An empirical investigation of the adoption of Islamic finance in Malaysia: a consumer behavior approach

Islamic banking has been around for three decades already in Malaysia and has become a major part of the country’s banking system. With a more extensive banking network, the question whether Islamic banking is favored by Muslims (as it should be) or otherwise still persists. It is important to see whether the religiosity effect plays a role in attracting consumer to subscribe to Islamic banking products or whether other banking selection criteria supersede faith. It is also undeniably important to dissect the overall adoption process of Islamic Banking (IB) to ensure the competitiveness of Islamic banking sector. Knowing how users perceive using IB and what factors affect the formation of their perceptions of using this mode of banking will definitely help us understand why users indulge in Islamic banking instead of conventional banking. In other words, knowing users’ beliefs on using this new form of banking will help us to determine their attitude towards Islamic banking, which accordingly affects their intention to use or not to use IB. This type of belief-attitude-behavior intention-actual behavior approach was applied in the Theory of Reasoned Action (TRA), which aims to explain and predict human behaviors. The present study used TRA as a theoretical framework to investigate why users select and use Islamic banking and how its characteristics, religious aspects, individual differences, and social influences affect the selection and use. This study makes a unique contribution by developing an Islamic banking selection and Use Model based on TRA. Fieldwork for this study was carried out in Klang Valley, Malaysia where the populace contains sizable percentages of adherents to four of the world’s leading religions, namely Islam, Buddhism, Hinduism and Christianity. The research data was collected by means of a survey through self administered structured questionnaire. Descriptive statistics and Structural Equation Modeling (SEM) techniques with SPSS 17.0 for Windows and AMOS 17.0 were used for data analysis. The study found that three behavior beliefs (perceived compliance, perceived usefulness, and perceived satisfaction) and one normative belief (family influence) largely mediated the relationship of external variables (religiosity and content knowledge) with IB selection, and actual use of IB. Among the statistically significant paths found in the proposed model, perceived compliance had the strongest impact on users’ selection of IB while religiosity and perceived compliance had the strongest effect on users’ actual use of IB. The result of the current study carries significant managerial implications for marketing strategists in IB domain. The present study determines whether religion is justifiable for market segmentation. If larger market segments of the society can be identified on the basis of their religious profiles, the marketing strategists could develop programmes and policies that would maximally enhance the importance values of the consumers in each religious market. In addition, findings of this contribute to niche marketing strategies by providing a framework within which religious consumer groups in Malaysia may be better understood and targeted by banking industry. For international banks considering Malaysia as their new country market, an understanding of consumers’ religious background and its influences on their banking behaviors would be essential to compare with that of consumers in countries in which the firm has had prior marketing experience.