FACTORS THAT AFFECT NON-MUSLIM CUSTOMERS’ PREFERENCE AGAINST ISLAMIC

(1)

FACTORS THAT AFFECT NON-MUSLIM CUSTOMERS’ PREFERENCE AGAINST ISLAMIC

DEPOSIT PRODUCTS IN MALAYSIA

BY

CHOONG JIA BIN LIM CHEW HOONG

ONG KAH YONG SEAH CHIA LOK

TAN YI XIN

A research project submitted in partial fulfilment of the requirement for the degree of

BACHELOR OF BUSINESS ADMINISTRATION (HONS) BANKING AND FINANCE

UNIVERSITI TUNKU ABDUL RAHMAN

FACULTY OF BUSINESS AND FINANCE DEPARTMENT OF FINANCE

JANUARY 2017

(2)

ii Copyright @ 2017

ALL RIGHT RESERVED. No part of this paper maybe produced, stored in a retrieval system, or transmitted in any form or by any means, graphics, electronic, mechanical, photocopying, recording, or otherwise, without the prior consent of the authors.

(3)

iii

DECLARATION

We hereby declare that:

(1) This undergraduate research project is the end result of our own work and that due acknowledgement has been given in the references to ALL sources of information be they printed, electronic, or personal.

(2) No portion of this research project has been submitted in support of any application for any other degree or qualification of this or any other university, or other institutes of learning.

(3) Equal contribution has been made by each group member in completing the research project.

(4) The word count of this research report is 21,122 words.

Name of Student: Student ID: Signature:

1. CHOONG JIA BIN 1303992 2. LIM CHEW HOONG 1406603 3. ONG KAH YONG 1305845 4. SEAH CHIA LOK 1406582

5. TAN YI XIN 1303372

Date:

(4)

iv

ACKNOWLEDGEMENT

It is appreciated that our research project has been successfully conducted with the assistance of various authorities. Hence, we would like to grasp this opportunity to express our sincere appreciation and acknowledge those who had been contributed towards our research project.

First and foremost, we would like to express thanks to Universiti Tunku Abdul Rahman (UTAR) for giving us such a good opportunity to conduct this research project which is useful for our future. Throughout this research project, it enables us to obtain specific knowledge and skill which is very valuable to us. Also, it allows us to build up strong friendship and cooperation through the teamwork in this project.

Besides that, we want to express our deepest grateful to our supervisor, Puan Siti Nur Amira binti Othman who has advised and guided us patiently in completing this project. We appreciate her contribution and it is our pleasure to be under her supervision as she shares many of her opinions and gives us valuable guidance in order to assist us to achieve our objectives of this research. Moreover, we able to complete our research project on time satisfactorily with her patient guidance and full support.

Apart from that, we would also like to take this opportunity to thank and appreciate our second examiner,Cik Zainon Binti Md. Yunus. During our VIVA presentation, she has pointed out some weaknesses of our project and also suggested solutions for us to further enhance our research project. We appreciate her advice as it helps to improve our research project to be more perfect.

In addition, we would like to acknowledge to all the respondents for their participation, cooperation and enthusiasm in our questionnaire surveys. We appreciate all the respondents who are willing to spend their precious time to fill up

(5)

v

the questionnaire. Last but not least, we are grateful to all our team members for their cooperation, tolerance and contribution towards this research project.

Once again, we would like to express a sincere gratitude to all of you. Thank you.

(6)

vi

DEDICATION

We would like to express our sincere gratitude to our honour supervisor, Puan Siti Nur Amira binti Othman, for her valuable guidance, advice and motivation in assisting the completion of this research project.

Furthermore, we would like to dedicate this research project to our family members for the appreciation of their encouragement and financial support. Moreover, this research project is dedicated to all of our group members who have contributed most of the time, effort, energy, knowledge and cooperation in conducting this research. Our collaboration, understanding, respect and enthusiasm towards this research highly lead to the completion of this research project.

Apart from that, this research project is dedicated to the public who has assisted in the success of the survey conduction. We would like to express special thank to them for their participation and the valuable information provided to complete this research.

(7)

vii

CHAPTER 2 LITERATURE REVIEW………... 11

2.0 Introduction……… 11

2.1 Literature Review……… 11

2.1.1 Depndent Variable……… 11

2.1.1.1 Preferences of non-Muslim Customers…… 11

2.1.2 Independent Variable……….……….. 13

2.1.2.1 Sharia Compliance……….. 13

2.1.2.2 Knowledge of non-Muslim Customer ……. 15

2.1.2.3 Trust and Confidence ……….….. 18

2.1.2.4 Flexibility of Withdrawal……….. 19

2.2 Review of Relevant Theoretical Methods………. 21

2.3 Proposed Theoretical / Conceptual Framework……..……. 22

2.4 Hypothesis Development………. 23

2.4.1 Sharia Compliance………. 23

2.4.2 Knowledge of non-Muslim Customers……….. 23

2.4.3 Trust and Confidence………. 25

2.4.4 Flexibility of Withdrawal……….. 25

2.4.5 Four Independent Variables……….. 26

2.5 Conclusion……….… 26

CHAPTER 3 METHODOLOGY……….…. 27

3.1 Research Design……… 27

3.1.1 Descriptive Research………. 27

3.1.2 Quantitative Research……… 28

3.2 Data Collection Method……….… 28

3.2.1 Primary Data……….. 28

3.3 Sampling Data……… 28

3.3.1 Target Populations………. 29

3.3.2 Sampling Frame and Sampling Location…………... 29

(9)

ix

3.3.3 Sampling Elements……… 30

3.3.4 Sampling Techniques……… 30

3.3.5 Sampling Size……… 30

3.4 Research Instrument……….. 30

3.4.1 Questionnaire Design………. 30

3.4.2 Pilot Test……….... 31

3.4.2.1 Result of Pilot Test……… 31

3.5 Construct Measurement……….……… 32

3.5.1 Section A of Questionnaire……….... 32

3.5.2 Section B of Questionnaire……… 32

3.5.3 Section C of Questionnaire……… 32

3.6 Data Processing……….. 38

3.7 Data Analysis………. 39

3.7.1 Descriptive Analysis……….. 39

3.7.2 Scale Measurement……… 39

3.7.2.1 Reliability Test……….………. 39

3.7.3 Inferential Analysis……… 40

3.7.3.1 Pearson Correlation Coefficient Analysis…. 40 3.7.3.2 Multiple Linear Regression Analysis……… 41

3.8 Conclusion………. 43

CHAPTER 4 DATA ANALYSIS………... 44

4.1 Descriptive Analysis……….. 45

4.1.1 Respondents’ Demographic Profile………... 45

4.1.1.1 Age………. 45

4.1.1.2 Race………46

4.1.1.3 Marital Status………. 47

4.1.1.4 Highest Education Level……… 48

4.1.1.5 Employment Status……… 49

4.1.1.6 Monthly Income……… 50

4.1.2 Central Tendencies Measurement of Construct……. 52

4.1.2.1 Sharia Compliance (SC)………... 53

(10)

x

4.1.2.2 Knowledge of non-Muslim Customers

(KOC)……….... 55

4.1.2.3 Trust and Confidence (TC)……… 57

4.1.2.4 Flexibility of Withdrawal (FW)………. 60

4.1.2.5 Preferences of non-Muslim Customer (CP)…62 4.2 Scale Measurement……… 64

4.2.1 Internal Reliability Test………. 64

4.3 Inferential Analysis……… 66

4.3.1 Pearson Correlation Analysis………. 67

4.3.1.1 Correlation between Sharia Compliance and Preferences of non-Muslim Customer toward Islamic Deposit Products... 68

4.3.1.2 Correlation between Knowledge of non-Muslim Customers and Preferences of non-Muslim Customer toward Islamic Deposit Products……… 69

4.3.1.3 Correlation between Trust and Confidence and Preferences of non-Muslim Customer toward Islamic Deposit Products…………... 70

4.3.1.4 Correlation between Flexibility of Withdrawal and Preferences of non-Muslim Customer toward Islamic Deposit Products……….. 72

4.3.2 Multiple Regression Analysis……… 73

4.3.2.1 Diagnostic Checking……….. 73

4.3.2.1.1 Normality Test……….. 73

4.3.2.1.2 Multicollinearity Checking………. 74

4.3.2.1.3 Durbin Watson Test (Autocorrelation)………...….... 74

4.3.2.2 Multiple Linear Regression Model………… 75

4.3.2.2.1 Coefficient of Determination(R²)…77 4.3.2.2.2 Adjusted Coefficient of Determination (Adjusted R²)…...… 78

(11)

xi

4.3.2.2.3 ANOVA Table………...……. 78

4.3.3 Hypothesis Testing……….79

4.3.3.1 Overall F-test (Hypothesis E)……….79

4.3.3.2 T-test Hypothesis A………... 80

4.3.3.3 T-test Hypothesis B………80

4.3.3.4 T-test Hypothesis C………81

4.3.3.5 T-test Hypothesis D………... 81

4.4 Conclusion……….……… 82

CHAPTER 5 DISCUSSION AND CONCLUSION……… 83

5.0 Introduction……….……….. 83

5.1 Summary of Statistical Analysis……….. 83

5.1.1 Descriptive Analysis………. 83

5.1.1.1 Respondents’ Demographic Profile………. 83

5.1.1.2 Central Tendencies Measurement of Construct………..……..…… 84

5.1.1.3 Scale Measurement……… 86

5.1.2 Inferential Analysis……… 86

5.1.2.1 Pearson Correlation Analysis………. 86

5.1.2.2 Multiple Linear Regressions……….. 88

5.2 Discussion on Major Findings………... 89

5.2.1 The effect of all independents variables on preferences of non-Muslim customers toward Islamic deposit product…………..……….. 90

5.2.2 The effect of Sharia compliance on preferences of non-Muslim customers toward Islamic deposit products………..……….. 90

5.2.3 The effect of knowledge of non-Muslim customers on preferences of non-Muslim customers toward Islamic deposit products………...…. 91

5.2.4 The effect of trust and confidence on preferences of non-Muslim customers toward Islamic deposit products………... 92

(12)

xii

5.2.5 The effect of flexibility of withdrawal on preferences of non-Muslim customers toward Islamic deposit

products………..… 93

5.3 Implications of the Study……….……….. 95

5.3.1 Managerial Implication……….……. 95

5.4 Limitation of Study………...…………..……… 96

5.5 Recommendation for Future Researches……….. 97

5.6 Conclusion……… 98

References………. 99

Appendix……… 113

(13)

xiii

LIST OF TABLES

Page

Table 3.1 : Pilot test reliability test results : Dependent Variable (Preferences of non-Muslim Customers toward Islamic

Deposit Products)……….. 31 Table 3.2 : Pilot test reliability test results : Independent Variable ….. 31 Table 3.3 : Questionnaire Section B……….. 33 Table 3.4 : Questionnaire Section C……….. 37 Table 3.5 : Cronbach’s Alpha Coefficient Value……….. 40 Table 3.6 : Interpreting the Size of a Correlation Coefficient……….. 41 Table 4.1 : Respondent Demographic of Age……… 45 Table 4.2 : Respondent Demographic of Race………. 46 Table 4.3 : Respondent Demographic for Marital Status……….. 47 Table 4.4 : Respondent Demographic of Highest Education Level….. 48 Table 4.5 : Respondent Demographic of Employment Status………... 49 Table 4.6 : Respondent Demographic of Monthly Income……… 50 Tabl4 4.7 : Central Tendencies Measurement of Construct : Sharia

Compliance……….... 53 Table 4.8 : Central Tendencies Measurement of Construct :

Knowledge of non-Muslim Customers………. 55

Table 4.9 : Central Tendencies Measurement of Construct : Trust and Confidence……… 57

Table 4.10 : Central Tendencies Measurement of Construct : Flexibility of Withdrawal……….………. 60

Table 4.11 : Central Tendencies Measurement of Construct : Preferences of non-Muslim Customers ……… 62

Table 4.12 : Reliability Test of Dependent Variable (Preferences of non- Muslim Customers toward Islamic deposit products).. …… 65 Table 4.13 : Reliability Test of Independent Variables……….. 65 Table 4.14 : Rules of Thumb about Correlation Coefficient Size…….. 61 Table 4.15 : Pearson Correlation Analysis……….…………. 62

(14)

xiv

Table 4.16 : Correlation between Sharia compliance and preferences of non-Muslim Customers toward Islamic deposit

products………. 68

Table 4.17 : Correlation between knowledge of non-Muslim customers and preferences of non-Muslim Customers toward Islamic deposit products……… 69

Table 4.18 : Correlation between trust and confidence and preferences of non-Muslim Customers toward Islamic deposit products 70 Table 4.19 : Correlation between flexibility of withdrawal and preferences of non-Muslim Customers toward Islamic deposit products………..……….. 72

Table 4.20 : Skewness and Kurtosis of Residuals……….. 73

Table 4.21 : Collinearity Table………..……….. 74

Table 4.22 : Durbin Watson Result……….………. 74

Table 4.23 : Coefficient Table………. 76

Table 4.24 : Model Summary……….. 77

Table 4.25 : ANOVA table for multiple linear regression……….. 78

Table 5.1 : Summary of the results of hypothesis testing………. 89

(15)

xv

LIST OF FIGURES

Page

Figure 1.1 :Islamic Banking Statistics ……… 3

Figure 1.2 :Islamic Banking Statistic – Deposits……….. 3

Figure 2.1 : Research Model in Aziza & Awais’ Study……….. 21

Figure 2.2 : Conceptual Framework That Determine the Factors of on-Muslim Customers’ Preferences toward Islamic Deposit Products………. 22

Figure 3.1 : Median and Mean monthly salaries of employees by states, Malaysia 2015-2016……… 29

Figure 4.1 : Respondent Demographic of Age……… 45

Figure 4.2 : Respondent Demographic of Race……….. 46

Figure 4.3 : Respondent Demographic for Marital Status………. 47

Figure 4.4 : Respondent Demographic of Highest Education Level...… 48

Figure 4.5 : Respondent Demographic of Employment Status……….. 50

Figure 4.6 : Respondent Demographic of Monthly Income……… 51

(16)

xvi

LIST OF APPENDIX

Page

Appendix A : Survey Questionnaire……….. 113

Appendix B : Pilot test reliability output……….. 121

Appendix C : Frequency output……… 125

Appendix D : Reliability test output………. 139

Appendix E : Correlation output……….. 144

Appendix F : Normality test output……….. 145

Appendix G : Collinearity output……….. 147

Appendix H : Multiple linear regression model output………. 150

Appendix J : Chi square distribution table………... 153

(17)

xvii

PREFACE

In this modern era, Islamic banking is an important banking system that helps to facilitate current financial system. Bank Islam Malaysia started it operation in 1983.

Sharia finance is a blend of Islamic Economies and modern lending principles, its products can be sold to Muslims and non-Muslims alike. The increased of competition and the overall structure among Islamic banks have drawn the purpose of conducting this research in order to have a deeper understanding on the affect non-Muslim customers’ preference against Islamic deposit products in Malaysia.

This research is conducted to enable the Islamic bankers to gain better understanding on the Sharia Compliance, Knowledge of non-Muslim customers, Trust and Confidence, Flexibility of Withdrawal toward the non- Muslim customer.This study contributes to Islamic banking by enable the Islamic bankers to formulate different strategies and policies to attract more non-Muslims banking users. In addition this research is conducted in order to provide meaningful result and broaden the the Islamic deposit products in Malaysia.

The beginning of the process for conducting this research is complicated. However, we have separated all the parts to each person to complete our research. We shared the knowledge, ideas and solutions together in order to solve the problems faced while conducting our research. We believe that teamwork is very important to complete our research on time. After conducting this research, we realize that we have deeper understanding on our topic and it could enhance our knowledge and apply in future career.

(18)

xviii

ABSTRACT

Being one of the strongest proponents of Islamic Banking, Malaysia has been promoting the idea of implementing Islamic Banking System (IBS) with the purpose to expand the ring of unity among Muslims and to ensure a fair distribution and utilization of fund in compliances with Islamic Principles in order to parallel the conventional system. The existence of financial institutions for both Islamic and conventional, Malaysians have been presented with numerous choices to choose the products and services that meet their needs and wants. This study provides important contribution to the Islamic bankers in understanding customer attitudes, preferences and characteristics. In addition, this study also aims to investigate if any demographic influence the awareness, understanding and perceptions of Islamic Banking products and services among non-Muslims in Malaysia.

A total sample size of 250 respondents is drawn from Malaysia. The results show that more than half of the respondents are aware of the Islamic banking products and services in Malaysia. Multiple Linear Regression analysis is then conducted, and all independent variables have significant positive effect on preferences of non- Muslim customers, where independent variable Sharia compliance, knowledge of non-Muslim customers, trust and confidence, flexibility of withdrawal toward the non- Muslim customer. Besides, confidence in Islamic banking has the highest Cronbach’s alpha and the strongest impact on acceptance level. For the analysis, one way ANOVA and Pearson Correlation Coefficient was adopted to analyses the results. This study also provides theoretical and managerial implications for the Islamic bankers to attract non-Muslims customers and recommendations for future research in Islamic Banking.

(19)

1

CHAPTER 1: RESEARCH OVERVIEW

1.0 Introduction

This research discussed about the factors that affect non-Muslim customers’

preference against Islamic deposit products in Malaysia. This chapter separated into eight sections to discuss about history of Islamic deposit products in Malaysia, definition of Islamic deposit product, problem statements, objectives of research and questions, hypothesis of the research, significance of the research, chapter layout and conclusion. First of all, the background of the research briefly explained about the Islamic deposit products in Malaysia. Following from that, the problem statements and research questions discussed and stated the purpose of this research.

Thus, research objectives and hypothesis will be a guideline to conduct this research.

Lastly, this research will be concluded with a summary of this research, limitations of this research, and recommendations for future research.

1.1 History of Islamic Deposit Products

It is revealed that the primary sources of fund for Islamic banks are deposit products.

Based on the study by Yusoff and Wilson (2005), Islamic banks and counters or branches was opened in conventional banks in Malaysia and offer Islamic products in order to obtain profit sharing rather that interest earning. The authors also further expound that the demand deposits offer by Islamic bank is based on the guaranteed custody concept (al-wadiah) which have relation to one person pass his or her asset to another person for safekeeping on purpose while investment deposit is based on the profit sharing concept (al-mudarabah) which related to one person provide capital to another person for purpose of investment. The agreement between Islamic bank and depositors does not mention a specific rate of return in investment or deposit The parties of the contract just set the ratio to distribute the profits and losses.

According to Amin (2013), majority of banks offer all kinds of deposit products based on bank policies, operation and marketing strategies. In short, deposit products help surplus units transfer the funds to deficit units. Entrepreneur is one of the deficit units who utilize the accumulated funds mobilize from surplus unit to do

(20)

2

different projects. Those funds are allocated in varies projects and sectors that involved with many type of risk related to the employment of fund. Thus, the depositors may earn dividend when the deposit or investment make profit. Likewise, the depositors will lose a part of capital they invested when losing in investment and deposit. By and large, Islamic bank play the vital role to accept funds and utilize funds financing purpose, investment purpose or in profit making activities compliant with Sharia laws.

1.1.1 What is Islamic Deposit Products?

Malaysia established the ﬁrst Islamic bank in 1983 with the formation of Bank Islam Malaysia Berhad (BIMB). As some other banks in Malaysia, the Central Bank of Malaysia (also known as Bank Negara Malaysia) governs the operation of Islamic banks; the Islamic Banking Act1983 covers the jurisdiction (Central Bank of Malaysia, n.d.). The operation of the Islamic banking system is same with the conventional system. This means that the government allows the Islamic banks to compete with conventional banks without favouring either.

Islamic deposit products which are Islamic banks’ strength basis form in accordance with Sharia law. They use these deposits’ money to help customers invest and earn profit. Thus, in banks side, deposits are liabilities. Islamic deposits may be based on Mudarabah and Wakalah structures. For the example, Islamic deposit products such as Islamic current deposit is known as current account-i, Islamic savings account known as savings account-i, Islamic investment account known as Islamic fixed deposit, and so on.

(21)

3

Figure 1.1 : Islamic Banking Statistics

Source : http://www.oicstatcom.org/imgs/news/presentations/1015- MALAYSIA.pd

Figure 1.2 : Islamic Banking Statistics - Deposits

Source : http://www.oicstatcom.org/imgs/news/presentations/1015-MALAYSIA.pdf Above is show about the statistic of Islamic banking between the years 2006-2012.

The statistic shows the pre-tax profit result of banking system, commercial bank, investment and Islamic bank. In 2010, MIFC, BNM, SC, Labuan FSA, Bursa Malaysia and DOSM work together in estimate value added Islamic capital market

(22)

4

activities. Besides, nature of capital market structure in Malaysia is where the same enterprises offering both products.

1.1.1.1 Current Account

Current account is the cheque account, which means customers use the cheque to make payments, and usually without paying any ‘interest’. This is because the Islamic bank will not use fund for investment purpose, they just used to profit sharing. Current account-i is under a control based on the concept of wadiah or the combination between wadiah (guaranteed custody) and mudarabah (profit-sharing) (Kontota et al, 2016). According to Amin, the end of the product name which has letter ‘i’ such as “current account-i” that mean the products processing with Sharia Compliance, and that its services which are no any riba-taking activities. For the example: Wadi’a-wad-dhamana or guaranteed deposits, qard hasan current account.

1.1.1.2 Savings Account

According to Haron & Wan-Azmi (2008), customers would ordinarily choose savings account due to satisfying precautionary motives. Amin represent that the concept of savings account-i, is based on the concept of rabbul mal and mudarib, where the customer is still viewed as the rabbul mal because the customers contribute funds to the bank. On the other hand, the bank is the mudarib because the bank employs such funds for various types of halal investments in order to earn profits from the business transactions undertaken (Amin).

Rosly and Mohd-Zaini (2008) explained that Islamic banks will give the ‘gift’ to the savings account holder which is the returns. The returns known as hiba, which is context of reward profit based on the banks performances (Abdul-Rahman, 2005).

If the bank generates more profit from its banking business, greater amount of hiba is given and credited to the customer’s savings account. If the bank getting loss, no hiba provided, and the customer will not get any loses from their deposit within the bank. For example: Wadi’a Model, Mudharaba Model, Al Qard Al Hasan Model

(23)

5 1.1.1.3 Investment Account

Islamic fixed deposits are based on a “profit-sharing ratio” and heavily depend on the performance of the bank (Utusan Online, 2005b). It is different with the savings account-i, the investment account-i is more focused on long term saving and has higher price (Amin). According to Amin, the major goal of the investment account is to gain maximum profit during the time in which it is invested. During that time however, the customer may also lose his money if the investment by the bank is at a loss but this situation rarely happens (Amin). However, it is depends on the bank’s policy. For the example: General Investment Account-i (GIA), Special Investment Account-i(SIA)

1.1.1.4 Certificate of deposits

A certificate of deposit (CD) is a time deposit, a financial product typically sold in the United States and elsewhere by banks, thrift institutions, and credit unions. CDs are like savings accounts in that they are insured "money in the bank" and thus virtually risk free. In the USA, CDs are guaranteed by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They contrast from savings accounts in that the CD has a specific, fixed term (usually one, three, or six months, or one to five years) and, usually, a fixed interest rate. The banks have to arrange that the customer holds the CD until maturity, at which time they can withdraw the money and accrued interest.

1.2 Problem Statement

The wider increase of the products coverage area and the proficiency to overcome the global economic downturn had gain the popularity among non-Muslims. The outstanding performance of Islamic banking creates a remarkable image in banking sector and a new dimension was generated due to the changes in the Malaysian financial landscape. Some scenario cause customers preference changed and demand for high quality banking services.

(24)

6

Since the competition between the banks becomes fierce, the financial institutions decide to development more conventional and Islamic customers to attract Muslims and non-Muslims for choosing the banking products and services. Rather, customers currently are difficult to make decisions to pick the ones that address their issues and needs. This situation applies to the Islamic banking system as conventional bank can offer Islamic products and services under the dual-window concept. There is different literature review found that the customers was influenced by the services, products, trustworthy and the availableness of outlets to before make decision to choose the Islamic products offer by Islamic banking. Hence, based on Islamic scholars Tengku Wasimah, R, H, Rosemaliza, A, R & Abu Bakar, H (2015) mentioned that the customers receive Islamic banking services was not only influence by Islamic branding. From the information from examination found that non-Muslims take Islamic administrations because of Islamic marking as well as some different components. For example, knowledge of customers, Sharia compliance, trust and confidence, flexibility of withdrawal scheme etc.

The demand of Islamic banking services was increased due to the Sharia principle which complies on the commercial products and services in Malaysia. These issues make numerous Muslim changed from ordinary to Islamic managing an account items. Due to the well management of the operational base, regulatory framework system and profitability, Malaysia’ society choose to support Islamic banking industry. However, the quantity demand from customers was strong and causes the problem of supply to industry. These days, clients are required to have more information in saving money, interest for valuable items and administrations (Aslamet al., 2011). There is always a doubt that the employee from Islamic banks is well training and knowledgeable in Islamic products which can fulfil the needs of customers. In the research by Zainol et al. (2008) argue that minority of the bankers had insufficient knowledge to be accomplished with the banks.

Therefore, there are four main independent variables have been adopted in this research to determine which variables is the most important factor for the customers

(25)

7

to choose Islamic banking services. The four independent variables which mentioned above will be explained with the support of literature review in next chapter.

1.3 Research Objectives

1.3.1 General Objective

To study the factors that affect the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

1.3.2 Specific Objectives

a) To examine the relationship between Sharia compliance and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

b) To determine the relationship between knowledge of non-Muslim customers and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

c) To examine the relationship between trust and confidence and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

d) To determine the relationship between flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

1.4 Research Questions

a) Are there any relationship between the Sharia compliance and non-Muslim customers’ preferences against Islamic deposit products in Malaysia?

b) How well the non-Muslim customers understand about the Islamic deposit products in Malaysia?

c) What are the level of trust and confidence for non-Muslim customers toward Islamic deposit products in Malaysia?

(26)

8

d) What are the relationship between the flexibility of withdrawal and non-Muslim customers’ preferences against Islamic deposit products in Malaysia?

1.5 Hypothesis of the Research

1.5.1 Sharia Compliance

H0A : There is no significant relationship between the Sharia compliance and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1A : There is significant relationship between the Sharia compliance and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

1.5.2 Knowledge of non-Muslim Customers

H0B : There is no significant relationship between the knowledge of non-Muslim customers and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1B : There is significant relationship between the knowledge of non-Muslim customers and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

1.5.3 Trust and Confidence

H0C : There is no significant relationship between the trust and confidence and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1C : There is significant relationship between the trust and confidence and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

1.5.4 Flexibility of Withdrawal

H0D : There is no significant relationship between the flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1D : There is significant relationship between the flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

(27)

9

1.6 Significance of the Research

This research emphasizes on the knowledge of non-Muslim customers for Islamic deposit products, Sharia compliance, trust and confidence and the flexibility of withdrawal scheme that affect the non-Muslim customers’ preferences against Islamic deposit products in Malaysia. Since Malaysia is an Islamic hub in the world, this research emphasizes on the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

The Islamic services and products are considered well-received by non-Muslim customers but the researchers were unsure about the customers’ preferences and the potential of Islamic products in the future. Non-Muslim customers will consider to establish a banking relationship with Islamic bank by taking the Islamic deposit products if the bank have sufficient information of banking operations. Non- Muslims customer will consider to involve in Islamic banking if the banks gave higher confidence level to the non-Muslim customers.

Hence, through this research, the Islamic banks in Malaysia can have a better understanding on the non-Muslim customers’ knowledge and preferences towards the Islamic deposit products. Therefore, the banks can structure different strategies and types of products to expand the Islamic deposit products business by increasing the market among non-Muslim customers. In short, the Islamic deposit products will become more popular among non-Muslim in Malaysia.

(28)

10

1.7 Chapter Layout

This report will be followed by the literature review of previous researches in Chapter 2. The next chapter, Chapter 3 is the discussion on the methodology used of this research. The interpretations and results will be presented in Chapter 4. The last chapter, Chapter 5 of this research will be concluded by a summary, implication of the findings, limitations of the research and recommendations for future research.

1.8 Conclusion

This chapter consist of basic knowledge of Islamic deposit products, problem statement, research objectives and research questions of this research. The hypothesis and significance of this research can also be clearly understood in this chapter. The chapter outline that need to study is the factors that affect the preferences of non-Muslim customers toward Islamic deposit products in Malaysia also stated in this chapter.

(29)

11

CHAPTER 2 : LITERATURE REVIEW

2.0 Introduction

In Chapter 2 will discuss about the relationship between dependent variable which is the preferences of non-Muslim customers toward Islamic deposit products in Malaysia and independent variables which are Sharia compliance, knowledge of non-Muslim customers, trust and confidence, and flexibility of withdrawal. This chapter will cover literature review, review of relevant theoretical models, proposed theoretical or conceptual framework, hypotheses development and a conclusion of the chapter. In this chapter relevant established theories will be listed to show that the relationship between the selected independent variables and the dependent variable.

2.1 Literature Review

2.1.1 Dependent Variable

2.1.1.1 Preferences of non-Muslim customer

Customer preference defines a customer desires for one collection of product and services over another or how ordering alternative of a collection of product and services. This definition assumes customers order the products and services are based on the amount of satisfaction, utility and afforded. Customer preference theory does not take the income of customer, purchasing power for a product or service and price of goods and services (Raines, 2011).

According to Jalir and Rahman (2014), the finding of the research shows the respondents are influenced by perception of services, convenience of services and ethical organization. But, they are not influenced by Islamic branding to choose Islamic banking services. The finding shows the dependent variable ‘consumers’

preference toward the Islamic banking services’ and independent variable ‘services’

perception’ are strong positive relationship. However, there are some limitations in

(30)

12

his study which are the sample size was not more than 200, data collected from different place in a city and too less non-Muslim respondent.

Apart from that, Haque, Osman and Ismail (2009) conducted a research on Malaysia’s customer preferences to examine the factor influence selection of Islamic banking. The results indicates that customer preferences influenced by the bank service quality on performance which similar with the research conducted by Dusuki and Abdullah (2007) stated that the customer satisfaction is depend on the service quality of Islamic bank. Findings show that higher standard of quality services will increase the customer preference and satisfaction. There are significant relationships between customer perception and service quality, finally availability of services and social and religious perspective since their coefficients are positive values. But, there is negative value which indicated insignificant relationship between confidence and customer perception and less effect on customer perception for Islamic bank product selection.

Furthermore, Hamzah, Ishak and Nor (2015) conduct a study about the relationship between customer satisfaction and the quality of services of Islamic banks in Malaysia. This study shows that there is significant relationship between the customer satisfaction and services quality and with the positive value of coefficient (Hamzah, Ishak and Nor, 2015; Dusuki and Abdullah, 2007; Haque, Jamil and Ismail, 2009). Hence, Islamic banks should take several steps to improve their quality of services to keep marketed and maintain a top premium position. Further researchers are recommended to do a comparison between the customer's’

preference and quality of services offer by conventional and Islamic bank that provide Islamic banking.

Besides, Shahid, Mehmood, Ahmad, Ahmad and Shafique (2015) carry out a research about the Malaysian consumer preferences for islamic attributes to examine selection area of Malaysian customer towards Islamic banking. It was affected by quality of service, accessibility to their clients, relationship with customer, professional advice and employee skill and information. By using

(31)

13

quantitative method, it shows the favourite of Islamic banking is not influenced by religious but affect by quality of service.

According to Doraisamy, Shanmugam, and Raman (2011), the result indicates that the customers’ preferences against the Islamic banking products and services will influence by three main factors. Those factors are awareness, profitability and service quality. Based on the analysis, it shows that all three variables have interaction with each other and effect on customers’ preferences toward the Islamic deposit product and services among Sungai Petani. Among these three independent variables, two variables which are profitability and quality have a great influence against the customer's’ preference on Islamic product and services.

According to Metawa and Almossawi (1998), academic background is a factor will influence customers’ preference toward the Islamic deposit product. Majority of the Islamic bank customers are well educated and fall between 25-50years. It means the higher the education level will increase the customer's preference and satisfaction.

The data was collected from customer in the state of Bahrain.

2.1.2 Independent Variables 2.1.2.1 Sharia Compliance

The amount of Non-Muslims customers toward Islamic products were increases compared from the past as the Sharia principle attract the loyalty from the customers.

The Islamic products which comply with Sharia principle make the products easily differentiate from the products offered by others conventional banks. From the research by Md. Abdul Jalil and Muhammad Khalilur Rahman, the result from questionnaire identify that is a positive relationship between the Non-Muslims customers toward Islamic banking on Islamic banking services. The Islamic products had attract the attention from Indian and Chinese customers with the products such as insurance (TAKAFUL) and home loans (Bank Negara Malaysia).

The Sharia finance which developed in deposit product is a modern principle to the new customers. A strict lending principle promote by Sharia finance increase the demand in ethical investing among the Non-Muslims customers (Abdul Aziz,

(32)

14

Rokiah & Ahmad Azrin, 2012). Most of the Islamic banking contain Islamic teachings bring benefit to Non-Muslims customers. From the research by Mohamad Anwar Thalib, Sharia principle raise the mutual understanding behaviour to respect the different needs between the Muslims and Non-Muslims customers. The value- added services will different according to different Non-Muslims customers after apply the behaviour.

Sharia principle protects non-Muslim customers’ perceptions by fulfilled quality Islamic banking services to overcome the poverty in country. Islamic bank convince customer save money in the bank with the benefit low risk and high return from bank. Non-Muslims shift to the Islamic bank as Islamic product is protect from the loss in recession (Keria, Jamil & Firdaus, 2016). From the research of Mohd Shahril Ahmad Razimi and Abd Rahim Romle (2017) mention that the Sharia is used to enhance the risk management to raise the confident from the customers. Tan Sri Dr.Zeti Akhtar Aziz come out with a statement where amount of 70 percent Non- Muslims customers choose Islamic banking product. A professional and experienced Sharia scholars are needed to interpret the sources of Sharia, differentiate the assets which is halal or haram and examine the guidelines whether it is suitable for all customers (Ulrich & Shebab, 2008). This is because the professional of Islamic banks’ employees possess the Sharia knowledge can raise the confidence among the customers (Tengku Wasimah, Rosemaliza & Abu Bakar, 2015).

New Sharia financial products is offer to meet Non-Muslims demand in Bangladesh by Islamic bank due to the satisfied of customer (Parvez, 2014). It maintain the reputation of in management can raise the religion belief between the customers (Sudin, Norafifah & Sandra, 1994). The process to receive the permission before invest the fund from depositors had improve the good image of the bank. The fund will invest at the bank risk and the profit or loss will be shared with the bank (Mamun, Kabir Hassan & Abu Umar).

However, the condition to attract Non-Muslims is the cheaper transaction cost and services provide by Islamic bank. The opinion from Sutan Emir Hidayat & Nouf K

(33)

15

Al-Bawardi (2012) proved Islamic banking products is not popular due to the less amount of customers who maintain the relationship with Islamic banking. Non- Muslims customers prefer the bank which offer high interest rate on the deposit (Aziza & Awais, 2016). Muslims customers prefer the bank which comply with Sharia laws which the fund will return to society for the growth of country economic (Aziza & Awais, 2016).

Although Malaysia is a multi-religious society, but most of the customers believe that the Sharia compliance was only benefit to Muslim customers. This statement was rejected by Farah Amalina Md Nawi, Ahmad Shukri Yazid and Mustafa Omar Mohammed (2013) after conducted a research which determine the acceptance between Muslim and Non-Muslims customers related to Islamic Home Financing (BBA). The result from the research showed that Non-Muslim satisfied BBA can be fulfilled the desirable needs but discover a high level of dissatisfaction from Muslims.

In conclusion, many researchers show that major results of the research agree there is positive relationship between the Non-Muslims customers with the variable of Sharia compliance.

2.1.2.2 Knowledge of Non-Muslims customers

The amount of Non- Muslims are keep interesting and populating trade with Islamic banking products and services because of its product can cover wider scope and ability to cross the worldwide economic recession. However, to what extent this statement is true in Malaysian context. Subsequently, this research aims to examine non-Muslim customers’ perception against of Islamic banking products and services in Malaysia.

Nowadays, customers with higher educational level have more knowledge about the area that they are interested in, for instance, as financial world (Zainol, Shaari,

& Muhamad Ali, 2008). In addition, the researchers also find that employees who are working on the frontline are actually play important roles in representing the

(34)

16

association to the outside world. However, another study by Ahmad and Haron (2002) on perceptions of Malaysian corporate customers of Islamic banking products and services indicated that Islamic banks were not the main choice because of the lack of knowledge. This review demonstrates that Islamic banks have not sufficiently directed projects to instruct individuals or elevate their items to people in general.

This view is upheld by Baba and Amin (2009) showed that the understanding of principles or ideas of Islamic products among bankers are at the minimum level.

Therefore, it is important that the Islamic banking players have a deep understanding of Islamic banking industry so that it will have a competitive advantage over the conventional system. In such manner, the experts are proposed to give more framework and arrangements to furnish Islamic saving money representatives with adequate information to empower them to play out their obligations as per the Sharia standards. Bley and Kuehn (2004) reviewed business students in the United Arab Emirates (Sharjah) on their knowledge of financial aspects of Islamic and conventional banks. The major finding was that Muslim students preferred Islamic banking services because of religious motivations. An auxiliary discovering, non-Arabic Muslims understudies had a more elevated amount of learning of ordinary managing an account. Hamid and Nordin(2001) surveyed Malaysian commercial bank customers, finding a high awareness of Islamic banking but poor self-reported knowledge of specific Islamic products, including poor comprehension of the contrast amongst Islamic and traditional keeping money

Based on Haque, Jamil and Ahmad Zaki (2009) conclude that the demographic factors such as religion and knowledge are playing an important role to select a bank. Scientist also found that clients don't have such a great amount of information about the Islamic keeping money items. Example: Muderaba, Mushaaraka, Murabaha and so forth. However they purchase these items for the reason of religion.

In the research found that consumer understanding of the workings of Islamic banking was not strong (Khan et al., 2008; Okumus, 2005; Khattak and Rehman, 2003). Most respondents knew that premium was not paid and knew about a portion

(35)

17

of the regular terms related with Islamic keeping money (e.g.Ijarah, and Morabha), in any case, more point by point information was inadequate. According to Dusuki et al. (2006) customers highly knowledgeable and competent personnel coupled and courteous values to be the most important criteria in patronizing Islamic banks.

Marimuthu, Jing, Gie, Mun, Ping (2010) additionally found that banks ought to observe individuals' inadequate information in Islamic saving money framework into thought particularly while advancing Islamic budgetary administrations. Hence, banks should improve their marketing activities accordingly. In a survey conducted in the UK, Omer (1992) reported that the higher the rule commitment and the lower the level of general education, the stronger the preference on Islamic over conventional finance. However, Haron,Ahmad and Planisek (1994) mention that the selection criteria of Muslim bank customers in Malaysia was largely based on non-religious aspects. They noticed that in spite of the fact that there was an abnormal state of consciousness of Islamic items, there was a poor comprehension of the contrasts amongst Islamic and traditional saving money. The little information about Islamic banking products is the result of poor understanding of Islamic banking concept and creates a strong impact on customer’s perception. The better education is necessary for the awareness of Islamic banking products (Doraisamy, 2011).

Finding is the level of perception is less in competitive area (Leo, 2009). This research objective is to define the knowledge of customer perception of customer with respect to Islamic banking product and the way of increase the knowledge and the observation of customer about the product of Islamic bank. The populace size of this review is 280 individuals. ANOVA and relationship examination are utilized to break down the information. The finding of this review demonstrate that over half individuals from respondent know an about IB yet less information about item and administration of IB in addition this review assist to draw in more client (Keong, 2012). In an urban city of Malaysia, Kuala Lumpur, a study by Abdullah et al. (2012) conclude that non-Muslims at young age and with higher academic qualification possessed better knowledge and understanding of Islamic banking concepts.

(36)

18 2.1.2.3 Trust and confidence

Among the Islamic banking circumstance, trust and confidence are important in consumer preferences. Former researchers indicated that is not only confidence with bank, but also confidences in that bank who promise with accrete to Sharia principle (Hoq, M., Sulatana, N., and Amin, M., 2010; Amin, M. and Isa, Z., 2008). Which means that is more important that if products are secured, and that will build the confidence to customers to lead them to choose that products. According to Ashraf, S., Robson, J. & Sekhon, Y, (2015), trust exactly defined as performance of commitment and expectation of customers that their long term benefits will be protected by the bank. Long term will face more uncertainty than short term, if a bank has greater reputation than others banks, will give more confidence to customers to choose to deal with them. Good performance which mean can give more benefits to customers and reduce risks which will faced by customers.

However, in the circumstance of Islamic Banking in Pakistan, the trust of customers toward bank is also defined as a good perception which the expectation of the product or service reached the customer’s expectation level (Rizwan, M., Yaseen, G., Nawaz, A.,and Hussain, L., 2014). Customers prefer to get confidence and trust for the bank which can increase and secured customers’ wealth.

According to Michell, P. , Reast, J. & Lynch, J., (1998) satisfaction of consumer will affect trust and confidence of consumer to that bank. If consumer satisfied the services of that bank provided will increase them more trust and confidence to purchase products in that bank. Level of reputations of that bank also will affect their image in consumer mind and tend to affect the trust and confidence of consumer. Consumer must rely on trust when the products are difficult to assess and in strange of range (Ennew, C, Kharouf, H, and Sekhon, H, 2011). Conclude from Ennew, C, Kharouf, H, and Sekhon, H (2011), generate trust is a pre-requirement for compliance and strengthen the development of allegiance, leading to repurchase and cross buying, hence trust will affected the decision of consumers to trade with a bank. Customers may repurchase those products or others products even they may introduce their friends or family to purchase that products or trade with that bank which they trusted.

(37)

19

Larger part of researchers has argued build on trust is important key influence about the relationship between bank and consumers because it can’t without trust and confidence of consumer when bank created or managed. (Sekhon, H., Ennew,C., &

Devlin, J., 2014) If a bank won’t have any trust by customer, that bank will facing a lot of troubles, like it might not continuous the business process. It was because that must had a basic in trust between dealer and consumers, otherwise that was easily faced a high default risk and lower down the success ratio of trade. Based on Castaldo (2007), trust is based on accumulated knowledge about the other party, and believed that that party will meet it promised. If that party done it’s promised will build a higher reputation to let other people more trust it can meet all its promised and more prefer to trade with it.

In banking process, it manufactured trusting relationship when consumer is lag knowledge about the variety and intricacy of products and the processing of products. For the example in Islamic banking products are unfamiliar for consumers in Non- Muslim in Malaysia, thus the presence of trust is important if consumers have confidence with that bank. (Roy, S. K., Devlin, J. F., & Sekhon, H., 2015).

This research provides even more vision into whether trust and confidence in an Islamic bank will affects consumer preferences.

2.1.2.4 Flexibility of withdrawal

The flexibility of withdrawal of an Islamic bank can be clearly understood through the liquidity management carried out by the bank. Mobin and Admad (2014) stated that, bank liquidity is the main element for a bank to manage their assets. Only bank with a sound liquidity management could reach the level of withdrawal demand by its customers. While the flexibility of withdrawal of an Islamic bank could bring effects on non-Muslim customers’ preference towards Islamic deposit products.

The failure of a bank to balance between the supply and demand of liquidity leads to liquidity problems and this is the main reason for depositors to leave the bank (Ismal, 2010). Each Islamic bank have their own flexibility of withdrawal scheme based on the basis of preferences and convenience such as online service and location of ATM (Aziza & Awais, 2016). However, Amin (2016) argued that the

(38)

20

acceptance of consumers towards Islamic deposit products are influenced by religious beliefs, social pressure, cost benefit analysis by the bank and advertisements but did not show that the flexibility of withdrawal scheme have a relationship with the customer behaviour towards Islamic deposit products.

In addition, although the availability of credit will affect the flexibility of withdrawal of the bank but Haron, Ahmad and Planisek (1994) found that non- Muslim customers only rank it as the ninth important factors that will affect their preference compared to other factors. This showed that non-Muslim customers emphasize more on others factors such as the quality of services from bank compared to the availability of credit of the bank. The availability of ATMs’ had a positive significant relationship with customer preference to choose the bank (Srouji, Halim, Lubis & Hamdallah, 2015). The easier the customer could access to the ATM of the bank, the more willingness of customer will choose for its products.

According to Mokhlis, Mat and Salleh (2008), they found that the availability of ATM ranked second in their research which supports the view that undergraduates have positive significant relationship stated earlier.

(39)

21

2.2 Review of Relevant Theoretical Methods

Figure 2.1: Research Model in Aziza & Awais’ Study

Source : Aziza, N., & Awais, F. (2016). Customer’s Patronage in Selection Criteria of Islamic Banks in Pakistan. The International Journal of Business & Management.

According to Aziza and Awais (2016), the criteria for customers to choose Islamic Bank will be Sharia compliance, awareness, cost and benefit analysis, friendliness of bank personnel and quality and attractiveness of offerings. Many customers prefer the services follow the rules and regulation which comply with Sharia principle. Secondly, customers aware the qualities of the function is important than traditional marketing activities. Most of the customers are profit oriented as they want the high return with low risk. They will choose the products to invest which give benefit more than the cost invests. Friendliness of bank personnel acts as an important factor because it provide consultation and accurate information to

(40)

22

customers. Islamic bank need to provide quality products to help customers differentiate from competitive bank.

2.3 Proposed Conceptual Framework

Figure 2.2: Conceptual Framework That Determine the Factors of Non-Muslims Customers’ Preferences Toward Islamic Deposit Products.

Adapted from : Aziza, N., & Awais, F. (2016). Customer’s Patronage in Selection Criteria of Islamic Banks in Pakistan. The International Journal of Business &

Management.

The conceptual framework above could explain the proposed model on how the independent variables included are of Sharia compliance, knowledge of customer, trust and confidence and flexibility of withdrawal influence the non-Muslim customers’ preference.

(41)

23

2.4 Hypotheses Development

2.4.1 Sharia Compliance

H0A : There is no significant relationship between the Sharia compliance and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1A : There is significant relationship between the Sharia compliance and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

Sharia is an Islamic principle required investor prohibit interest (Riba) to enhance the economic growth. It was implied on the banking operations such as deposits transactions, products and financing. Non-Muslims prefer the investment with less risky due to the effect of global credit crisis. Hence, the information which follow the Sharia compliance will help customers minimize losses in the recession (Aziza

& Awais. 2016). According to Abdul Aziz, Rokiah and Ahmad Azrin (2012), many governance used Sharia principle to enhance the strength of the management to maintain the relationship with Non-Muslims. The effect of the Sharia principle had attract the Non-Muslims customers which give positive relationship with Islamic products.

2.4.2 Knowledge of non-Muslim Customers

H0B : There is no significant relationship between the knowledge of non-Muslim customers and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1B : There is significant relationship between the knowledge of non-Muslim customers and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

This exploration was conducted to identify the product knowledge among Islamic banks’ employees in the northern part of Malaysia. The findings yielded basic standards and preparing had given a strong influence towards the knowledge.

However, religiosity and discernment which supposed to have effect on product

(42)

24

knowledge (Ahmad and Haron, 2002; Zainol et al., 2008; Aslam et al., 2011) are failed to prove. The findings will have some impact on the theory and practical aspects of Islamic banking sector.

According to Holliday (1996), the importance of understanding customers’

perception in bank selection has become a persevering examination motivation in managing an account. In order to infiltrate and operate side by side with conventional banks, Islamic banks must be able to know the people’s perceptions that their system is much better than the conventional system. Consequently, inferable from the much focused condition, Islamic banks need to focus client recognitions in bank determination to help them advertise their items capable (Haron, Ahmad & Planisek, 1994; Dusuki & Abdullah, 2006). According to Rustam, Bibi, Zaman, Rustam and Zhid-ul-haq (2011) to conclude, a new conceptual model for Islamic banks selection criteria should include understanding of Islamic banking concept.

The review is to indicate that more focus and improvement of education and training on advanced aspects of Islamic banking and finance are urgently required. This finding is important for policy-makers such as national banks. As Malaysia plans to wind up plainly the worldwide center point of the Islamic money related industry, information of Islamic keeping money and fund among the bank chiefs is basic to understanding that objective. In particular it is essential if the industry is to evolve and prosper. Knowledge of the foundation of Islamic banking practices. In addition, only if the bank managers are knowledgeable can they inform and educate their customers, which in turn will attract new customers and enhance the market share of Islamic banks. This is especially important in a dual financial system like Malaysia where Islamic financing is practiced in parallel with conventional banking.

(43)

25 2.4.3 Trust and Confidence

H0C : There is no significant relationship between the trust and confidence and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1C : There is significant relationship between the trust and confidence and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

In Islamic Banking, trust and confidence are applied with Sharia compliant.

Consumers will more believe based on the banks will meet its promise which is called trust. Confidence which means customers will more prefer a bank which has a stability capital, higher reputations, and higher return. For the example customer more trust bank A than bank B, because that customer believes that bank A will give that customer more benefits than bank B, and the bank A’s has more sufficient capital which means more stable than bank B. According to Fungacova, Hasan &

Weill (2016), trust in the banks is a basic element in the economy. Because consumers always think that must put money in trust rather than put trust in money, trust can helps to stability the financing and inclusive financing and it thereupon helps to promote economic growth. Banks need consumers’ trust and confidence to attract consumers to deposit in banks or borrowing from banks, have a good relationship with banks.

2.4.4 Flexibility of Withdrawal

H0D : There is no significant relationship between the flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1D : There is significant relationship between the flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

The flexibility of withdrawal refers to how flexible can the customers withdraw or transfer their deposit into cash or another time of investment. While the flexibility of withdrawal might be different according to the bank’s basis of preferences and

(44)

26

convenience such as online services provided and location of ATM (Aziza & Awais, 2016). For example, the ATM of bank located inside a mall allowed their customer to withdraw money after the bank working time and this may be the reason of customer choose this bank instead of other banks.

2.4.5 Four independent variables

H0E : There is no significant relationship between independent variables (Sharia compliance, knowledge of non-Muslim customers, trust and confidence, flexibility of withdrawal) and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

H1E : There is significant relationship between the independent variables (Sharia compliance, knowledge of non-Muslim customers, trust and confidence, flexibility of withdrawal) and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia.

2.5 Conclusion

In this chapter, the relationship of Sharia compliance, knowledge of non-Muslim customers, trust and confidence, flexibility of withdrawal and the preferences of non-Muslim customers toward Islamic deposit products in Malaysia have been demonstrated an supported by the findings, previous studies, theories and journals.

Besides, the five hypotheses made to test whether there have relationship between selected independent variables and the dependent variable or no. However, the methodology of research will be discussed in the following chapter.

(45)

27

CHAPTER 3 : METHODOLOGY

3.0 Introduction

This chapter includes the data collection method, sampling design, research instruments, constructs measurements, and data analysis. Primary data and secondary data are the types of quantitative approach using in different research. In this study, primary data are collected from 250 questionnaire papers; the questionnaire is created to distribute to targeted respondents through hand-to-hand method. In the end of this chapter, descriptive analysis, reliability test, and inferential analysis will be designed and presented on how the research is going to carry out.

3.1 Research Design

Research design includes methods and processes in development of this study, thus it is serves as a structure for this research project. The questionnaire survey to respondents will be used to collect the data. However, only data and information that are relating to this study will be collected and analysed. In this research, descriptive and quantitative methods will be used to examine the data collected.

3.1.1 Descriptive Research

Descriptive research is a design to relate the participants in the study to an accurate direction. It included three methods to proceed the project such as observational, case study and survey. Observational is a method that record the participants which involve in the study research by using observation. Case study is a method that study and understanding a group of individual to get information and data throughout the process. Survey is a method that used to discuss certain spec

FACTORS THAT AFFECT NON-MUSLIM CUSTOMERS’ PREFERENCE AGAINST ISLAMIC