Determination of Islamic Banking Adoption in Pakistan: An Empirical Analysis Presented By: Dr. Syeda Faiza Urooj Assistant Professor Commerce Department Federal Urdu University, Islamabad, Pakistan

Introduction Problem Statement Islamic banking registered exponential growth throughout the world for the last two decades (Global Islamic Finance Report, 2012). In 2013, the assets of Islamic banks was estimated to be $1.7 trillion and expected to increase by 3.4 trillion by 2018 (World IB Report, 2013-2014). However, this industry is under served in many Muslim markets. In Pakistan, these bank’s local activity is very limited representing only 2% of the total financial assets (African Development Bank, 2011)

Introduction Pakistan is an economy in which conventional banking has remained in dominance for the last sixty years. This research focuses on the Pakistani banking sector in which Islamic finance, despite its appearance in 1983 remains at an embryonic stage. A few Islamic banks have been launched in the past few years but they are offering very restricted services to local market.

Introduction Therefore, this study extends the innovations diffusion theory (Rogers, 2003) by explaining the Islamic banking adoption in Pakistani context.

Awareness of Islamic Banking Model of the study Intentions to adopt IB Perceived Risk Complexity Relative Advantage Compatibility Bank Reputation Awareness of Islamic Banking

Awareness of Islamic Bank Services Pakistani consumers are unaware with the idea of how Islamic banks operates and provide services to its customers

Perceived relative advantages Relative advantage is defined as the degree to which an innovative idea has the marginal benefit over another idea being superseded (Rogers, 2003). The relative advantage of IB will be considered in terms of its religious, economic and ethical benefits.

Bank Reputation The selection of an Islamic bank is mainly based on the quality of services offered and reputation of the said Islamic bank

Perceived compatibility It is explained as the extent to which an innovative activity is inline with the concurrent socio cultural norms and beliefs,

Perceived complexity the degree to which an innovation is perceive as difficult to understand and use simplicity is an important factor in the patronage of IB.

Perceived risk It is defined as the customer’s perception of the uncertainty and potential adverse consequences of buying a product or service

Data Description Convenience sampling was used as sampling technique. Respondents were the customers of conventional banks who preferred conventional banking practices over the Islamic banking practices. Questionnaires were distributed to the conventional bank’s customers with the help of branch managers located in Islamabad city. Data was collected for the period July 2014 to June 2016. 279 among the 400 questionnaires distributed got response, thus providing a 70% response rate.

Sample Characteristics

Fitness Indices

Reliability Measures

Validity Measures

Results

Beneficiaries The results of this study will be significantly practical and helpful for managers/practitioners as well as different banks’ managers to target their actions and strategies more effectively. These individuals can help banks to implement new strategies or to readjust their existing strategies to tap the potential Islamic banking sector in Pakistan.

Conclusion Islamic bank reputation, relative advantage of IB and its compatibility with consumer religious beliefs positively influence the intention to use it. Perceived complexity and perceived risk are the main factors that explain the rejection of IB by consumers. The major finding of this study is that there is a general lack of awareness regards the IB system, its features and benefits among Pakistani consumers.

Limitations and Future Research Respondents are non-users of Islamic services This study is confined to a narrow geographic area, Pakistan City, such that this research’s findings cannot be generalize. It could be cross country and cross cities as well. More factors like religiosity, outlook, age and social influence, size, corporate image, promotional effort and service quality can also be used to determine the adoption of IB  

Thank You