Non-users of Islamic banking: Narrow branch network, inconvenient locations termed barriers

LAHORE: A narrow branch network, inconvenient branch locations and perception that "Islamic banks do not completely follow Islamic principles" act as barriers for non-users when selecting Islamic banks, said banking sector experts. These experts have stressed upon the State Bank of Pakistan (SBP) to conduct awareness campaigns among the business community and develop fruitful policies to improve the corporate image of Islamic banks to increase Islamic banking users among the Small and Medium Enterprises (SMEs) to confront the negative impact of Covid-19.

At present, there are six full-fledged Islamic Banks (Meezan Bank Limited, Dubai Islamic Bank, MCB Islamic Bank Limited, Al-Baraka Bank and Bank Islamic Pakistan) operating in Pakistan. These banks have been properly working according to the holy Quran and Sunnah to fulfill the customer's needs, they added.

On the other hand, 16 conventional banks have also opened their Islamic banking windows in the different cities of Pakistan. The total number of Islamic bank branches is 2708.

Azeem Ahmed, an expert on the Islamic banking, said different factors such as awareness, bank corporate image, government support, ideology, relative advantage, relative obligation, perceived behaviour control, attitude, subjective norms, and self-efficacy have a significant positive impact on the adoption of Islamic Banking among the selected SMEs in Pakistan. Already, he added, the Islamic banking industry of Pakistan has grown at a very high rate because of a number of factors including government support.

An SBP report released early last year had pointed out that the Pakistani Islamic banking industry has shown remarkable growth with its assets reaching about 12.9% of the whole banking sector. Similarly, its deposits account for 14.8% of the total banking industry deposits. According to another report of SBP published in 2018, less than 8 percent of banking customers understand the Islamic financing laws as well as Islamic banking products and services. However, their awareness about the Islamic banking products and services have been improved with the help of social media, mass media and print media.

Islamic banking is an emerging financial system in the contemporary world. Currently, it is found mostly in Islamic countries or in countries where OPEC oil revenues have been invested. Most of the research has therefore been oriented towards macro-environment issues, ignoring the market-oriented problems. The purpose of this paper is to determine the conditions under which Islamic banks can successfully compete with conventional banks by understanding customer attitudes towards Islamic banking products.

Mohammad Bilal, another banking expert, said there is a lack of awareness about basic conventions of Islamic financing options among customers of both the pure Islamic banks and conventional banks with Islamic banking branches. They believe that the bank's staff lacks the ability to provide credible information about religious compliance of Islamic banking financial services, he added.

Copyright Business Recorder, 2020