Several scholars have tried to understand customers’ preferences in selecting the banks (Islamic as well as conventional) to deal with. Different customers have different perspectives about Islamic banking, but the general idea remains the same. Such preferences differ from country to country due to the existing cultural, legal, and financial settings. Lateh, Ismail, and Ariffin (2009) reported that fairness in transactions could be the most commonly considered criterion by customers of Islamic banks. Customers of Islamic banks have been least bothered by the maximization of their profits through bank transactions (Lateh et al., 2009).
There have been several scholars who have studied the principles of Islamic banking. A gist of such studies suggests that there are two basic principles on which the whole Islamic banking is based. Lateh et al. (2009) mentioned that the first one referred to the sharing of profits among the partnership firms. In Islamic terms, this principle is called Mudharabah. The second principle has prohibited the account holders to desist from considering interest (Riba) on money borrowed or lent. There have been certain drawbacks of Islamic banking, which can be attributed to the strict guidelines of Shariah. When we look at these drawbacks from Shariah’s point of view, we understand that it is actually for the good of the masses. Shariah law is not meant to harm anyone due to its principles. Islam does not allow earning money from money. The only ways of earning allowed in Islam are through a business such as trading, manufacturing, and service-oriented jobs. There are restrictions to such businesses also. Certain things cannot be dealt with, such as gambling, pork, intoxicating items, etc. If we think optimistically, such guidelines are better for society as a whole because many malpractices can be avoided by such guidelines (Lateh et al., 2009).
Bahrain is a country where there has been a dual-banking system; both Islamic and conventional banks operate in the country. Al-Ajmi, Hussain, and Al-Saleh (2009) stated that Islamic banks had certain guidelines to be followed that were bound by Shariah law. As such, they have to work according to the Musharaka and Mudaraba systems. The Islamic banks have been following such principles in their transactions (Al-Ajmi et al., 2009).
It has been observed that Islamic banks face problems in their functions, and the bankers owe these problems to various reasons. Zainol, Shaari, and Ali (2008) reported that such problems included severe global competition, technological advancement, and an increase in well-educated customers. Over the years, the financial sector has witnessed the emergence of several global players that provided investment and loans based on Islamic principles. Due to the advancement in technology and science, conventional banks have gone far ahead in bringing innovative products for their valued customers. Islamic banks, on the other hand, have been relying on the same old banking instruments and products. Moreover, most of the Islamic banks do not have their research and development departments to devise new products. This has hampered the progress of Islamic banks to a great extent. The new generation of well-educated customers demands better services and products (Zainol et al., 2008).
Various studies that have been conducted on the customers’ preference towards Islamic banking revealed that even the non-Muslim customers want to deal with Islamic banks. One such study, conducted by Nawi, Yazid, and Mohammed (2013) analyzed that in countries such as Malaysia, non-Muslim customers preferred Islamic banks and their products such as Bai Bithaman Ajil (BBA). Nawi et al. (2013) further suggested that in Malaysia, people preferred Islamic banks due to their products, whereas in Bahrain, people dealt with Islamic banks due to religious reasons. Almost 70 percent of people in Bahrain are aware of the Islamic banking system and have a better understanding of its various features (Nawi et al., 2013).
References
Al-Ajmi, J., Hussain, H. A., & Al-Saleh, N. (2009). Clients of conventional and Islamic banks in Bahrain. International Journal of Social Economics, 36(11), 1086-1112.
Lateh, N., Ismail, S., & Ariffin, N. M. (2009). Customers’ perceptions on the objectives, characteristics and selection criteria of Islamic bank in Thailand. Gadjah Mada International Journal of Business, 11(2), 167-189.
Nawi, F. A. M., Yazid, A. S., & Mohammed, M. O. (2013). A critical literature review for Islamic banks selection criteria in Malaysia. International Business Research, 6(6), 143-151.
Zainol, Z., Shaari, R., & Ali, H. M. (2008). A comparative analysis of bankers’ perceptions on Islamic banking. International Journal of Business and Management, 3(4), 157-168.