Analysis of Islamic Banking products and services


It is inevitable that with the globalisation at that place has been significant modernisation plan within the banking system of Libya by bettering and upgrading the services and merchandise portfolio to run into the planetary challenges and varied client demands. A major influencing factor has been the authorities policy where under 2005 new banking jurisprudence of Libya foreign Bankss could come in the Libyan market without much of barriers. This has challenged many Libyan Bankss peculiarly Commerce and Development Bank ( CDB ) of Libya as Bankss in Libya offer limited fiscal offerings for its clients ( cardinal bank, Libya ) . This important alteration in focal point on services has forced directors in commercial Bankss in Libya to emphasize that their services are more client driven and that their services are systematically delivered at all the clip. Hence it is inevitable that directors and organisations need to understand and mensurate the client outlooks suitably and pull offing in a manner they continue to come on their relationship along with organisations advancement.

This literature reappraisal consists of three parts. First it focuses on service selling. Second it looks at the services refering to banking, thirdly it looks at theoretical accounts related to service quality ( i.e SERVQUAL, TQM, GRONROOS ) and eventually it focuses its attending towards service quality in the context of banking.

Service selling

There have been many definitions that can be used to specify service selling. Yet one that Palmer ( 1998 ) defined is been widely used in many academic reappraisals. He defined service as “ Servicess are originally intangible and comparatively rapidly a perishable activity, who ‘s purchasing, which does non ever lead to material ownership, takes topographic point in an synergistic procedure aimed at making client satisfaction ” . Besides that Zethaml et Al, ( 1990 ) considered services as attitude procedures and maps. Since there have non been many consistent definitions on services, Fuchs ( 1968 ) did non see conveyance and communicating as they are involved with goods. On the other manus touristry and amusement was included in Swan, J.E. and Trawick, I.F. ( 1981 ) ‘s service definition. Harmonizing to Palmer ( 1994 ) who defined service as “ A procedure of production of an basically intangible benefit, either on its ain or with some component of a touchable merchandise associated with it, tries to fulfill an identified consumer demands ” . Hence harmonizing to the above definition as Bankss produce essentaily intangible benefit and some grade of tangibles in the signifier of bank statements, ATM slips etc it is proved that banking sector falls in to a service sector. With increase accent given towards services even by fabricating organisations, indicates that services has a important influence on the organisations profitableness. Hence it was identified by Buzzel and Gale ( 1987 ) that client centred sensed service quality betterment has positive impact on profitableness.

Features of Servicess

As many service writers suggests, Iacobucci, D. , Ostrom, A. and Grayson, K. ( 1995 ) states that cardinal discriminator of the services selling is the four services features: intangibleness, inseparability, heterogeneousness and perishableness. Harmonizing to de Chernatony ( 2003 ) it is hard to distinguish a pure service or a merchandise as most merchandises have both intangible and touchable constituents. It is inevitable that there are offerings which has more touchable mentality and some are with intangible mentality. An offer consists of different elements, some of which are touchable and others which are intangible. Iacobucci, D. , ( 1995 ) provinces, those offerings which are more intangible in nature are services where it can non be seen or felt. In banking services client ‘s preponderantly look for the service of a staff during the dealing, which in consequence can non see or experience it. Therefore it makes the client hard to measure anterior, during, and after the ingestion of the services. Chernatony ( 2001 ) suggested that one manner to get the better of the issue of intangibleness is by dwelling on corporate trade name image, which reinforces on clear individuality and values. It is for this ground bank staff wears uniforms, and have good decorated office decor ( eg HSBC – all ruddy atmosphere ) . Hence it is of import to briefly discuss on the corporate stigmatization in this peculiar literature reappraisal. The 2nd cardinal feature that differentiates services trade names from goods is inseparability. Iacobucci, D et, al ( 1995 ) describes inseparability as a procedure where the service is produced and consumed at the same clip through the interaction between the staff and the client. Hence deChernatony & A ; Segal-Horn ( 2001 ) is of the sentiment that in order to convey in consistence in the services provided, it is of import to hold a motivated, competent and committed staff backed with right attitude. Another feature is variableness. Harmonizing to Iacobucci, D et, al ( 1995 ) services variableness refers to as the trouble of accomplishing unvarying and consistent service end product at all the clip. As for Bankss the debut of ATM Teller machines and cyberspace banking has reduced the grade of variableness facet. Finally, perish ability harmonizing to Iacobucci, D ( 1995 ) refers to the fact that services can non be stored for subsequently usage. To this consequence it is of import to analyze the fiscal merchandises that clients in Libya are in demand of and fiscal installations Bankss offers to its clients.

Islamic Banking Products/ Services: A Brief Theoretical Review

It is of import to observe that Muslim civilization plays a polar function in the determination devising of banking merchandises ( Ahmed & A ; Hassan, 2001 ) . Harmonizing to Dusuki & A ; Abdulla ( 2007 ) even though the merchandises and services that are offered by Islamic Bankss are similar to those offered by conventional commercial Bankss, the manner in which they are been offered or serviced are significantly different to traditional commercial Bankss. Therefore a brief scrutiny on Islamic banking merchandises are been discussed in this chapter.

The products/services that ‘s offered in conventional Bankss vs. Islamic banking services

Deposit mobilisation

Harmonizing to Ahmed et, Al ( 2006 ) there are three ways in which sedimentation mobilisation could be done in Islamic Bankss. They are current history, nest eggs account, and nest eggs sedimentations

4.1.1 Savingss history

It is inevitable that savings history offers involvement at the terminal of each month or at the terminal of each dealing twelvemonth depending on the Bankss and understandings the clients sign with the bank. However it is good known fact that Islamic shariah jurisprudence does non allow any dealing done that involves involvement.

Ahmed et Al ( 2006 ) states that harmonizing to Al-Wadia and Al-Mudaraba Shariah rules, Islamic Bankss accept salvaging sedimentations from clients. Harmonizing to Ahmed et Al ( 2006 ) the peculiar sharia law jurisprudence, the depositor allows the bank the full authorization to utilize the fund at their ain will and put on the line. Furthermore there is similarity between Al-Mudaraba nest eggs sedimentation and current history of conventional Bankss except the fact that Bank that follows the al-mudaraba rule assures its clients a full refund of the deposited sum along with net income that was generated by bank by puting on worthy concerns. On the other manus Murabaha savings sedimentations allows the bank to hold full and sole rights to pull off the clients ‘ sedimentations and the net income and loss that generates through that is shared between the bank and the depositor based on understanding that was arrived before the contract duty ( Ahmed et al 2006 ) .

4.1.2 Current history – This is another services which a conventional bank offers and so does with the Islamic Bankss every bit good. Harmonizing to Ahmed ( 2006 ) even current histories run under Al-Wadia rule in Islamic bank. In contrast to nest eggs history ( al-mudaraba ) clients deposit the money with the promise from the bank that the deposited sum will be returned as per the clients demand. Since the Bankss uses the current history financess with the client ‘s permission and with Bankss ain hazard, the clients do non acquire any portion as a net income from the bank. ( Ahmed et al, 2006 ) .

4.2 Term sedimentation and Savings bond:

They are another manner of turning financess for the bank and services offered by bank for clients. Nevertheless it is applied under the Al-Mudaraba Islamic sharia law rule

4.3 Other Financing installations

4.3.1 Renting

Leasing is another funding installation provided by conventional Bankss. However because Bankss are bear downing involvement which is forbidden in Islamic sharia law jurisprudence, Bankss face troubles in marketing leasing merchandises. However harmonizing to Ahmed ( 2006 ) , he states that renting is possible under Ijarah sharia law jurisprudence. Ijara is all about renting in Islamic finance. Even though leasing by Islamic Bankss follows the same construct of the conventional banking, it is argued by Ali & A ; Sarker ( 1996 ) that renting under Islamic Ijarah, has a net income sharing construct where bank buy the immoveable plus and gives on rental to the client where the client agrees to pay certain net income episodes that generates from the assets to the nest eggs account which he/she opens up with the bank.

Since Libya is an Muslim state, civilization plays a polar function in determination devising of the banking services. It is hence of import to discourse the factors that determine the determination devising of the fiscal merchandises from a banking institute by a client.

Factors that determines the choice of banks/criteria

Like many other service industries, fiscal services industry has become progressively competitory in an of all time altering dynamic environment. Hence fiscal service suppliers are offering differentiated merchandise offerings, service convenience through engineering, service and merchandise offerings closer to each person ‘s civilization to do it more individualized. It is observed by Almossawi ( 2001 ) that clients assess assorted characteristics of the service offerings which are been offered by Bankss doing it more disputing for Bankss than of all time before. Yet it is of import for the Bankss to place the most attracted and of import characteristic to outwit and to derive the border over the other. Hence it becomes more of import to analyze the choice standard for Bankss by the clients. This has led to assorted researches on banking sector and client behavior by many bookmans.

One such research was conducted by Anderson et, Al ( 1976 ) where they observed clients who seek convenience opted for client mentions or possibly recommendation by known friends or co-workers was a cardinal factor in choosing a peculiar bank. They besides found out that Bankss corporate image or the repute, where it is located, the co-operation of the bank staff in other words the empathy they have over the clients and service charges charged by the bank as the cardinal factors when choosing a bank. Almossawi ( 2001 ) was besides of the sentiment, apart from the above factors involvement charged on loans, clip taken to function the client were ranked high in choice standards. Tan & A ; Chua ( 1986 ) whiles back uping the above factors ; they besides observed that sentiments of the friends, neighbors and members of the household circle mattered the most when choosing a bank. Kaynak et Al. ( 1992 ) on the other manus was of the position that male clients in Turkey gave more accent on Bankss image or repute, convenient concern hours, scope of merchandise and service offerings, service efficiency, parking installation and recommendation from co-workers when choosing a bank. He farther stated that clients above the age of 40 were more peculiar about the location and parking installation when choosing a bank.

On the reverse, based on a survey on Islamic Banking in Meleagris gallopavo, Naser et, al ( 1999 ) was of the sentiment that Muslim clients were more concern on Islamic sharia law jurisprudence followed by the Bankss than the characteristics that are been offered by the Bankss itself. However Gerrard and Cunningham ( 1997 ) found that there were no important differences shown by the Muslim clients when choosing a bank in Singapore. Though this could be due to civilization of the state itself or possibly the handiness of Muslim Bankss in Singapore, the fact remains is in Islamic state at that place has been important influence of sharia law jurisprudence when choosing a bank by Muslim clients.

On a different position of consumer behavior of banking, Boyd et, al ( 1994 ) observed that clients under 26 old ages, bank ‘s corporate image, fast and efficiency of the service, location and concern hours were cardinal factors in make up one’s minding on a bank. This was mostly due to the dynamic nature of that age group as they are immature and fast moving professionals. They besides found that friendliness of the banking staff, the atmosphere of the bank were least of import for them yet were of import for clients above the age of 45.

On the contrary Almossawi ( 2001 ) , whiles holding that younger coevals of clients were more concern on Bankss repute, he disagreed that immature clients are non interested in friendliness of the staff. Alternatively he stated that it was one of the cardinal factors for immature clients and along with handiness of working machine-controlled Teller machines ( ATM ) in many convenient locations round the clock. Almossawi ( 2001 ) was besides of the sentiment that specifically for Muslim clients flushing and dark banking was a cardinal motivation factor when make up one’s minding a bank due to the cultural nature in the Arab universe. He besides affirmed that Muslim clients preferred separate counters for adult male and adult females served by similar genders and specifically for adult females.

Harmonizing to the above bookmans and Metwa and Almossawi ( 1998 ) ‘s research findings it is clear that many factors influence the choice standards, nevertheless for this research purpose it was besides clear that apart from the above mentioned general factors, as for Muslim clients civilization and sharia law jurisprudence played a cardinal factor in choice of a bank.

Therefore as this literature reviews on the subject of “ can serve quality and trueness theoretical accounts improve the service quality, client satisfaction, and client trueness in Libyan Commercial Banks ” , and aims to analyze whether the service quality theoretical accounts, and trueness theoretical accounts that are been theoretically thought ( i.e: SERVQUAL, Gronroos, TQM ) be utile tools to implement in the Libyan banking sector in order to better the service quality criterions, client trueness, and client satisfaction, it is of import to analyze the theoretical reappraisals on service quality, client satisfaction & A ; trueness and eventually the service quality theoretical accounts such as SERQUAL, Gronroos, and TQM.

Service Quality

Even though many has commented on service quality Wisniewski ( 2001 ) is of the position that Service quality is a construct that has troubles in both specifying it and mensurating. True to the above remark there are a figure of different ways service quality is defined. One such normally used definition on service quality reads as “ the grade to which a service meets clients ‘ demands or outlooks ” ( Lewis and Mitchell, 1990 ; Wisniewski and Donnelly, 1996 ) . Service quality varies from single to indivual and consumer to consumer merely because consumer purchaser behavior influences the manner in which service quality is perceived ( Ruster, 1994 ) . He farther states the ground different person ‘s personality, attitude and outlooks are the grounds for holding different perceived service quality. However Robeldo ( 2001 ) states that high quality service should be performed at a degree that client expects to execute at consistence footing. On the contrary if the house fails to execute at the degree expected by clients it is valued as low quality service. This harmonizing to Robeldo ( 2001 ) refers to client outlook on service provided. Even though when client outlook is met it could be considered as high service quality, Parasuraman et, al ( 1991 ) was of the position that client outlook should be defined from the clients perspective and non from the organisations perspective. Porter ( 1988 ) provinces in line with the above statement, if an organisation is able to understand and present client outlook, in consequence the organisation obtains competitory advantage over the rival houses. On the other manus parasuraman and Zaithamal ( 1988 ) observed that consumers develop a perceive service quality, which harmonizing to them is the disagreement between consumers perceptual experience and outlook towards a given service.

In banking sector in Libya, all most all Bankss provide the same installations and services. Hence it is of import for Commercial Development Bank of Libya to place the client service outlook from their position. Therefore this peculiar survey would carry on a research on clients to place them utilizing service quality theoretical accounts i.e. SERVQUAL, Gronroos, TQM.

Customer Satisfaction

It is inevitable that client is the cardinal to the success of any organisation in any industry. With the broad usage of information engineering which has brought information more closer to people and accessible to anyone at any point of clip, clients are going more and more demanding that has led to hold more and more options to take to fulfill their demands.

Fornell ( 1992 ) , in one of his research observed that though client satisfaction and quality were cardinal to success for every house, satisfaction was really much of import to construct trueness in banking industries.

To specify what client satisfaction is at that place have been many theoretical mentions with respect to this. Harmonizing to Metawa & A ; Almossawi ( 1998 ) Customer satisfaction is all about the “ feeling or attitude of a consumer towards a product/service after it has been used ” . As this peculiar literature is on services, there has many account of client satisfaction in the context of services. Harmonizing to Naser et, Al ( 1999 ) in the context of services, client satisfaction refers to service characteristics such as convenience, location of the service supplier, parking installations, fight and many more. On the other manus Tayler et, Al ( 1994 ) adding an emotional value to it, states, client satisfaction is all about emotional response due to cognitive procedure of rating of service received as against the cost incurred to obtain that service.

Harmonizing to Cohen et Al ( 2006 ) and Kaynak et Al ( 1992 ) based on the research done on client behavior on banking sector, found out that it is polar for the Bankss to understand the consumers demands, attitudes, satisfaction and behavioral alterations within the consumer banking market, to derive a competitory border in a dynamic environment. On the other manus Miller ( 1992 ) , was of the sentiment when he examined the client satisfaction in banking sector ; he found gracious staff who carries themselves professionally ( who could assist in Teller machines as good ) were the cardinal considerations for clients.

Holloway ( 2003 ) , found competition has been the cardinal ground for banking sector has been in premier focal point. Wilson ( 1995 ) was of the position that in today ‘s context, Muslim Bankss can non be considered as a bank that fulfils spiritual duty of a peculiar type of section. Rather he found that clients of Muslim Bankss are from wider spectrum of people.

Based on the survey that was conducted in United States by Stafford ( 1996 ) found that clients gave more accent towards courtesy, friendliness and convenience. Harmonizing to another survey by Taylor et, Al ( 1994 ) found that consumers of banking sector in Europe were more concerned of just monetary values, direction who are concerned of institutional which they considered as portion of service procedure. Harmonizing to Kaynak & A ; Harcar ( 2004 ) , who were of the sentiment that, six of import factors were cardinal for client keeping and satisfaction. They were bank staffs behaviour, Bankss corporate image, convenience, extra services offered by bank, service charges and more significantly the assurance that the bank would prolong a long period.

In pertiular to Islamic banking Metwa and Almossawi ( 1998 ) found that, client satisfaction mostly depended on products/services of Islamic Bankss, and four more service bringing system of Islamic bank, which are employees, atmosphere of the bank, location, and late eventide banking hours. Hence it is inevitable the ultimate consequence is a positive perceptual experience through client satisfation increases the opportunities of repetition dealing ( Kaynak, E. , & A ; Harcar, T. D, 2004 ) .

These features underpinned the dynamic nature of banking sector and the importance for bettering the services in banking sector in Muslim Bankss in Libya. Hence this survey will concentrate on whether the SERVQAUL, Gronroos, TQM theoretical account will function as practically implementable theoretical account for Commercial bank of Libya to better its service criterions. This comes in the background of many positions on the theoretical account ‘s pertinence in different context in different states. How Libyan commercial bank could do usage of it will be analysed by transporting out research ( concentrating on primary research – questionnaire and interview ) on the service quality dimensions which SERVQUAL, Gronroos, and TQM emphasiss on.

SERVQUAL theoretical account

As a consequence of uninterrupted surveies on service quality, Parasuraman et, al ( 1988 ) indentified that service quality could be measured with the difference of outlook and perceptual experience. The difference of these two elements led to unearth a theoretical account called SERVQUAL theoretical account on service quality by Parasuraman et, al ( 1988 ) . Harmonizing to Parasuraman ( 1988 ) , there are five spreads that could impact the service quality between outlook and perceptual experience. They are

The spread between client outlook and direction perceptual experience on service equality. In the instance of CDB of Libya, this would go on most as a consequence of non cognizing about the client ‘s demands and wants. Customers may come from different walks of life with different backgrounds and demands which the directors need to place through research instead than comprehending what they want from organisations point of position.

The 2nd spread harmonizing to SERVQUAL spread analysis is the spread between direction reading on service outlook and interpreting those in to service specifications. This mostly because of the spread that consequences from spread 1 and construing the service outlook by directors.

The 3rd spread harmonizing to spread analysis the spread between service quality specification and existent service bringing. This mostly due to miss of accomplishments, preparation and cognition of the banking staff. This spread could look at all degrees where client contact takes topographic point in Bankss.

Fourth spread is the spread between the communicating with its clients and the existent service bringing. This is mostly due to over promised communicating messages via different media which creates more outlook amongst the clients and under bringing of those promised causes the spread. For case in the communicating it may province that the bank offers low involvement rates but at the point of bringing there may conditions the clients have to follow with may couse this peculiar spread.

And the concluding spread harmonizing to SERVQUAL theoretical account is the spread between expected service and perceived services.

Tan and Pawithra ( 2001 ) was of the sentiment that since SERVQUAL is a service quality diagnostic tool examines service deficits of a service organisation, it could be really utile to better the service criterions if used efficaciously

Fig 1. Beginning: Palmer ( 2001 )

Therefore harmonizing to the above spread it is inevitable that SERVQUAL theoretical account on consumers ‘ perceptual experience of quality was based on the rule of spread between public presentation and outlook. Therefore Parasuraman et, Al ( 1988 ) identified that when the public presentation increases the outlook and quality additions and likewise when the public presentation decreases the outlook on quality lessenings, therefore ensuing in hapless quality criterions. Subsequently the spread five comes in to be. However the concern was on what precisely meant by expection and perceptual experience. Hence Parasuraman et, Al ( 1988 ) identified that outlook and perceptual experience of services were revolved about five service dimensions. They are tangibles, dependability, empathy, reactivity and confidence.

Palmer ( 1994 ) was of the sentiment that SERVQUAL theoretical account of Parasuraman et, Al ( 1988 ) was as a consequence of 22 questionnaires designed to analyze the five dimensions of service quality. Hence the weightage that was given to analyze each of those dimensions are given below.

Dimensions Questions

Tangibles – 1 -4

Reliability ( dependableness of public presentation ) – 5-9

Responsiveness ( fast reaction ) – 10 – 13

Assurance ( credibleness ) – 14 – 17

Empathy ( Thinking of the clients ) – 18 – 22

Palmer ( 2001 ) identified for a service organisation SERVQUAL would assist to place which of the service dimention clients are non satisfied. However as disussed in the early portion of the literature reappraisal it was identified that corporate trade name image as for Bankss are critical for the service quality. Yet the SERVQUAL five dimentionl analysis does non cover the corporate trade name image and therefore brought the demand for a theoretical account that over all bases which a client buttocks on service quality. Gronroos ( 2001 ) nevertheless identified that corporate trade name, and proficient dimension were built-in portion of service quality. Therefore the demand to analyze the pertinence of Gronroos ( 2001 ) theoretical account came in to consequence through which the company could develop its competitory advantage and a agency to supervise the service quality over a period of clip.

There are many service quality theoretical accounts apart from SERVQUAL which differs to each other based on the theoretical position, trying frame and response every bit good as application. It is yet to turn out which 1 is better than the other. However it is high one varies from the other from application.

Gronroos Model

Similar to SERVQUAL theoretical account Gronroos ( 1990 ) Model ( fig1 ) is chiefly focal points on three cardinal dimensions being proficient quality, functional quality and corporate trade name image. Hence it emphasises on “ what ” service is provided by for case in the bank, which in-effect refers to proficient quality and “ how ” service is provided which is represented in the signifier of functional quality ( Gronroos, 2001 ) . In the context of CDB of Libya, “ What Service ” refers to the service that is given at the clip dealing, nest eggs and current history, and many other fiscal and service offerings. “ How ” or the functional dimensions in the context of CDB of Libya referes to the friendly assitence of the staff, the user friendly machines to make the dealing, and even internet banking. Finally it is the corporate image of the bank. Hence it becomes a entire bundle that is been tested from this theoretical account and all bases are typically act uponing factors when choosing a bank. Even though this seems simple and consecutive frontward, there are practical troubles in shaping and measure uping these dimensions in order to suitably step. It is understood from the above literature reappraisal that corporate stigmatization is critical cog in the service quality perceptual experience. deChernatony ( 2006 ) , saying on the same line, was of the position that corporate barnad image plays a cardinal of import function for service organisation than the fabricating organisation as it helps to give a touchable component. Though great emphaisis is given on trade name image Kang and James ( 2004 ) found that mensurating image every bit good as proficient quality the two dimensions of Gronroos ( 2001 ) is difficult than one could conceive of. Never the less this survey will take to research on how the Gronroos ( 2001 ) theoretical account be of usage to better the service criterion of DB bank of Libya.

Fig 2. Beginning: Gronroos, C. ( 1984 ) “ A Service Quality Model and the Marketing Implication ” European Journal of Marketing, Vol 18, pp 36-44


Harmonizing to many writers reviews it is inevitable that service quality is one of the cardinal factor for endurance of the Bankss in this competitory and volatile environment. It is understood that banking sector faces considerable challenge due to service features which are intangibleness, variableness, perishableness and inseparability. These features has led for houses to re-look at the manner in which the service is done and the merchandises been offered. As the literature is reexamining the Libyan banking system runing in Islamic cultural environment merchandises that are offered has to in line with Islamic sharia law jurisprudence as been discussed above. It was besides discussed that consumer behavior towards banking sector were more different to other service sectors. Hence it was discussed the factors that influences the service in banking. Besides the usual functional component clients were besides concern about the corporate credibleness or the trade name image of the bank. To this consequence the survey was taking to happen ways to better the service quality utilizing quality theoretical accounts such as SERVQUAL, Gronroos and TQM. It was clear that SERVQAUL is one of the service quality mensurating tool that measures the functional service quality of a service. Gronroos was another theoretical account that measures the service quality apart from the functional dimension but besides the image and proficient dimension. The manner these will used to better the bank service in Libya will be done via research which will be discussed in the research methodological analysis.