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ijcrb.webs.com INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS How Customer Satisfaction affects Performance of Islamic Banks in Pakistan Dr. Ashfaq Ahmad Assistant Professor, Department of Business Administration, University of Sargodha Asad Afzal Humayoun PhD Scholar, (FUIEMS), Foundation University, Islamabad Muhammad Mussarat Nawaz Lecturer, Hailey College of Commerce, University of the Punjab, Lahore Dr. Muhammad Bashir Chairman, Board of Intermediate and Secondary Education, Multan Abstract Islamic banks entered in Pakistani banking industry at the inception of 21 st century and proved a successful experience due to remarkable progress. This study investigates the relationship between customer satisfaction and performance of Islamic banks in Pakistan. The researcher collected data from 864 respondents of 72 branches of selected Islamic banks. The data were collected by a structured questionnaire developed in the light of existing literature. The responses were analyzed through SPSS 15.0 Version to assess the influence of customer satisfaction on bank performance. The results indicate that there is a weak negative relationship between customer satisfaction and performance of Islamic banks. Bankers should introduce new, diversified and marketable products to meet the requirements of the different segments of the economy on the basis of gender, age, qualification etc. This study attempts to enhance the understanding regarding customer satisfaction and performance of Islamic banks in Pakistan. Key Words: Bank Performance, Customer Satisfaction, Islamic bank, Pakistan 1. Introduction Bank promotes savings and investment ventures within the economy. It intermediates between saver and borrower to accept surplus funds and lend money to deficient units. It is an important contributor towards the economic prosperity and well being of any society. In today‘s global and borderless market, banking sector is the central tenet of the sound economy. Pakistani banking sector faced a number of challenges since its independence due to prevailing socio-economic and political conditions. The establishment of State Bank of Pakistan (SBP) proved a blessing for the banking sector to promote banking activities within the country. It facilitates the banking sector as a keen observer being the regulatory authority. Similarly, SBP played an important role for the inception of Islamic banking practices in Pakistan. Its untiring effort enables the establishment of first full fledged Islamic bank in 2002. Similarly, a number of full fledged Islamic banks got registered to offer a wide range of products according to customer‘s expectations. Currently, there are six full fledged Islamic banks operating in Pakistan to meet customer needs to retain them as satisfied. A remarkable increase in the COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 182 JANUARY 2011 VOL 2, NO 9 Listed in ULRICH’S
ijcrb.webs.com INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS branch network and total assets of the banking system is documented during the last year (Economic Survey of Pakistan, 2007-08). This study examines the relationship between customer satisfaction and performance of Islamic banks in Pakistan. Customer satisfaction is the key for the successful survival of the commercial banks. The increased number of foreign, local and specialized banks enhanced the competition among banks to attract new customers as well as to retain existing customers as satisfied. Customers‟ feeling of satisfaction or dissatisfaction is an important element that decides the fate of any bank. In Pakistan, existence of two banking systems i.e. Islamic banks and conventional banks created stiff competition to have greater customers. There are number of studies in the existing literature that investigated the different aspects of banks. But there is an acute shortage of literature regarding Islamic banks especially in Pakistan. This study attempts to investigate the impact of customer satisfaction on performance of Islamic banks in Pakistan. It addresses the gap in the exiting literature to conduct empirical investigation based primary data collected from the 12 major cities of Pakistan. This study is also important for bankers, policy makers and academicians to assess the influence of customer satisfaction on performance of Islamic banks. It is reported that banking reforms in Pakistan has increased the performance of banking sector (Farooq et al. 2010). Similarly, it is reported that Islamic banks have shown better performance as compared to conventional banks in Pakistan (Ahmad, Rehman & Saif, 2010). 2. Literature Review Islamic banks have documented a success story in Pakistan. Pakistani banking sector reveals a growing and upward trend even in the era of recession and deep crises. Currently, Islamic and conventional banks are providing a wide range of products to meet the customers‘ expectation. Customers‘ feeling of satisfaction is considered an essential component towards success of modern banking. So every bank is trying its best to capture the greater number of customers for long term benefits. Similarly, Islamic banks have no exception from this challenge. Financial services sector is getting importance due to leading contributor towards economic growth and prosperity. It is documented that banking industry is indispensible for the today‘s customer oriented society. Because banking industry is the integral part of services industry (Mishkin, 2001). Customer satisfaction is an important aspect for the successful survival of banks due to increased competition (Haron et al. 1994). Satisfaction is a post purchase evaluative judgment associated with a specific purchase decision (Churchil & Suprenant, 1992). The customer satisfaction is indispensable for the successful survival of any organization. Continuous measurement of satisfaction level is necessary in a systematic manner (Chakravarty et al. 1996; Chitwood, 1996; Romano & Sanfillipo, 1996). Financial liberalization and deregulation has increased the competition among banks to attract potential customers. Every banker tries to provide superior services to keep satisfied customers. In Pakistan, emergence and growing popularity of Islamic banking products raises competition among Islamic banks. Islamic banks have to face numerous challenges in the recent age. Firstly, they are competing with their peers and secondly they have to cope with the conventional banks. Customer satisfaction is a set of feelings or outcome attached with customer's experience towards any product/service (Solomon, 1996). Customer satisfaction is the central tenet to compete in the market successfully. It is prerequisite to retain customers to generate economic benefits. Customer satisfaction is COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 183 JANUARY 2011 VOL 2, NO 9
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