, cultural aspects and religious factors, in addition to demographic attributes of the sample. The main findings of this study are: first, most UAE bank customers prefer banking with Islamic banks, although they are not satisfied with the quality of products and services; second, customers generally have a positive image of whatever bank they dealt with; third, the regression analysis results indicate that the most important factor in choosing a bank was bank products followed by service quality and then religious factors; fourth, there is a significant difference between how customers perceive UAE Islamic banks versus conventional banks; fifth, there is a significant difference in how customers perceive UAE Islamic banks based on their gender, education and duration of the relationship; and finally, there is a significant difference in how customers perceive UAE conventional banks based on their gender. Journal of Financial Services Marketing (2009) 14, doi: /fsm Keywords: bank image ; Islamic banks ; conventional banks ; bank products and services Correspondence: Hussein A. Hassan Al-Tamimi Department of Accounting, Finance and Economics, College of Business Administration, University of Sharjah, PO Box 27272, Sharjah, UAE hussein@sharjah.ac.ae INTRODUCTION This study explores how UAE customers view Islamic banks and conventional banks. We investigate whether this image affects customer preference about the type of bank they want to patronize. In the highly 2009 Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

2 Comparing Islamic and conventional banks competitive UAE market, banking institutions are intensely concerned with customers post-purchase behavior. They recognize that merely satisfying customers is not sufficient to retain their loyalty because even satisfied customers may switch to competitors. According to Ekrem et al, 1 in the past decade, firm image has been recognized as a strategic tool to strengthen a firm s competitive position and improve its profitability. But image alone may not be an adequate source of competitive advantage, as customers also want specific products and services. Thus, customers image of UAE banks and their services are related to customer preferences. According to the UAE Central Bank, the banking community in the UAE comprises 46 banks, including 21 national banks and 25 foreign banks. Of the 21 national banks, four are Islamic. Their total assets were AED million (about US $ million) in 2006, compared with AED million (about $ million) for the conventional banks, constituting around 13.6 per cent of total assets of all banks in the UAE. 2 In 2000, UAE Islamic banks had 96 branches compared to 582 branches for conventional banks, representing 16.5 per cent of the total number of branches of UAE commercial banks. 2 Even though there are some similarities between the products and services of conventional and Islamic banks, it is hard to determine why UAE customers prefer to deal with conventional rather than with Islamic banks. We assume that because the UAE is an Islamic country, demand for Islamic banking services should be high. Based on this assumption, Islamic banks have a good opportunity to expand their activities and attract more customers and subsequently open more branches. The small market share of Islamic banks today, as noted above, and the small number of branches implies that Islamic banks in the UAE are not widely accepted. This study investigates the reasons for this. LITERATURE REVIEW A number of empirical studies have discussed service quality, product, satisfactory relationships and their effect on bank image and loyalty. We review some of the most recent studies below but first we review the literature on the three core aspects of our study: conventional and Islamic banks, bank image and service quality Conventional and Islamic bank products Islamic and conventional banks are extremely different in products and in basic principles. The former is based on a Shariah foundation (Islamic principles) and all dealings, transactions, business approaches, product features, investment focus, and responsibility are derived from the Shariah law, leading to many operational differences compared to conventional banking. For example, when lending money, participation in partnership business is the main function of the Islamic banks. In contrast, lending money and getting it back with compound interest is the business goal of conventional banks. In Islamic banking, the creditor should not take advantage of the borrower and there should be no reward without taking a risk. Although Islamic banks do not charge a pre-determined interest rate as conventional banks do, they charge a certain amount upon the initial agreement between the bank and the borrower. Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank, and between the borrowers and the bank. Interest is considered the price or cost of borrowing, reflecting the opportunity cost of money. 3 A comparison between conventional and Islamic banks is provided in the Appendix. Bank image Boyle 4 defined image as the total impression an entity makes on the minds of people whereas Worcester 5 defined corporate image as the net result of the interaction of all 2009 Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

3 Al-Tamimi et al experiences, impressions, beliefs, feelings and knowledge people have about the company. Image can be classified into three types: corporate image, which reflects the way people view the whole corporation; product image or the way people view a particular product category; and brand image, which reflects the way people view a particular brand compared to other brands. 5 According to Ekrem et al, banks today have image and identity problems. They have failed to keep consumers satisfied and face ever-increasing competition in markets with little growth in demand. Ekrem et al 1 concluded that a favorable bank image is a critical aspect of a company s ability to maintain its market position and affects core aspects of organizational success such as customer patronage. A favorable bank image has a positive impact on performance and sustainable growth, including market share, over time. Service quality Gronroos 6 defines service quality as the fulfillment of customers expectations. Parasuraman et al 7 identified 10 determinants of service quality generic to the service industry, including tangibles, reliability, responsiveness, competence, courtesy, credibility, security, access, communication and understanding the customer. Later, Parasuraman et al 8 developed a 22-item instrument called SERVQUAL that has become widely used as a generic instrument for measuring service quality. SERVQUAL examines five dimensions consistently ranked by customers as the most important for service quality, regardless of service industry. They are: Reliability the ability to perform the promised service dependably and accurately. Tangibles appearance of physical facilities, equipment, personnel and communication materials. Responsiveness willingness to help customers and provide prompt service. Assurance knowledge and courtesy of employees and their ability to convey trust and confidence. Empathy the level of caring and individualized attention the firm provides its customers. SERVQUAL scores were defined as the gap between customers expectations of service quality and their perception of the service quality experience. Howcroft 9 defines service quality in banking as consistently anticipating and satisfying the needs and expectations of the customer. Lewis 10 says that in the banking industry, gap analysis has been accepted as a critical tool to measure current levels of service quality. The relationship between image and loyalty has remained a matter of debate among researchers. Liew, in Banking on a Sharper Image, states that the UK banking industry is concerned about its confusing image. This raises the question, How can banks establish programs to create a better image? Liew s study revealed that clearing banks are often seen as positive institutions: large and powerful but not customer oriented. Smaller banks are thought to provide more sensitive and friendly services. He also concluded that bank image has far more to do with the underlying policy of the institution than any advertising activity. 10 The relationships among image, advertising efficiency, customer satisfaction, customer expectation, perceived quality, perceived value, customer complaints and customer loyalty have been investigated by Ekrem et al. 1 They found that bank image and advertising efficiency influence customer loyalty and the antecedents of loyalty significantly. Bravo et al studied the impact of bank image on consumer behavior to identify the main corporate associations that individuals consider when selecting a bank or savings bank. They classified the sample into two groups, customers and non-customers of banking institutions. The corporate image of commercial banks, according to Bravo et al, Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

4 Comparing Islamic and conventional banks includes services offered, accessibility, corporate social responsibility, global impression, location and personnel. Their work justifies the importance of satisfaction since it explains to a great extent an individual s intention to continue using the services of a particular bank. Kassim and Souiden studied customer retention measurement in the UAE banking sector. There are major differences between our study and theirs. Our study compares UAE Islamic banks and conventional banks, investigates the image UAE customers have of Islamic banks and conventional banks and determines whether this image affects customer loyalties or preference for the type of bank they deal with. Kassim and Souiden s 12 study, in contrast, explores how image, perceived service quality and satisfaction determine retention in a retail bank setting. They found that image is both directly and indirectly related to retention through satisfaction, while perceived service quality is indirectly related to retention through satisfaction. Eakuru and Nik Mat 13 studied the antecedents of customer loyalty in banks in South Thailand. They viewed customer loyalty as crucial to long-term profitability and managing services. They found that perceived service quality relates positively to customer satisfaction, image relates positively to customer loyalty, image relates positively to commitment, and trust relates positively to commitment. Ehigie 14 explored customer loyalty to Nigerian banks by looking at how customer expectations, perceived service quality and satisfaction predict loyalty. He concluded that perception of service quality and satisfaction are significant determinants of customer loyalty, with customer satisfaction contributing more. Fyayan et al 15 studied the use of Internet banking services and its effect on bank image in order to develop a reliable and valid scale to measure the corporate image of a bank in the context of the Internet. According to their research, an Internet bank s image is a multidimensional construct composed of its reputation and security as perceived by the consumer, as well as of the services offered and accessibility. A study by Joseph and Stone 16 on the impact of technology on service delivery and customer perceptions among US customers found a bank s ability to provide quick, convenient, personalized, and user-friendly electronic services and the accuracy, security and convenience of accessing information via electronic technology have a significant impact on customer perceptions of service quality. Their study also reported that consumers have a positive perception of technologybased services, as they believe technology delivers services faster and more efficiently than employees. This may lead to a positive image followed by customer satisfaction and loyalty as described above. Sureshchandar et al 17 examined customer perceptions of service quality in the banking sector of a developing economy, India. They concluded that the three groups of banks in India (public, private sector and foreign) vary significantly in delivering the five service quality factors: core service, human elements of service delivery, non-human elements, tangibles of service and social responsibility. Their results also indicated that foreign banks perform best, followed by private sector banks and public sector banks. Zineldin 18 examined the relationship among product, service quality and customer management in the Swedish banking industry, finding that a bank must create customer relationships that deliver value beyond that provided by the core products. Banks can do this by adding tangible and intangible elements to the core products. The necessary condition for creating quality and value added according to this study is quality measurement and control. Zineldin concluded that the most important quality criteria used by customers in selecting a bank related to delivery system and service quality, reflecting the importance of reliability and responsiveness of the bank. An unsatisfied 2009 Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

5 Al-Tamimi et al customer is probably a potential customer for a competing bank and word-of-mouth from a disappointed and unsatisfied customer may harm the bank s image. Dusuki and Abdullah 19 studied why Muslim customers prefer to deal with Islamic banks, using a sample of 750 respondents from four different regions in Malaysia. They concluded that the selection of Islamic banks was a combination of Islamic and financial reputation and quality service offered by the bank. Other important factors in bank selection included good social responsibility practices, convenience and product price. Haron et al 20 surveyed 301 Islamic and conventional bank customers, also in Malaysia, and found that the most important factors in bank selection were fast and efficient services, speed of transactions, friendliness of bank personnel and confidentiality of the bank. They also reported that 40 per cent of the respondents said that religion was a prime reason for using Islamic banking services. Although there was a high level of awareness of Islamic products among customers, they did not understand the differences between Islamic and conventional banking services. Al-Tamimi and Al-Amiri 21 investigated service quality in UAE Islamic banks using a sample of 311 customers from two UAE Islamic banks. They found a positive and statistically significant relationship between overall service quality and the SERVQUAL dimensions. Empathy and tangibles were the most important dimensions and there was no significant difference between level of overall service quality between the Dubai Islamic Bank and Abu Dhabi Islamic Bank. Naser et al 22 assessed customer awareness and satisfaction towards Islamic banks in Jordan using a sample of 206 customers, finding a certain degree of satisfaction with many Islamic banks facilities and products. However, the respondents expressed dissatisfaction with some of the Islamic banks services. The findings also indicated that a majority of customers banked with Islamic banks because of religion. Metawa and Almossawi 23 focused their study on customers of Bahrain Islamic Bank and Faisal Islamic Bank of Bahrain, finding that customers considered their Islamic principles the most important factor in selecting a bank, followed by rewards extended by the banks, influence of family and friends, and convenient location. Metawa and Almossawi concluded that socio-demographic factors such as age, income and education were important criteria in bank selection, a finding that indicates religion as the most important reason for customers patronizing Islamic banks. In sum, researchers have devoted many studies to exploring the relationship among service quality, customer satisfaction, the use of technology and loyalty or bank image. But more research is needed, particularly in the area of Islamic banking and specifically in the context of the Arab World, including the UAE. Arab countries are generally Muslim and there is a high demand for Islamic banking products and services. RESEARCH METHODOLOGY Research questions and hypotheses The study intends to answer the following three questions: 1. Is the first preference of UAE customers is Islamic banks or conventional banks? 2. If the first preference of UAE customers is Islamic banks, is it based on the type and quality of products or the type and quality of services or on religious and cultural factors? 3. If the first preference of UAE customers is conventional banks, is this preference based on type and quality of products or type and quality of services? Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

6 Comparing Islamic and conventional banks We also formulate the following three hypotheses: Hypothesis 1: There is a significantly positive relationship between the image of UAE banks and the quality of bank services, the level of satisfaction with bank products, and religious and cultural factors. Hypothesis 2: There is a significant difference between customers image of UAE Islamic banks and their image of conventional banks. Hypothesis 3: Customers image of UAE banks varies depending on their age, gender, education and length of relationship with the bank. As far as the researchers know there is no existing instrument that fits the purpose of this study. We therefore developed a modified questionnaire based mostly on the instrument developed and tested by Parasuraman et al, Meiss Alison et al, Bloemer et al and Al-Tamimi and Al-Amimri. 8,21,24 25 We first distributed the questionnaire to seven experts (three academics and four practitioners) to examine the scales, as suggested by Devellis. 26 Accordingly, the authors revised the first draft by eliminating, adding or rewording some of the questions. There were English and Arabic versions of the questionnaire, depending on the respondents preference. The questionnaire has five parts. The first part consists of demographic attributes: age, gender, employment status, education and number of years as a bank customer. The second part concerns bank image and includes 28 questions. The third part consists of 14 questions about bank products. The fourth part has 35 questions about service quality using a 7-point Likert scale to compare perception of quality with expectations. There are six items on the tangibles, seven items on reliability, seven on assurance, five items on responsiveness and nine items on empathy. Part four also includes one question measuring overall service quality. The last part includes a general question about whether respondents prefer conventional or Islamic banks, and the reasons for their choice. Sampling and data collection This research uses a convenient sample of UAE bank customers because it was impossible to distribute questionnaires to all customers. It was not possible to get confidential information about customer characteristics from banks in order to classify them into different groups for research purposes. The questionnaires were distributed in two ways: some were handed to branch managers who were requested to pass them along to their customers. The authors handdelivered other questionnaires. Customers could select questionnaires in English or Arabic. From the 800 questionnaires distributed, we received 620 responses, of which 362 were excluded because of incomplete data. The remaining 257 usable questionnaires represent a response rate of per cent, considered acceptable. The questionnaires were distributed to customers of the four Islamic banks and the major conventional banks in the three largest cities of the UAE: Abu Dhabi, Dubai and Sharjah. More than 80 per cent of the UAE population lives in these three cities. There were 178 respondents (69.3 per cent) from Islamic banks and 79 (30.75 per cent) from conventional banks DATA ANALYSIS AND DISCUSSION The data analysis has three parts: the profile of the respondents, reliability of the measures and testing the hypotheses. Profile of study respondents The study s respondents were asked to provide demographic data on age, gender, income, education and duration of 2009 Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

7 Al-Tamimi et al banking relationship. Table 1 shows that about 10.1 per cent of the respondents were year-old, 44.4 per cent were year-old, 28.8 per cent were year-old, 12.1 per cent were year-old, 4.7 per cent were year-old and the remaining 0.5 per cent were 66-year-old or more. Males comprised 85.6 per cent and females 14.4 per cent. With respect to education, 6.2 per cent had less than a high school diploma and 6.6 per cent were high school graduates. Of the college graduates, about 18.7 per cent were diploma or higher diploma holders, 45.9 per cent had a bachelor s degree and the remaining 22.6 per cent had postgraduate degrees. Table 1 also displays duration of banking relationship and shows that 46.3 per cent of the respondents have had a relationship with UAE banks for four or more years, while 53.3 per cent have dealt with these banks for fewer than 4 years. Table 1 : Respondents characteristics Variable Frequency % Age (year) and more Gender Female Male Education Below high school High school or equivalent Diploma / higher diploma Bachelor or equivalent Graduate degree Duration (year) Less than to less than to less than and more Reliability Reliability of the measures was assessed using Cronbach s α to measure the reliability of the different categories that influence bank image. It estimates how much variation in scores of different variables is attributable to chance or random errors. 27 A coefficient greater than or equal to 0.7 is considered acceptable and a good indication of construct reliability. 28 Cronbach s α for the categories ranges from to 0.927, showing that these measures are reliable (see Table 2 ). Descriptive statistics Table 3 gives descriptive statistics for bank image by categories that influence image, namely the five dimensions of service quality: tangibles, reliability, responsiveness, assurance and empathy. The statistics include overall service quality, religious factors and cultural factors. Mean values in Table 3 show a mean for bank image of 4.9, which generally indicates that UAE bank customers have a positive image of their bank. The range of mean values of service quality dimensions and overall service quality is , indicating that UAE bank customers are satisfied with overall service quality. Table 3 shows that the tangible dimension has the highest mean. The mean values of service quality dimensions and overall service quality indicate that UAE bank customers are satisfied with overall service quality consistent with the findings of Naser and Jamal. 23 The mean value of religious factors and cultural factors is 4.55 and 4.7, respectively, indicating that these two categories are important to customers and we should consider the effect of these two categories on bank image. The importance of the religious factors is in line with the findings of Naser et al, Haron et al, and Metawa and Almossawi. 22,20, Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

8 Comparing Islamic and conventional banks Table 2 : Reliability of the categories that infl uence bank image Category Items Part II of the questionnaire No. of items α Bank products Items Service quality: Tangible dimension Items and Item Service quality: Reliability dimension Items Service quality: Responsiveness dimension Items Service quality: Assurance dimension Items Service quality: Empathy dimension Items and Items Religious factors Items Cultural factors Items Table 3 : Descriptive statistics Category N Minimum Maximum Mean SD Bank image Bank products Service quality: Tangible dimension Service quality: Reliability dimension Service quality: Responsiveness dimension Service quality: Assurance dimension Service quality: Empathy dimension Overall service quality Religious factors Cultural factors Bank preferences of UAE customers Table 4 summarizes responses on bank preferences. About 70 per cent of respondents prefer banking with Islamic banks whereas 30 per cent prefer conventional banks. Of those who prefer Islamic banks, about 26 per cent cite the quality of products and services whereas 58 per cent cite the quality of products provided by Islamic banks. Only 16 per cent of respondents attributed their first preference to the quality of services provided by Islamic banks. Islamic banks clearly need to improve the services provided. About 51 per cent of respondents indicate that their primary reason to bank with conventional banks is the quality of products and services, whereas 28 per cent cite the services provided and about 21 per cent quality of products. The results indicate that UAE bank customers are more enthusiastic about their banks than conventional bank customers are about their banks. We believe this implies that Islamic banks have more potential for development and expansion, but they need to develop their services. Testing the study s hypotheses To assess the predictive ability of different factors such as bank product (PROD), measures of service quality (SERVQ), religious factors (RELG) and cultural factors (CULT), a linear regression analysis was performed with bank image (IMG) as the dependent variable. The regression model is as follows: IMG = f (PROD,SERVQ, RELG, CULT where PROD bank products; SERVQ service quality measured by the five dimensions: tangible(tan), reliability(rel), responsiveness(res), assurance(ass) and empathy(emp); RELG religious factors; and CULT cultural factors. We conducted a multicollinearity test to assess the degree of correlation among the independent variables, shown in Table 5. The rule of thumb test, as proposed by Anderson et al, 29 suggests that any correlation coefficient exceeding (0.7) indicates a potential problem. Because, as the table shows, there was a multicollinearity problem, we dropped five independent variables from 2009 Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

9 Al-Tamimi et al Table 4 : Bank preferences of UAE customers Type of bank Quality of products Quality of services Quality of products and services No. % No. % No. % No. % Islamic banks Conventional banks Table 5 : The correlation coeffi cients between independent variables PROD TAN REL RES ASS EMP RELG CULT PROD TAN 0.682** REL 0.615** 0.771** RES 0.584** 0.696** 0.844** ASS 0.584** 0.734** 0.804** 0.804** EMP 0.633* 0.727** 0.819** 0.773** 0.821** RELG 0.448** 0.389** 0.374** 0.342** 0.330** 0.511** CULT 0.449** 0.398** 0.375** 0.319** 0.328** 0.499** 0.932** **correlation is significant at 0.05 level. the regression model, namely TAN, RES, ASS, EMP and CULT. The remaining three variables were bank product (PROD), reliability (REL) as a measure of service quality, and religious factors (RELG). These factors represent a good combination of the factors that influence bank image. Table 6 shows that the result of the regression model R 2 is This indicates that the three independent variables explain 85 per cent of the variations of bank image. The R 2 is significant at the 0.01 level. The estimated coefficients of two independent variables were, as expected, positive and statistically significant at the 1 per cent level. However, the value of coefficients and t statistics indicate that bank products are the most influencing factor, followed by service quality measured by reliability and then religious factors. The three variables have a positive effect on customer image of UAE banks, which confirms Hypothesis 1. This is consistent with the findings of Zineldin and Ekrem et al. 18,1 The cultural factors were dropped because of the multicollinearity problem. Regarding the first preference of customers of the two types of banks, we ran the same regression model for each type. Table 6 reveals almost the same results for the two types, which confirms Hypothesis 1. However, the coefficient of the religious factor (RELG) is, as expected, positive and statistically significant for Islamic banks but statistically insignificant for conventional banks. Differences of bank image based on demographic variables To test the remaining two hypotheses, we ran a one-way ANOVA whose results will be ordered according to the research hypotheses. Table 7 reveals that there is no significant difference between customers image of UAE Islamic banks and their image of conventional banks. These results were not expected because we assumed that each of these two types of banks has its own strategies and policies on bank products and service quality. Therefore, the bank image should be different or otherwise Islamic bank products and services are the same as those of conventional banks. This is not the actual case as, for example, Islamic financial instruments such as bonds (Sukuk), Murabaha Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

10 Comparing Islamic and conventional banks Table 6 : Summary of regression results Independent variable Beta t Signifi cance (a) UAE banks ( Constant) PROD REL RELG R 2 : Adjusted R 2 : Standard error of the estimate: (b) UAE Islamic banks (Constant) PROD REL RELG R 2 : Adjusted R 2 : Standard error of the estimate: (c) UAE conventional banks (Constant) PROD REL RELG R 2 : Adjusted R 2 : Standard error of the estimate: Table 7 : The results of analysis of variance for Islamic banks and conventional banks Source Sum of squares DF Mean square F-value Signifi cance Bank image 94 Between groups Within groups Total and profit-sharing are not the same as conventional financial instruments. Table 8 shows the results of one-way ANOVA analysis for the UAE Islamic banks customer image and demographic variables to test Hypothesis 3. There is a significant difference in customers image of UAE Islamic banks based on gender, education and duration of relationship, statistically significant at 1 per cent, 5 per cent and 10 per cent, respectively. These results partially confirm Hypothesis 3. However, the results indicate that there is, unexpectedly, no significant difference in customers image of UAE Islamic banks based on age. Table 9 reveals the results of one-way ANOVA analysis for the UAE conventional banks customer image and demographic variables. There is a significant difference in customers image of UAE conventional banks based on gender at a 1 per cent level, confirming Hypothesis 3 for conventional banks. But because the sample has such a small percentage of females (14.4 per cent), we need to interpret the results cautiously. Unexpectedly, we find that there is a significant difference in customers image of UAE conventional banks based on age, education and duration. Hypothesis 3 was not confirmed Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

11 Al-Tamimi et al Table 8 : One-way ANOVA test: The UAE Islamic banks customer image and demographic variables Between groups Sum of squares DF Mean square F-value Signifi cance Age Gender Education Duration Table 9 : One-way ANOVA test: The UAE conventional banks customer image and demographic variables Between groups Sum of squares DF Mean square F-value Signifi cance Age Gender Education Duration CONCLUSIONS AND RECOMMENDATIONS This research investigates the image held by UAE customers of Islamic banks and conventional banks to learn whether this image affects their preference for the type of bank they do business with. We used a modified questionnaire in English and Arabic which was distributed to a convenient sample of UAE bank customers of four Islamic banks and the major conventional banks in Abu Dhabi, Dubai and Sharjah. Of the 257 respondents, 178 or 69.3 per cent were from Islamic banks and 79 or 30.7 per cent from conventional banks. Our main findings are: first, most UAE bank customers prefer Islamic banks; second, UAE bank customers generally have a positive image of the bank they dealt with; third, UAE bank customers are satisfied with overall service quality; fourth, the most influencing factor on bank image was bank products, followed by service quality and religious factors, consistent with the findings of Zineldin and Ekrem et al 1,18 ; fifth, there is no significant difference between customers image of UAE Islamic banks and conventional banks; sixth, as expected, there is a significant difference in the image of UAE Islamic bank customers based on gender, education and duration of relationship; and finally, there is a significant difference in the image of UAE conventional bank customers based on age, education and duration. Based on these conclusions, we recommend that Islamic banks devote greater efforts to improve their image. Both conventional and Islamic banks need to emphasize service quality more, especially reliability. They need to respond better to inquiries, have adequate cash in cash machines, staff available to help, speedy, efficient transactions and easily accessible branches. Islamic banks need to concentrate more on service quality, as only 16 per cent of Islamic bank customers prefer banking with them because of the quality of services provided. RESEARCH LIMITATIONS This study deals with the effect of service quality and bank products on bank image. To the best of our knowledge, no other study includes these three aspects. This represents a limitation, as it is difficult to compare our results or even to use the results of previous studies as a benchmark. The second limitation of this study is that the research would have been more valuable if the sample were divided into Muslims and non-muslims. This might tell us something about the effect of religion on customer banking behavior. The third limitation concerns the high degree of incomplete responses more than 50 per cent which led us to eliminate more than half of the returns Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

12 Comparing Islamic and conventional banks REFERENCES 1 Ekrem, C., Hasan, A. and B ü nyamin, E. ( 2007 ) Effects of image and advertising efficiency on customer loyalty and antecedents of loyalty: Turkish banks sample. Banks and Bank Systems 2 (1). 2 Emirates Bank Association. ( 2006 ) Financial Position of Commercial Banks in the UAE. Abu Dhabi: Emirates Bank Association Boyle, E. ( 1996 ) An experiment in changing corporate image in the financial services industry in the UK. The Journal of Services Marketing 10 (4) : Worcester, R. M. ( 1997 ) Managing the image of your bank: The glue that binds. International Journal of Bank Marketing 15 : Gronroos, C. ( 1983 ) Strategic Management and Marketing in the Service Sector. Cambridge, MA: Marketing Science Institute. 7 Parasuraman, A., Zeithmal, V. and Berry, l. ( 1988 ) SERVQUAL: A multiple-item scale for measuring consumer perceptions of service quality. Journal of Retailing 64 (1) : Parasuraman, A., Zeithaml, V. A. and Berry, L. L. ( 1991 ) Refinement and reassessment of the SERVQUAL scale. Journal of Retailing 67 (4) : Howcroft, J. B. ( 1991 ) Customer satisfaction in retail banking. Service Industry Journal 11 (January) : Lewis, B. R. ( 1991 ) Service quality: An international comparison of bank customers expectations and perceptions. Journal of Marketing Management 7 : Bravo, R., Montaner, T. and Pina, M. ( 2009 ) The role of bank image for customers versus non-customers. International Journal of Bank Marketing 27 (4) : Kassim, N. and Souiden, N. ( 2007 ) Customer retention measurement in the UAE banking sector. Journal of Financial Services Marketing 11 (3) : Eakuru, N. and Nik Mat, N. ( 2008 ) The application of structural equation modeling (SEM) in determining the antecedents of customer loyalty in banks in South Thailand. The Business Review, Cambridge 10 (2) : Ehigie, B. O. ( 2006 ) Correlates of customer loyalty to their bank: A case study in Nigeria. International Journal of Bank Marketing 24 (7) : Flayian, C., Torres, E. and Guinaliu, M. ( 2004 ) Corporate image measurement: A further problem for the tangibilization of Internet banking services. International Journal of Bank Marketing 22 (4/5) : Joseph, M. and Stone, G. ( 2003 ) An empirical evaluation of US bank customer perceptions of the impact of technology on service delivery in the banking sector. International Journal of Retail and Distribution Management 31 (4) : Sureshchandar, G. S., Rajendran, C. and Anantharaman, R. N. ( 2003 ) Customer perceptions of service quality in the banking sector of a developing economy: A critical analysis. International Journal of Bank Marketing 21 (5) : Zineldin, M. ( 2005 ) Quality and customer relationship management as competitive strategy in the Swedish banking industry. The TQM Magazine 17 (4) : Dusuky, A. W. and Abdullah, N. I. ( 2007 ) Why do Malaysian banks patronise Islamic banks? International Journal of Bank Marketing 25 (3) : Haron, S., Ahmed, N. and Planisek, S. ( 1994 ) Bank patronage factors of Muslim and non-muslim customers. International Journal of Bank Marketing 12 (1) : Al-Tamimi, H. A. H. and Al-Amiri, A. ( 2003 ) Analysing service quality in the UAE Islamic banks. Journal of Financial Services Marketing 8 (2) : Naser, K., Jamal, A. and Al Khatib, K. ( 1999 ) Islamic banking: A study of customer satisfaction and preferences in Jordan. International Journal of Banking Marketing 17 (3) : Metawa, S. and Almossavi, M. ( 1998 ) Banking behaviour of Islamic bank customers: Perspectives and implications. International Journal of Bank Marketing 16 (7) : Meiis, A. W. O., Dean, A. M. and White, C. J. ( 1999 ) Analysing service quality in the hospitality industry. Managing Service Quality 64 (Spring) : Bloemer, J., Ruyter, K. D. and Peeters, P. ( 1998 ) Investigating drivers of bank loyalty: He complex relationship between image, service quality and satisfaction. International Journal of Bank Marketing 16 (7) : Devellis, R. F. ( 1991 ) Scale development: Theory and application. Applied Social Research Methods Service, Vol. 26 Newbury Park, CA: Sage Publications. 27 Selltiz, C. W. and Cook, W. ( 1976 ) Research Methods in Social Relations. New York: Holt Rinhart and Winston. 28 Nunnally, C. J. ( 1978 ) Psychometric Theory. New York: McGraw-Hill. 29 Anderson, R. A., Sweeney, D. J. and Williams, T. A. ( 1990 ) Statistics for Business and Economics. USA: South Western Publishing Company Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

13 Al-Tamimi et al APPENDIX See Table A1. Table A1 : Comparison of conventional and Islamic banks Conventional banks Islamic banks 1. The functions and operating modes of conventional banks are based on fully manmade principles. 2. The investor is assured of a predetermined rate of interest. 1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah. 2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur). 3. It aims at maximizing profi t without any restriction. 3. It also aims at maximizing profi t but subject to Shariah restrictions. 4. It does not deal with Zakat. 4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to be a Zakat Collection Centre and they also pay out their Zakat. 5. Lending money and getting it back with compounding interest is the fundamental function of the conventional banks. 6. It can charge additional money (penalty and compounded interest) in case of defaulters. 7. Very often it results in the bank s own interest becoming prominent. It makes no effort to ensure growth with equity. 8. For interest-based commercial banks, borrowing from the money market is relatively easier. 9. As income from the advances is fi xed, it gives little importance to developing expertise in project appraisal and evaluations. 10. The conventional banks give greater emphasis on credit-worthiness of the clients. 11. The status of a conventional bank, in relation to its clients, is that of creditor and debtors. 5. Participation in partnership business is the fundamental function of the Islamic banks. So we have to understand our customer s business very well. 6. The Islamic banks have no provision to charge any extra money from the defaulters. Only small amount of compensation and these proceeds are given to charity. Rebates are given for early settlement at the bank s discretion. 7. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. 8. For the Islamic banks, it must be based on a Shariah approved underlying transaction. 9. As it shares profi t and loss, the Islamic bank pays greater attention to developing project appraisal and evaluations. 10. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects. 11. The status of Islamic bank in relation to its clients is that of partners, investors and trader, buyer and seller. 12. A conventional bank has to guarantee all its deposits. 12. Islamic bank can only guarantee deposits for deposit account, which is based on the principle of al-wadiah, thus the depositors are guaranteed repayment of their funds, however if the account is based on the Mudarabah concept, the client has to share in a loss position Palgrave Macmillan Journal of Financial Services Marketing Vol. 14, 3,

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