The Effect of Trust, Customer Satisfaction and Image On Customers' Loyalty in Islamic Banking Sector

Author:Hoq, Mohammad Ziaul

This study attempts to investigate the role of customer trust, satisfaction and image in enhancing Malaysian Islamic bank customers' loyalty. This study was carried out using data from Islamic banks and dual-window Islamic banks in Malaysia, with respect to two different customer segments (i.e., Muslim and non-Muslim). Two leading fully fledged Islamic banks (Bank Islam Malaysia Berhad and Bank... (see full summary)



In Malaysia, the characteristics of Islamic banks are not merely of interest to Muslim customers but clearly non-Muslims customers see benefits from such a system. For Muslim customers, they have an opportunity to invest in a bank that operates based on their religious beliefs. Meanwhile, non-Muslim customers also have the same opportunity to choose to invest their money in Islamic banks or conventional banks. In this situation, Islamic banks are competing m the same market segmentation with conventional and foreign banks. Although, there is a difference between Islamic banks and conventional banks, they are nonetheless competing in the same market in terms of offering complementary products and services (Naser and Moutinho, 1997). Islamic banking is different from the conventional banking system, but there are some similarities between the two. For example, all banking facilities such as saving accounts, current accounts, credit cards and other products and services are available at Islamic banks (Naser and Pendlebury, 1997; and Naser et al., 1999).

Today, due to availability of innovative products and services in Malaysian banking sector, the competition to attract and retain Muslim and non-Muslim customers is likely to increase. For example, Bank Islam Malaysia Berhad (BIMB) reported that some 70-80% of the banks' trade and corporate financing are with non-Muslim customers (Ngui, 2004). Interestingly, both Muslim and nonMuslim customers showed a good understanding in term of products and services offered by Islamic banks in Malaysia (Muslim and Zaidi, 2008). This evidence indicated that Islamic banks in Malaysia are widely accepted by nonMuslim customers.

In business, trust is viewed as one of the most relevant antecedents of stable and collaborative relationships. Researchers had established that trust is essential for building and maintaining long-term relationships (Rousseau et al, 1998; and Singh and Sirdeshmukh, 2000). Morgan and Hunt (1994) stated that trust exists only when one party has confidence in an exchange partner's reliability and integrity. While defining trust Moorman et al (1993) referred to the willingness to rely on an exchange partner in whom one has confidence, according to Lau and Lee (1999), if one party trust another that eventually engenders positive behavioral intentions towards the second party. Moreover, from Anderson and Narus (1990), it can be safely deduced that if one party may bring positive outcomes to the first party, trust can be developed. Similarly, Doney and Cannon (1997) added that the concerned party also must have the ability to continue to meet its obligations towards its customers within the cost-benefits relationship; so, the customer should not only foresee the positive outcomes but also believe that these positive outcomes will continue in the future.

However, the issue of trust in Islamic banking are compliant with Shariah requirements. In Malaysian context, Muslim and non-Muslim customers level of trust will be partly based on whether they believe that the Islamic banks will fulfil its promises. The way in which trust has impact on Islamic banking is not yet well investigated. In this sense, when Islamic banks are operated on the basis of Islamic Shariah, trust becomes even more important dimension in gaining the customers than trust in the conventional banks. For this reason, one of the objectives of this study is to investigate the role of trust in enhancing Malaysian Islamic banks customers' loyalty, with respect to two different customer segments (Muslim and non-Muslim). This study was carried out using data from Islamic banks and dual-window Islamic banks in Malaysia. Little research has been conducted and minimal attention has been given to the relationship between trust, satisfaction, image, and loyalty, particularly using customers from the two different segments, Islamic banks and dual-window Islamic banks, especially in the context of Malaysia. Thus, it is important for Islamic banks to understand and analyze the impact of such relationships. This study proposes that the differences in these two consumer segments can cause a significant difference in their behavioral decisions. Therefore, a better understanding of the concept of trust will help Islamic banks build a long-term relationship with their customers.


Trust is a focal key in the development of the relationship between banks and customers. It is also acknowledged in marketing theory as the basic policy in developing and sustaining long-term relationships (Crosby et al, 1990; Ritter, 1993; and Doney and Canon, 1997), to build a mutually beneficial relationship with customers on the basis of mutual trust (Dayal et al, 2001), and to enhance competitiveness (Barney and Hansen, 1994). Generally, trust is viewed as an essential element for successful relationships (Moorman et al, 1993; Morgan and Hunt, 1994; and Berry, 1995).

Defining the concept of trust is difficult. This is due to the fact that this subject is somewhat vague and difficult to define (McKnight and Chervany, 2002), and has a dynamic and multifaceted character (Lewicki and Bunker, 1996). Although, trust has different meanings from the perspective of various disciplines (i.e. psychology, economic, finance, marketing, and religion), and has been studied in a variety of disciplines, every discipline has its own understanding and concepts in defining trust, and consequently, there is no consensus on its definition (Lewis and Weigert, 1985; and Young and Wilkinson, 1989). For example, Morgan and Hunt (1994) explained that trust exists when one group has the confidence to engage in a relationship with another trustworthy and honest party. This definition is in line with the one proposed by Moorman et al., (1992), where trust is defined as the willingness to engage in partnership. The elements of confidence and reliability from both parties are crucial in building trust. Furthermore, Moorman et al., (1993) explained that trust has two approaches. First, trust is defined as belief, confidence, or where there is an expectation on a trusted partner who has expertise, reliability and intentionality. Second, trust is also perceived as the intentional behavior or the behavior that reflects partner's trust, and it involves the element of uncertainty and vulnerability on the party who is trusting. Similarly, Garbarino and Johnson (1999) defined trust as customer confidence in the quality and reliability of the services offered by the organization.

In the Islamic banking industry, trust is also an important indicator that plays a major role in sustaining a long-term relationship with customers. However, when studying trust in Islamic banking, one should consider that trust in Islamic banking has a different definition and distinct constructs from trust definition in conventional and online banks. According to Hanafi and Sallam (1997), trust is a moral obligation of every individual in the performance of his or her duties and social, political and economic life. The performance of duties requires that individuals do it with sincerity and devotion in building a relationship with others. Similarly, Ahmad (1997) stated that the essence of trust is accountability, while the principle of trust is honesty and keeping one's word in performing social activities, as well as in one's political and economic life, and all other aspects of human life (Choudhury and Hussain, 2005). This value has profound implications for the conduct of business. Therefore, the values of honesty should be seriously considered and maintained by all parties in running economic and social activities within the society. In this sense, Islamic law encourages trust to be implemented in business transactions as it is one of the principles of the Islamic way of doing trade, and trade is done on the basis of trust and loyalty to trustworthiness (Hanafi and Sallam, 1997; Wilson, 1997; and Haron and Shanmugam, 2001). Furthermore, this approach is intended to stress that fraud in business for obtaining profit cannot be acknowledged as a system of Islamic trade or as a trustworthy trade (Siddiqui, 1992).

From the perspective of Islamic principles, Islam places the highest emphasis on trust and considers being trustworthy as an obligatory personality trait. Thus, the foundation of the philosophy of the dimension of trust in the Islamic banking system can be seen as a symbol...

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