Sharieah Compliance of Palestinian Islamic Banks
Exploring the gap between customers’ and professionals’ opinions
Na’el SayedAhmad 1
Abstract
The current study is exploring the area of Shari’ah compliance disclosures for Islamic banks in
Palestine. In particular, the study aims at investigating customers’ and professionals’ opinions about such disclosures and the level of their understanding of Islamic banks using the case of
Palestine Islamic bank. The results indicate a high level of understanding of this sector and that both professionals and customers value the same reasons for dealing with Islamic banks, and that there is a difference between what Islamic banks focus on to show compliance with Shari’ah and what customers and professionals seek to see in the annual statements. The study is done using a mixed method of content analysis and a questionnaire of 50 customers and 50 professionals. The study is limited by the small sample size and the lack of literature about this specific area of investigation. The significance is shown in exploring this industry in Palestine, and that it contributes to the literature by introducing a new set of terminologies that would help bring the focus of future research on this area.
Keywords : Shari’ah compliance, Islamic banks, Palestine, professional expectation gap, customers expectation gap, Experience in Shari’ah compliance gap
1.1
Overview of Islamic banks and definition
Islamic banks have been introduced to the world for more than four decades now. Their existence is based on the concepts of following the Islamic Shari’ah and trying to contribute both socially and economically to a better community (Maali et. al, 2006, Haniffa and Hudaib, 2007).
Each year several Islamic banks spend a considerable amount of money in their effort to develop
1
(Corresponding Author):
Na’el SayedAhmad
holds a Msc. Accounting and Finance from the University of Westminster in the
UK, and is currently a PhD Accounting student at the Faculty of Economics and Management at the International Islamic
University Malaysia (IIUM). He has a teaching experience of more than three years, and his research interests are in the area of
CSR and Shari’ah reporting for Islamic Banks and his focus is on regulating this area. Email: nys1984@yahoo.com
- Mobile:
0060192501360 / 00970598431340
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more Shari’ah-based products and services. It is hoped that such efforts would result in a transition from a conventional banking system to an Islamic-based economy (Amir and Saeed,
2011). At the same time, this could encourage customers, especially Muslims, into dealing with
Islamic banks rather than staying in the conventional system.
Although many criticize Islamic banks as being the same as conventional ones, these banks have still gained popularity around the world. One of the reasons may be due to the fact that not only did they survive the recent global financial crisis (Adel, 2010), the Islamic banks seem to have been more stable and less affected by the crisis that their conventional counterparts. This stability may be due to the fundamental principles that govern the Islamic banks as discussed below.
The main prohibitions that govern this industry are: Riba (usury), Gharar, and Maysir (Abu
Umar and Hassan, 2009). In the context of Islamic Shari’ah, money is the means of facilitating trade, thus it could not be possible for Islamic banks to offer services as those of conventional banks, and hence, other structures have to be used such as being a partner of a certain business; rather than just providing the money for it. This was consistent with the definition of Islamic banks offered by the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI), which insists on the concept of Shari’ah that ‘profit is for those who bear the risk’
(Aliakbar Jafari, 2012).
Maali et. al, (2006) defined Islamic banks as “banks that follow Islamic Shari’ah in their business transactions.” This definition shows that the reason for developing such banks is to achieve Islamic objectives, which are: protection and preservation of faith, life (including human, animal and environmental), wealth, intellect and posterity. The first Islamic bank (Mit
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Ghamr Local Savings Bank) was established in Egypt in 1963, followed by the development of other similar banks in other Islamic countries, such as Kingdom of Saudi Arabia, United Arab
Emirates, Sudan, Jordan and others (Venardos, 2005).
The current work is an attempt by the researcher to explore the area of Islamic banking in
Palestine. There are some differences inherent in the understanding of this segment by both customers dealing with these banks and professionals (employees working at different levels in
Islamic banks and SSB members).
The study is an attempt to explain why customers might view Shari’ah compliance differently from professionals and to see whether professionals have adequate understanding of their place of work and its nature. This is going to be compared to what actually Islamic banks disclose to show Shari’ah compliance using the literature about CSR disclosure of Islamic banks.
1.2
The research problems:
Over the past few years, a lot of debate surrounded the area of Islamic banks; much of what have been discussed is about answering the question of how Islamic Islamic banks are? In other words, how far Islamic banks are Islamic, and to what degree they follow Shari’ah in their transactions, and how far they managed to achieve their objectives, especially those relating to promoting the community.
As one of the most important providers of financial services in today’s economy, it is becoming more important for Islamic banks to be able to widen its customer base and be able to compete with long established conventional banks not only through better quality of services provided, but also through showing the public that their existence is dependent on the Islamic
Shari’ah principles which lead to a universal Islamic system.
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In Palestine, the Islamic banking industry is relatively young, a little older than 15 years, still; it managed to capture a lot of interest from the public and is growing consistently. One area of concern however, is that many customers do not know how to answer the previous question about the Islamization of Islamic banks, and what factors might help them determine if such a bank is truly Islamic? A greater problem is faced when asked to distinguish between an Islamic bank’s service and a similar one being provided by a conventional bank.
Thus, the current work is trying to answer the following questions: First: what is the degree of professionals and customers knowledge of what an Islamic bank is? Second: Do professionals and customers have different reasons for dealing with Islamic banks? And finally: Do professionals and customers have different opinions about what should be disclosed by Islamic.
By conducting a brief study of both professionals and customers, an understanding of the differences and similarities among those stakeholders could be reached.
1.3
The research objectives:
This is a brief study of the Islamic banking industry in Palestine. More particularly; the study aims at exploring the differences in perceptions of professionals working at Islamic banks and customers of those banks in terms of their understanding of Islamic banking, their understanding of Shari’ah disclosures by Islamic banks, and their reasons for selecting to deal with those banks.
This is going to be done using the Palestine Islamic Bank (PIB) as a case study where the researcher is going to test it using a questionnaire. In a more precise form, the following objectives are to be achieved through this study:
1Explore the level of understanding by professionals and customers of Islamic banks and later on add value to the discussion of existing gaps.
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2Determining the differences between professionals and customers in their reasons for dealing with Islamic banks, and try and see how they both value Shari’ah compliance when selecting to deal with an Islamic bank, among other reasons.
3Exploring the differences among professionals and customers in determining what to disclose by Islamic banks to show Shari’ah compliance.
For the purposes of this study, the Palestine Islamic Bank is used as a case study, which is considered as one of the largest and oldest Islamic bank in Palestine.
2.1
History of Islamic banks in Palestine
The history of Islamic banks in Palestine is relatively brief. The industry started its operations in this country in 1995 in Gaza, by establishing an Islamic window for Cairo-Amman bank. This was followed by the establishment of fully fledged banks such as: Arab Islamic bank
(1996), Palestine Islamic bank (1995), and Al-Quds Islamic bank (1997) (Mashharawi, 2004).
Cairo-Amman Islamic window was later acquired by Palestine Islamic bank in 2005, which meant that Islamic banks in Palestine are all fully fledged and no windows exist currently
(Khalidi, 2006).
In his study of this sector, Jabr (2003) investigated the challenges that are faced by Islamic banks in Palestine. He divided banks into two groups: Islamic and conventional, there were only four Islamic banks at that time and 19 conventional banks (local and international banks). He recommended that more efforts should be made by Islamic banks to market their products, the need to educate the public about Islamic banks, the need for an Islamic banking regulation from
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the Palestine Monetary Authority (PMA) and that Islamic banks should train their staff on the area of Islamic banking and marketing.
According to prior literature (Khalidi, 2006; Mashharawi, 2004; Jabr, 2003; Ahmad and
Kader, 2012) amongst the challenges facing Islamic banking industry in Palestine are the following:
Islamic banks are unregulated thus far, as the banking laws implemented in Palestine are that of Jordan (1966), and the PMA (1997), both not having any paragraphs with regards to Islamic banks.
When first established, many deposited their money in Islamic banks to benefit from the investment opportunities, which were at that time very limited. This negatively affected the reputation of Islamic banks in Palestine as they could not establish long term investments that could survive the current problems within the economy.
Many of the customers (as it is the case in many other countries) could not distinguish between the different services and contracts provided by Islamic banks. This became even worse when many lacked the ability to compare between conventional and Islamic banks.
Most of the investments are in Murabahah contracts, which yield low returns and inherent low risk on the short term.
The financial statements of Islamic banks in Palestine show high levels of liquidity
Islamic banks face tougher and more advanced competition from conventional banks, which are also older and controls a much higher market share. This is also seen in the lack of staff with expertise in Islamic banking as most personnel come from conventional banking backgrounds.
Islamic banks do not sufficiently engage in new product development and are currently not expressing intentions to engage with the AAOIFI in order to advance their operations and
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services and enhance their reputation as being Shari’ah Compliant as other banks in neighboring countries.
In their study of role of Islamic banks in the Palestinian economy, Ahmad and Kader (2012) investigated the reasons for selecting to deal with this industry from the perspective of businessmen. They found that the most important factors were: the location of Islamic banks, preferences to deal with Islamic banks, creditability and credit facilities, quality of management and services, and religious factor (interest-free). They stressed that businessmen know more about Islamic banks and the investment opportunities within these, and that even if they default on payments, they still do not pay any penalties such as those imposed when dealing with conventional banks. These reasons for selecting Islamic banks are further elaborated below.
2.2
Reasons for customers to select an Islamic bank?
Many of the studies in this area of research stated the following factors for dealing with
Islamic banks: a.
Religiosity (Shari’ah Compliance): Many Muslims emphasize the need to deal with banks that follow Islamic Shari’ah in their operations; and as Islamic banks are considered as those institutions that fill the needs of Muslims as Shari’ah-Compliant Financial Institutions, it seems logical for customers to be satisfied while dealing with these banks. And although religiosity is subjective to each person and is hard to measure, it does not mean that Muslims are all the time satisfied with services (Amin and Isa, 2008).
b.
Convenience: it has been always believed that what customers look for in Islamic banks, as well as other institutions, is ease. If banks make it easy for the customer, they will have a customer for life. Convenience in Islamic and conventional banks is to some extent the same.
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Providing parking space, available 24/7 ATMs, location of branches, and even the long working hours are all examples of such aspect (Amin and Isa, 2008, and Waemusor, 2010). c.
Fast and efficient service: customers view a service as being efficient if it meets customer’s expectations and satisfy their requirements. It is important to realize that banks offer services with characters such as: heterogeneity, intangibility, and inseparability, thus making it somewhat difficult to know how customers judge such services. A greater and more important area to think of in this regard is the unstated needs of customers that would also affect their judgment of product efficiency (Waemusor, 2010). d.
Friendly personnel: it generally refers to how employees and management deal with customers. It is important to note that although the banking industry is advancing very fast in terms of technology adaption, it still highly depends on socializing as a means of getting the customers. Waemusor (2010) further explained the term friendly personnel using (Khattak and Rahman, 2010) remarks on that friendly personnel might be those who offer guidance and information, answer customers’ questions, and even give a smile, which is a kind of
Sadaqah. e.
Recommendations from friends/family: many researchers have studied the importance of word of mouth and its impact on customer satisfaction. It is important to realize that although customers might not show what they truly feel regarding a certain institution, they still convey that to their relatives and family, and hence, if bad emotions where attached to a certain institution or its products and services, negative advice is what they give to others and this is expected to continue as a chain of negative reactions towards the institution. So
Islamic banks have to be careful when dealing with customers and even when making
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promotion campaigns that would otherwise hurt the feelings of a certain group within society
(Bukhari and Awan, 2011, and Erol et. al, 1990). f.
Availability of various financing options: it is important for Islamic banks to be able to offer as many alternatives as possible to those services provided by conventional banks in order to stay in the competition. One important area of this concern is the financing tools offered by Islamic banks. As the literature suggest; it is not easy for customers to differentiate among the different financing opportunities provided by Islamic banks, thus it becomes even more important not just to offer a wide range, but also to provide explanatory information about each of these in order for customers to provide the suitable impressions regarding their satisfaction with such services (Bukhari and Awan, 2011). g.
Privacy and confidentiality: one very important characteristic of Islamic banks is the confidence people have in their ability to keep their privacy. This is true for conventional banks too, but as Islamic Shari’ah stresses Amanah (trust) among Muslims, and many verses of the Quran urge Muslims to keep their promises and do their Amanat (entrusted items), it becomes a sort of non-spoken contract between the bank and its customers not to distribute any information regarding their financial activities, accounts, and even their personal transactions that would otherwise not be as much protected as when dealing with conventional banks (Bukhary and Awan, 2011, and Nejad et. al, 2011).
It is important to realize that Islamic banks in Palestine offer a mix of those motivations to both customers and their employees. However, this does not mean that conventional banks do not offer these as well. It is the purpose of the following sections to see how these affect both customers and professionals in selecting to deal with an Islamic bank, and whether these are all viewed in the same order of importance by both parties (especially Shari’ah compliance).
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2.3
Shari’ah compliance disclosures:
It is important to realize that Islamic banks have the duty of explaining to the public what their nature is (Accountability to Allah and community as mentioned by Maali, et. al, 2006 and
Haniffa and Hudiab, 2007 among others). They are also responsible for explaining how their work affects the community and how they are contributing to a better society through their activities. The literature of CSR of Islamic banks suggest that Islamic banks might be able to explain their Shari’ah compliance through many aspects to be disclosed to their financial reports; including:
1.
The SSB report: where the board members express their opinion about the operations of their Islamic bank and how they managed to adapt to Shari’ah principles in performing their financial duties (Maali, et. al, 2006 and Zubairu et. al, 2011)
2.
Zakat calculation: the SSB should express an opinion about Zakat and how it was calculated and distributed to benefit the society in general (Zubairu et. al, 2011).
3.
Nature and calculation of unlawful transactions including Riba and Gharar: these should be explained in terms of calculation and inclusion in the financial reports (Maali, et. al, 2006 and AAOIFI).
4.
Reasons for undertaking unlawful transactions: such explanation should be provided by experts working in the Islamic bank (Maali, et. al, 2006 and AAOIFI).
5.
The revenues generated and expenses paid: as related to unlawful transactions and reasoning of these cash flows (Haniffa and Hudaib, 2007 and Maali, et. al, 2006).
6.
SSB opinion on imposing penalties on late repayments: such as reasoning and calculation and how to explain it as a source of income for the bank (Haniffa and Hudaib, 2007 and
Ousama and Fatima, 2006).
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7.
Halal status of products and services: the innovation of Islamic products at Islamic banks should be accompanied by a statement of its Halal (Shari’ah compliance) and whether such product remains Halal and suitable for future customers needs (Sulaiman, 2005).
8.
Statement of bank’s general compliance with Shari’ah:
which aims at explaining the identity of the bank to the public and stress its compliance with Shari’ah in different media, not only in financial statements (Harahap, et. al, 2010, and Zubairu, et. al, 2011).
9.
Attestation by Islamic bank that profits and losses are distributed in accordance with
Shari’ah:
this is crucial to different users of financial reports and not only customers or professionals as it would show how the banks apply Shari’ah principles when distributing its profits and handling its losses as well (Ousama and Fatima, 2006 and Harahap, et. al, 2010).
10.
Related verses from the Quran and Sunnah about Shari’ah compliance: this is a new diminution that should be added to explain the reasoning why many Islamic banks undertake certain unlawful transactions or behave in a certain way which might seem illogical for its customers. It would also serve to show that Islamic banks depend on such sources when doing Fatwa for their new products or when explaining their profit and loss distributions.
The above mentioned criteria are going to serve two important objectives of this study: firstly: it would help determine whether Palestine Islamic Bank is actually disclosing such statements in their annual reports (through conducting a simple content analysis for the financial reports of the PIB for the year 2011). Secondly: to use when preparing the questionnaire for both customers and professionals to ask them about Shari’ah compliance of their bank.
This study focuses on exploring the gap within the current literature about Shari’ah compliance of Islamic banks in Palestine; which is that Islamic banks in Palestine are not investigated enough. This is in terms of both customer satisfaction and professional satisfaction
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with Shari’ah compliance. Another gap of concern in this study is to investigate the differences in both professionals and customers perceptions and the gap between these and the actual
Corporate Social Responsibility Disclosures (CSRD) of Islamic banks in Palestine.
3.1
Data
There are three sets of data to be used to achieve the objectives and test the related hypothesis. The first set is the annual report of the PIB for the year 2011, which would serve as the basis for establishing what is actually being disclosed to show compliance with Shari’ah and which is sourced from the bank’s website. The second set is the primary data collected through a questionnaire to ask a random sample of professionals working at this bank about different aspects of their knowledge about Islamic banks, which would help establish the professionals’ expectation gap .
The third and last set of data is collected by the same questionnaire which is distributed to a convenient sample of customers of PIB to establish what is referred to in this study as the customers’ expectation gap
. Both the 2 nd
and 3 rd
sets of data are later on compared to try and identify the experience in Shari’ah compliance gap .
3.2
Research sample and instrument:
The population for the purpose of this study is all the customers of PIB and professionals working within. A simple random sampling method is used to select the sample for the purpose of the current research, where 50 professionals of the PIB working at different levels are compared to another 50 customers dealing currently with the PIB. The questionnaires were distributed to professionals whilst being at work, within the PIB. Whereas the customers were
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approached in front of the bank branches whilst leaving the bank facilities after making sure they are regular customers of those banks.
The questionnaires were first prepared in English language, then translated to Arabic and then back to English again to assure consistency of translation before handing it out to respondents. It was made sure all questionnaires were filled properly so as to achieve the highest possible usable number of questionnaires by respondents.
The questionnaire contained four parts: the first was about demographics of respondents, where they had to state whether they are customers or professionals working in PIB among other variables. The second part had seven paragraphs all testing the level of respondents’ knowledge in the area of Islamic banks in general. The third part asked the respondents to rank seven reasons to deal with Islamic banks in accordance to their own preferences. In the fourth and final part, respondents were asked to rank 10 statements about disclosures of Islamic banks to express their Shari’ah compliance in the order they preferred. At the end of the 3 rd
and 4 th
parts an open ended question was presented to see if any respondent had any other suggestions about the relevant parts.
4.1
Demographics of respondents
The following table summarizes the demographics of the sample. It is observed from the table that there are no missing values. All the questionnaires were filled properly and the respondents vary in terms of: gender, education level, years of dealing with Islamic banks, age, and income. As stated above, the respondents were equally divided into the two target groups of respondents (50 customers and 50 professionals).
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The table shows that most of the respondents were men (62%) in total, whereas women accounted for a smaller part of the sample (only 32). The table also shows that the sample accounts for more than half of the respondents being with less than five years of experience in dealing with Islamic banks, which seems logical as the sector itself is less than 15 years old in
Palestine, and that awareness about this industry is just starting to grow.
On the other hand, those dealing for a relatively long period of between five and ten years accounted for a smaller part of the sample (only 36%). This is also evident in the age group where most respondents are (20-29 years) with almost half of them belonging to this age group, which relates directly to the fact that most of the sample have less than 5 years of experience in dealing with Islamic banks (usually people start dealing with banks when they graduate from undergraduate level, when they find a job at the bank or outside).
This is evident in the fact that 55% of the sample are undergraduate degree holders and have an income within the last two groups (2501-3000 NIS and 3001 and above) which both accumulate to 52% of the sample selected for the purposes of this study. Interestingly; those who hold a high school certificate or less are almost the same number as those who have an income of less than 1500 per month, and at the same time those who have an experience in dealing with an
Islamic bank for more than 10 years are the smallest group of respondents and this might correlate to the fact that there is a small number of respondents in their 50’s of age, and that banks are relatively new in this country. This analysis of relationships adds value to the understanding of the relationships later on explored, as an understanding of different demographic groups and relations inherent in their relationships helps rationalize the response they provide for the next parts. Now, a move is made to exploring the answers this sample provided for the different parts of the questionnaire, and an important note to make at this point
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is that each of the following parts would help test one hypothesis using different paragraphs mentioned in the questionnaire.
Table (4.1): Demographics of respondents of both groups variables sex number of years of dealing with Islamic banks nature of relationship to Islamic banks age education level monthly income (NIS) level of variable number percentage male female less than 5 years
5-10 years more than 10 years 12 employee 50 customer less than 20 years
50
3
20-29 years
30-39 years
40-49 years
62
38
52
36
49
31
13
50 years and above 4 high school and less 14 diploma bachelor
/undergraduate postgraduate
21
55
10 less than 1500
1501-2000
2001-2500
2501-3000
3001 and above
15
14
19
25
27
10%
15%
14%
19%
25%
27%
62%
38%
52%
36%
12%
50%
50%
3%
49%
31%
13%
4%
14%
21%
55%
4.2
Awareness about Islamic banks (H1)
In the first hypothesis we will be looking at the respondents’ ability to identify the basic terminologies and characteristics of Islamic banks, and then test whether the customers view these differently from professionals working in Islamic banks (specifically PIB).
H1: There are no significant differences between customers and professionals at (
0.05
≤
) in the understanding of the nature of Islamic banks.
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The following table summarizes the respondents’ views about the awareness about different terminologies which are widely used by Islamic bank scholars and are found in the literature to be the most influential in terms of explaining the differences among Islamic and conventional banks. This is followed by another table which describes the differences between customers and professionals in their understanding for these terms.
Table (4.2): Summary of responds to defining basic terminologies used for Islamic banks terminology level of awareness mean st.dv.
Shari’ah compliance of Islamic banks
Riba in financial transactions
Ijarah contract
CSRD for Islamic banks
Musharakah contract
Murabaha contract differences between Islamic and conventional banks very good
27
38
28
29
27
32
35 good moderate
41
32
33
25
23
22
27 23
22 29
33 21
29 25
12
18
12
9 not good
6
6
12
1
1
5
9
4
2
2
I don’t know
3.89
4.00
3.67
0.917
0.974
1.155
3.55 1.274
3.50 1.185
3.81 1.080
3.86 1.064
The above table shows that the knowledge of respondents about Islamic banks is very good in general, as they know what Riba is with a mean of 4.00 and Standard deviation of 0.974, followed by their knowledge of what is Shari’ah compliance by Islamic banks with a mean of
3.89 and standard deviation of 0.917. It is interesting to notice at this stage that both customers and professionals working at Islamic banks cannot seem to understand what is a Musharakah contract as it received the lowest mean (only 3.50) and this is also true for their understanding about CSRD for Islamic banks (only 3.55). The following table summarizes the differences in response between customers and professionals.
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Table (4.3): t test for customers’ and professionals’ responses relation to Islamic banks number mean st.dv. freedom t value signif. customers 50 3.17 0.895 98 7.274 0.000 professionals 50 4.32 0.666
The above table shows the great difference between the means of customers and professionals in their understanding of the nature of Islamic banks based on their perceptions towards the basic concepts and terminologies used in the previous table. However this also implies that the first hypothesis is rejected as the t value is less than 0.05, which means that there are some differences inherent in the understanding of Islamic banks by both groups.
4.3
Reasons for dealing with Islamic banks (H2)
The second hypothesis to be investigated is that relating to the differences among customers and professionals in ranking the reasons for dealing with Islamic banks. The following table summarizes the ranking by both groups.
Table (4.4): Reasons for dealing with Islamic banks ranking by customers reasons convenience advice from family/friends various financing options privacy fast and efficient service friendly personnel complying with Shari’ah mean
5.22
4.88
4.88
3.80
3.80
3.18
2.26 ranking by professionals reasons various financing options advice from family/friends convenience fast and efficient service privacy friendly personnel complying with Shari’ah mean
4.74
4.50
4.12
3.78
3.68
3.62
3.50
It is observed from the above table that there are some differences inherent in the reasons for dealing with Islamic banks, this is in terms of convenience, various financing options, and fast and efficient service, and privacy. However, both groups valued advice by family way higher
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than complying with Shari’ah or friendly personnel, which is interesting as both groups showed high level of understanding of Islamic banks, so maybe they came to realize that Islamic banks are not different from conventional banks, and maybe both Islamic and conventional banks’ personnel were treating customers and professionals in the same way. The following hypothesis is made to further explore this area:
H2: There are no significant differences between customers and professionals at (
0.05
≤
) in the reasons for dealing with Islamic banks due to the nature of relationship to Islamic banks.
Table (4.5): t test for customers’ and professionals’ responses nature of relation number mean st. dv. customers professionals
50
50
4.00
3.99
0.12
0.14 freedom
98 t value
-0.443 signif.
0.659
The above table highlights the fact that although some differences do exist between customers and professionals in ranking the reasons for dealing with Islamic banks, these are not significantly different as the t value was -0.443 and significance level was higher than 0.05. thus,
H2 fails to be rejected.
4.4
Disclosures for Shari’ah compliance (H3)
To start with this part, the actual disclosures of PIB are explored, followed by comparing these to customers’ ranking and professionals’ ranking of these disclosures to try and establish customers’ expectation gap
and professionals’ expectation gap
respectively. Finally these gaps are compared to try and see if experience in Shari’ah compliance gap exists.
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4.4.1
Actual disclosure of PIB:
In this part the annual report for Palestine Islamic bank for the year ending 31/12/2011 was examined using content analysis to establish the actual disclosure of PIB to compare it to the ranking that respondents emphasized. The following table represents the actual count, percentages calculated and ranking of the same criteria respondents were asked to rank to show
Shari’ah compliance (discussed above).
Table (4.6): Actual Disclosure for PIB for the year ending 31/12/2011 statements
The SSB report
Attestation by Islamic bank that profits and losses are distributed in accordance with Shari’ah reasons for undertaking unlawful transactions
The revenues generated and expenses paid…
Zakat calculation times % rank
11 23.4 1
8 17.0 2
7 14.9 3
5 10.6 4
4 8.5 5
Halal status of products and services statement of bank general compliance with Shari’ah
3
3
3
6.4 6
6.4 6
6.4 6 Nature and calculation of unlawful transactions including Riba and
Gharar
Related verses from Quran and Sunnah about Shari’ah compliance
SSB opinion on imposing penalties on late repayments
2
1
4.3
2.1
9
10 totals 47 100
It is seen from the above table that the PIB emphasizes the SSB opinion as a basis of preparing its annual report. This is evident in the fact that it had about one quarter of the disclosures. the table also shows that there is less focus on Quran and Sunnah verses that show
Shari’ah compliance, and that Halal status of the products, general statement of the bank’s compliance with Shari’ah and nature and calculation of unlawful transactions all were valued the same and all together added up to 20% of the disclosure. The total number of statements that show disclosure of Shari’ah compliance based on the researcher criteria were only 47 statements
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which is considered insufficient to an Islamic bank. We now move to the table that explores the expected gaps between customers and professionals and actual disclosure by PIB.
The table shows the significant differences inherent in the understanding of customers about
Shari’ah compliance disclosures and what the bank is actually doing. This is evident in the following: the bank highly values the SSB report, whereas customer value it the least.
Table (4.7): Comparing the customer opinion and actual disclosures
2
The SSB report statements
Attestation by Islamic bank that profits and losses are distributed in accordance with Shari’ah reasons for undertaking unlawful transactions
The revenues generated and expenses paid related…
Zakat calculation
Halal status of products and services statement of bank general compliance with Shari’ah
Nature and calculation of unlawful transactions including Riba and Gharar cus.
Ranking
(a)
10
9
3
8
6
7
5
4 actual disclosure
(b)
1
2
3
4
5
6
6
6 gap
│(a-b)│
9
7
0
4
1
1
1
2
Related verses from Quran and Sunnah about Shari’ah compliance
SSB opinion on imposing penalties on late repayments
1
2
9
10
8
8
Also attestation from the bank that profits and losses are distributed in accordance with
Shari’ah is highly valued by the bank, whereas it is much less valued by customers. On the other hand, where customer valued both related verses from Quran and Sunnah and the SSB on late repayments’ penalties, Islamic banks failed to focus on these to meet customers’ expectations.
Different ranking was given to the other statements and a match between actual disclosure and customer expectations was found only in the statement for reasons for taking unlawful transaction. This all shows a gap inherent between the bank’s actual disclosure and the
2 The gap is calculated as the absolute value of the differences between customer ranking and actual disclosure.
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customers’ expectations about such disclosures, leading to establishing the concept of
‘ Customers’ expectation gap ’.
The table also highlights differences between the opinions of professionals and the actual
Shari’ah disclosures by the PIB. This is shown especially in the focus on the emphasis on SSB report and SSB opinion on imposing penalties on late repayments.
Table (4.8): Comparing the professionals’ opinion and actual disclosures
3 statements
The SSB report
Attestation by Islamic bank that profits and losses are distributed in accordance with Shari’ah reasons for undertaking unlawful transactions
The revenues generated and expenses paid related…
Zakat calculation
Halal status of products and services statement of bank general compliance with Shari’ah
Nature and calculation of unlawful transactions including Riba and
Gharar
Related verses from Quran and Sunnah about Shari’ah compliance
SSB opinion on imposing penalties on late repayments pro.
Ranking
(a)
10
3 actual disclosure
(b)
1
2
1
2
5
9
8
6
7
4
9
10
3
4
5
6
6
6 gap
│(a-b)│
9
1
2
6
2
2
0
3
2
0
It also shows that both the bank and professionals agree on the same level on the need to disclose information on Zakat calculation and nature and calculation of unlawful transaction which were ranked 5 and 6 respectively. This leads to the conclusion that there is another gap inherent between the professionals’ opinions and actual disclosures by PIB, but maybe at a smaller level than that found between customers’ and the actual disclosure. This also helps establishing the term ‘ Professionals’ expectation gap ’.
3 The gap is calculated as the absolute value of the differences between professionals ranking and actual disclosure
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4.4.2
Experience in Shari’ah compliance gap:
The differences between customers and professionals in their ranking of what should be disclosed by Islamic banks to show Shari’ah compliance and what is actually disclosed led to establishing both customers’ expectation and professionals’ expectation gap. A final step is taken to try and see whether there is a gap inherent between these two gaps, which is investigated in
(H3) as follows:
H3: There are no significant differences between customers and professionals at (
0.05
≤
) in their opinions about Shari’ah compliance disclosures of Islamic banks due to the nature of relationship to
Islamic banks.
Table (4.9): t test for differences in ranking Shari’ah compliance CSRD nature of relation number mean st. dv. customers 50 5.38 0.12 professionals 50 5.48 0.57 freedom
98 t value
1.255 signif.
0.212
The above analysis of the customer expectation gap and professional expectation gap all help establish the gap inherent between customers’ and professionals’ ‘
Experience in Shari’ah compliance gap ’. Although this gap exists, it is not significant as the above table show, where t value was 1.255 with a significance level of 0.212 which is more than 0.05, leading to failure to reject the null hypothesis (H3).
This study managed to establish the concepts of customers’ expectation gap, professionals’ expectation gap, and experience in Shari’ah compliance gap, all based on the CSRD of Shari’ah compliance for the case of PIB. It also managed to shed some light on the reasons why
22
Palestinians deal with Islamic banks; and that they are perceived to have a high level of understanding of this industry. The gaps discussed in the above sections were explored and it was found that the experience in Shari’ah compliance gap was not proven to be significant among the customers and professionals, which is supported by the fact that both groups of respondents expressed a high level of understanding of Islamic banks concepts, and that both groups value the same reasons for dealing with Islamic banks.
The implications for this study to Islamic banks vary. Firstly: Islamic banks and especially
PIB have to consider the opinions of the respondents in future disclosures. Secondly: they have to show a clearer Islamic identity than that of conventional banks. Lastly: conduct further analysis of the proposed gaps to try and narrow these down so as not to have a negative impact on the Islamic banks’ future performance.
As any other study, having limitations and acknowledging these helps in drawing the roadmap for further research. Among the limitations the current study has: a small sample size, the need to further analyze other Palestinian Islamic banking industry, and the need to have a wider research scope of this area to enrich the current literature.
Future work should explore this area further and analyze the Shari’ah identity further to add more to the current CSRD regarding this area. It also could widen the scope in terms of both having a larger sample and maybe from different countries, and testing the trend of change in disclosures by Islamic banks after making recommendations about Shari’ah compliance disclosures. The general aim future work might focus on is addressing the new terminologies presented in the current study.
23
Al-Quran Al-Kareem
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