bachelor thesis proposal

5/23/2018 Bachelor Thesis Proposal

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CHAPTER 1

INTRODUCTION

1.1. BackgroundGlobally, the Islamic financial service industry has achieved a remarkable growth with an

estimated growth rate of 10-15% during 1995-1005 (Khan et al, 2008). There were

approximately 180 Islamic Banks and Financial Institutions operating in Asia, Africa, Europe

and USA with more than 8,000 branches with an estimated value of $ 170 billion in 1999

(Kamal, Ahmad and Khalid, 1999). As the people consciousness of Islam is rising, the demand

of Islamic banking will potentially keep growing in the future. According to Islamic Financial

Service Board (IFSB), the total asset of Islamic financial service industry in 2005 were worth

US$ 700 billion in 2005 at an annual growth rate of 15% which increased up to US$ 1.4 trillion

in 2010 and will increase up to US$ 2.8 trillion by 2015.

The first Islamic bank established in Indonesia is PT. Bank Muamalat Indonesia (BMI)

on 1stNovember 1991. In Indonesia, the development of the Islamic banks is quite impressive in

the last decade. The number The Islamic banks in Indonesia are developing as much as 3 % in

2010. With more than 80% of the population consists of Muslims, Indonesia is significantly

potential for Islamic banking products. Particularly in Yogyakarta, the market segment for

Islamic banks has reached 5,8%. According to the data acquired from Bank Indonesia in

Yogyakarta, there were around 87 banks with 416 offices in 2007. As March 2011, the asset

value of Islamic banks in Yogyakarta increased significantly for 14.45% or reached IDR 1.68

trillion from the total asset of banking industry in Yogyakarta, which was accounted for IDR 28

trillion (Bank Indonesia Yogyakarta). This number shows that the prospect for Islamic banks in


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Yogyakarta is very significant. It even started to emphasize more of its efforts to develop small

and middle business.

Although the financial service is performed according to Islamic syariah, Islamic

banking are actually very popular even among the non-Muslims in different parts of the world

(Knight, 2007). This industry is now facing a tighter competition since there is an increasingly

large number of international conventional banks entering the Islamic banking industry market

by opening new windows and applying Islamic banking system (Hassan and Ahmed, 2001).

The growing existence of both the conventional banks and the Islamic commercial banks

has given certain pressure and challenge for the Islamic banks. Customers are also more likely to

see Islamic banking products/services as commodities rather than unique products/services

(Rivai et.al. 2007). As the consequences, when competition intensifies and when the

products/services offered are more or less similar, it is important to strengthen marketing strategy

and assess the degree of customer satisfaction towards Islamic bank, especially the one operating

in Islamic countries, since customer satisfaction could influence the performance of an Islamic

bank (Haque, Osman and Ismail, 2009). It is important for banks to have a system by which

consumer satisfaction is continuously measured (Chakravarty et al., 1996). In addition, Islamic

banks need to study customer perceptions to help them market their products effectively (Haron,

Ahmad and Planisek, 1994: Dusuki and Abdullah, 2006; Thambiah, Nathan and Eze, 2008).

Periodic customer surveys to investigate customer awareness and the usage of Islamic banking

products/services also will have an imperative effect on deciding Islamic banks advertising and

promotional strategies along with the media selection. Islamic banks should transform to be a

customer-oriented institutions, by emphasizing on customer needs.


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Based on the explanation above, it is important to study the changing behavior, attitude,

and perceptions of their customers especially in the retail sector of the banking business. There

are a lot of questions can be raised related to these issues. This study is designed to identify the

Islamic bank customer profile and banking behavior, including research to find out their

awareness, level of usage, degree of satisfaction with the products and services being used, and

their preferences in choosing Islamic bank.

1.2. Problem StatementsFrom the background that has been explained, this research is conducted to answer the

research questions below.

Is the customers aware towards various Islamic bank products and services offered indifferent Islamic banks?

Is there any relationship between socio-demographic factors and the customer usage ofIslamic bank products and services?

What is the customers satisfaction level towards the Islamic products and services theyare using?

What factors are influencing the customers Islamic bank selection criteria? Is there any relationship between socio-demographic factors and the consumer

preferences on Islamic bank selection?

Is there any differences of Islamic bank consumer preferences among the Islamic banksin Yogyakarta?

1.3. Research PurposesThe purposes of conducting this research are:


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To analyze whether the customers are aware towards various Islamic bank products andservices offered in different Islamic banks.

To analyze the relationship between socio-demographic factors and the customer usageof Islamic bank products and services.

To analyze the customers satisfaction level towards the Islamic products and servicesthey are using.

To analyze the factors that are influencing the customers Islamic bank selection criteria. To analyze the relationship between socio-demographic factors and the customers

Islamic bank selection criteria.

To analyze the differences of Islamic bank consumer preferences among the Islamicbanks in Yogyakarta.

1.4. Research MotivationThese are what motivate researcher to conduct this research.

1. The growth and development in Islamic banking industry which leads to an increase inmarket competitiveness, especially in Indonesia, which makes this issue still interesting

to be investigated in order to understand the Islamic banking market better.

2. Factors that influence the Islamic banking behavior should be continued to be studied inorder to provide guidance and basic concern for marketers to take the right business

decisions as different time might cause different trends in consumer behavior.

1.5. Research ContributionThis research is expected to give some contributions to several parties as follow.

1. Islamic bank management


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To provide an up-to-date overview regarding the Islamic bank consumer profile and

behavior, related to their awareness, attitudes, satisfaction, and preferences, and the

relationship between the behavior and socio-demographic factors, so that it can be used

as inputs for Islamic bank managers to understand the consumers better to make the right

marketing decision in the competitive market.

2. Research and academic worldTo yield a research which could be utilized as a literature for enhancing the interest and

development of marketing, concerning consumer behavior covering its awareness,

attitudes, and preferences towards Islamic banks in particular, and to push ahead better

research on it.

3. ResearcherAs a means to deepen the understanding and comprehension concerning consumer

behavior towards Islamic banks, particularly related to consumer awareness, attitudes and

preferences in choosing Islamic banks.

1.6. Writing SystemCHAPTER 1 INTRODUCTION

This chapter provides descriptions about the background of this research, problem

statements, research motivation, research contribution, research purposes, and writing

system of this overall thesis.

CHAPTER 2 THEORITICAL FRAMEWORK AND HYPOTHESES DEVELOPMENT

This chapter contains of relevant theoretical overview which is used by the researcher to

sustain this research. It comprises the literature review of consumer behavior,


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preferences, attitudes, awareness, and satisfaction related to Islamic banking industry,

highlights from previous researches, and hypotheses formulation.

CHAPTER 3 RESEARCH METHODOLOGY

This chapter explains about the methodology of this research. It consists of population

and sample, type and source of data, data collection method, and data analysis method.

CHAPTER 4 DATA ANALYSIS

Data that has been collected through the chosen sampling method and processed using

the statistical software are interpreted in this chapter.

CHAPTER 5 CONCLUSION AND RECOMMENDATION

This chapter provides conclussion regarding the results of this research by answering the

questions in the problem statements, research implications, research limitations, and

some useful recommendations for the next researchers to build a better research.


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CHAPTER 2

THEORETICAL FRAMEWORK AND HYPOTHESIS DEVELOPMENT

2.1. Theoretical FrameworkGenerally, Islamic bank can be defined as a non-interest based financial institution which

complies fully with Islamic laws and has creative and progressive financial engineering to offer

efficient and competitive banking, investment, trade finance, commercial, and real estate

financing services (Abdul Qawi and Lynn, 2001). Islamic banking prohibits riba or interest. It

pays the investor profit-sharing dividends and offer borrowers fixed repayment rates.

Conventional interest rates are deemed not halal or legitimate by Islamic laws (Kamus Perwira,

1998:451). According to Metawa and Almossawi (1998), most of Islamic banking customers are

aware of the different philosophies Islamic banking system has compared to the conventional

system. Muslims in South Africa are aware of Islamic banks in general. However, the usage rate

is low because Muslim customers regard efficiency, lower bank charges, the availability of

automatic teller machines and an extensive branch network as important factors for choosing

bank service, rather than religious motivations (Saini, Bick, and Abdulla, 2010).

To face the competition, the execution of marketing strategies becomes important, as well

as customer satisfaction as a chief element in it. The term after marketing has been widely

used to mean focusing attention and efforts on current customers in order to maximize their

satisfaction so to secure their retention (Vavra, 1995). Royal Bank of Scotland uses customer

satisfaction to help plot the course toward its vision for the future. The bank is concerned about

profitable customer behavior in terms of the 3Rs: remaining with the bank, referring the bank to

friends, and repurchasing from the bank(IJRDM, 1995).


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Customer satisfaction is the feeling or attitude of a consumer toward a product/service

after it has been used (Solomon, 1996; Wells and Prensky, 1996). A satisfied consumer will

repeat the purchase of the product and convey positive messages about it to others (Dispensa,

1997). On the contrary, dissatisfied customer is more likely to switch to an alternative

products/service, even give negative word of mouth that may damage the company's image. This

has led to the increasing popularity of measuring customer satisfaction in recent years (Gulledge,

1996). It was reported that in order to satisfy customers, banks use different kinds of tools,

ranging from re engineering all services to focusing on some specific services (Motley, 1994). It

is essential for a present-day bank to switch from managing means to managing customers in

order to satisfy them with the whole services they offer. Therefore, it is important for banks to

have a system by which consumer satisfaction is continuously measured (Chakravarty et al.,

1996; Chitwood, 1996; Morrall, 1996; Noe, 1996; Romano and Sanfillipo, 1996). In addition,

Metawa and Almossawi (1998) also found that customers' attitudes, perceptions and degree of

satisfaction with the current products/services offered by Islamic banks are likely to be

influenced by their previous banking experience (Metawa and Almossawi, 1998).

Every individual has different in purchasing and consuming products/services started

from information seeking process. According to Kotler (1994), consumer behavior influenced by

external factors, such as cultural and social factors, and internal factors, such as personality and

psychological factors. Consumer behavior comprises the activities undertaken when obtaining,

consuming and disposing of products and services (Blackwell, Miniard and Engel, 2006).

The Islamic banking market in Indonesia consists of three different segments: Shariah

Loyalist, Floating Market, and Conventional Loyalist. Those have similar behavior in choosing


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the bank, which determined by product functionality, product form, and life style, with the

difference only in priority.

Bank selection criteria always become an interesting topic for researchers to be studied.

From the studies, several attributes were found to play essential roles in the process of bank

selection. Those attributes are, for example availability of credit, relatives/friends advice and

recommendation, convenient location, variety of bank services, the quality of services,

availability of ATM, adequate bank hours, return on investment, friendliness of personnel,

understanding financial needs, special services for women, and bank name. The relative

importance of each of those attributes differs from one market to another depending on: the type

of institution (Islamic bank or commercial bank), the customers level of education, age, income

and occupation (Haron et al., 1994; Hegazy, 1995; Kaynak and Yavas, 1985; Laroche et al.,

1986).

Using consumer decision making process as a framework, Karim and Affif (2005)

investigated Islamic banking consumer behavior in Indonesia and found two important factors in

the selection of a bank: product functionality and service quality. In his findings, Hegazy (1995)

showed the most important factor for Islamic bank selection criteria, which was the advice and

recommendations made by relatives and friends. Convenience of location, friendliness of

personnel, the banks vision of serving the community regardless of the expected profitability,

timeliness, and efficiency were also found to play important roles in the selection of Islamic

banks (Hegazy, 2005).

There are three most important factor in the selection of Islamic banks: adherence to

Islamic principle, rate of return, reference-oriented factor (Metawa and Almossawi, 1998;

Hegazy, 1995; Laroche et al., 1986). Based on the research done by Islamic Banking Directorate


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and Bogor Agricultural University (2004) in South Kalimantan, the reasons of choosing Islamic

bank will be because of the Islamic regulations, accessibility, professionalism in service,

credibility, and facility. Meanwhile, the type of product of Islamic bank people usually use is

mudharabah saving account. The research which was done by Erol and El-Bdour (1989) and

Erol, Kaynak and El-Bdour (1990) was able to identify that religious motivation was not a

primary criterion in selecting Islamic bank, but there are three non religious related key selection

criteria: fast and efficient services, reputation and confidentiality.

The study of Khoirunissa (2003) proved that economic factors, such as receiving

economic benefits, quick services, online facilities, easy reachable locations, and healthy

financial systems, as well as religious factors and external factors are influencing consumers

decision in choosing Islamic banks. Gerrard and Cunningham (1997) found that the reason for

choosing Islamic banks will be influenced by its expeditious service, secrecy, reputation, image,

light costs of checking, as well as the parking facility. The other study has been conducted by

Bank Indonesia and Universitas Diponegoro to analyze the potency, preference, and behavior of

society to Islamic banking in Central Java and Yogyakarta, found that the society preferences

toward Islamic banks are influenced by its relative profit, compatibility, comprehensiveness, and

observability.

Khoirunissa (2003) stated in her research that there are differences in religious preference

and external party influence between one bank to another, which in her study she investigated the

consumer preferences of Bank Muamalat Indonesia and Bank BNI Syariah.

In banking industry, which belongs to service industry, the determination of quality

depends on what customers are experiencing during delivery process. Service is intangible

product where it is experienced while it is being produced, which is different compared to


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tangible products. Quality perceptions and the relationship between service satisfaction and

quality are important (Taylor et al., 1994). Some reserachers in their study found evidence to

suggest that service quality leads to customer satisfaction which will help keeping existing

customers and attracting new ones (Keiser, 1993). However, some banks go even beyond service

quality and come up to suggest service excellence (Mahoney, 1994).

Unfortunately, it is not easy to convert the service excellence into a high performance

customer satisfaction (Subkhan, 2012). MarkPlus Insight (2012) has developed more

comprehensive measurement method from service excellence to be branded service with the help

of service blueprint which finally became 'care with character' concept by applying value-based

principles. The measurement it has developed from the findings consists of several attributes:

credibility, dependability, courtesy, comfortability, and connectivity, which is influenced

indirectly by the character of employees consisting of trustworthiness, responsibility, respect,

fairness, and corporate citizenship.

Dusuki and Abdullah (2006) explained that Islamic bankers can no longer depend on

promoting the Islamic factor but also service quality. They also found Their survey the three

most important factors, which were competence, friendliness and customer service quality.

Gerrard and Cunninghams (1997) study stressed the significance of customer awareness,

product knowledge and informative advertising campaigns. The need to create awareness,

enhance product knowledge and improve promotional campaigns is supported by Haron et al.

(1994), Bley and Kuehn (2004), Dusuki and Abdullah (2006) to combat growing competition

from both Islamic and conventional banking products.

The research conducted by Rivai et.al. (2007) explained that the respondents choice for

using Islamic banks saving and credit services is based on economic factors, compatibility with


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needs, and perception related to simplicity of requirements. From the analysis, it is shown that

the demographic factors are significantly correlated with the type of banks chosen. The findings

showed five dimension determining consumer behavior in selecting Islamic bank: attitudes,

personal selling, family, costs and benefit, religion.

2.2. Hypothesis DevelopmentBased on the theoretical framework and previous researches, the hypothesis for this

research can be formulated as follows:

The customers' level of awareness towards various Islamic bank products andservices offered in different Islamic banks are not very high.

There is a relationship between socio-demographic factors and the customer usage ofIslamic bank products and services.

The customers satisfaction level towards the Islamic products and services they areusing are not very high.

There are several factors that are influencing the customers Islamic bank selectioncriteria, including religious factor, economic factor, service quality, and

recommendation.

There is a relationship between socio-demographic factors and the customers Islamicbank selection criteria.

There are differences of Islamic bank consumer preferences among the Islamic banksin Yogyakarta.


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CHAPTER 3

RESEARCH METHODOLOGY

3.1. Population and Sample3.1.1. PopulationThe population is the entire group of the study (Malhotra & Birks, 2007). The population

in this research is all Islamic banks customers in Yogyakarta.

3.1.2. SampleJudgment sampling which is a type of purposive sampling will be applied. Judgment

sampling involves the choice of subjects who are most advantageously placed or in the best

position to provide the information required (Sekaran, 2003). It is chosen for the reason that the

customers selected through it will be the ones which can provide the information that is sought.

The selection criteria is that the respondents are customers of Islamic banks in Yogyakarta,

particularly the customers of BTN Syariah, Bank Muamalat, CIMB Niaga Syariah, BNI Syariah,

BRI Syariah, and Bank Mandiri Syariah.

3.2. Data Collection

3.2.1. Type of Data

This research uses both primary and secondary data. The secondary data consists of

information related to banking condition globally and in Indonesia, and also demographic and

socio-economic condition in Yogyakarta, including population, bank numbers and distribution,

Islamic banking market condition, and etc. The primary data which is related to the banking

behavior of Islamic banks customers are gathered by distributing questionnaires to several

Islamic banks customers in Yogyakarta chosen as respondents.


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3.2.2. Source of Data

The secondary data are taken from related institutions, such as BPS (Badan Pusat

Statistik) Daerah Istimewa Yogyakarta, and other sources, such as newspapers, magazines,

journals, and related websites. The primary data are obtained through distributing questionnaires

directly to the respondents.

3.3. Data Collection Methodology

A focus group discussion to get more insights about the attributes of banking behavior

will be conducted prior to formulating the questionnaires. A pilot study of 10 questionnaires will

be conducted to check the validity and reliability of the questions included in the questionnaire.

The test will be conducted using SPSS program. The validity can be shown from the correlation

value, while reliability can be seen from the cronbach alpha value. From the feedback acquired,

several improvements are going to be made before distribution of the questionnaire. Around 120

questionnaires are going to be hand distributed to the account holders of six Islamic banks in

Yogyakarta as stated above. The process of data collection will be done from Mei until June

2012.

3.4. Data Analysis Methodology

To perform the statistical analyzing method, the researcher uses SPSS.

3.4.1. Descriptive Statistics

This descriptive statistics is performed to yield characteristics of the data through means,

frequency, and percentage of variables used in the research.

3.4.2. Profile Analysis

To classify a particular set of subjects according to a particular number of relevant

attributes, the profile analysis method will be used.


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3.4.3. Chi-Square Test

To examine the relationship between the socio-demographic factors and the usage of

Islamic usage of products/services and between the socio-demographic factors and the Islamic

bank selection criteria, the chi-square tests will be conducted.

3.4.4. Analysis of Variance (ANOVA)

ANOVA is used to test whether there is a significant difference between two or more

comparable means. In this research, it is applicable to see the differences of consumer

preferences among six Islamic banks in Yogyakarta.


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