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Comparison of Customer Satisfaction Level of Islamic Banking

Services and Conventional Banking Services in Afghanistan

(A Case Study of Azizi and Ghazanfar Bank)

Submitted by

ALIA “WASIQ|”

REG NO:402-100 9008

Supervised by

MR.Seed Gul

RESEARCH DISERTATION SUBMITTED IN PARTIAL FULFILLMENT FOR

THE AWARD OF DEGREE OF BSC.ECONOMICS

TO

KARDAN UNIVERSTY KABUL

Declaration of Authorship

I hereby certify that the work embodied in this dissertation project is the result of

original research and has not been submitted for a higher degree to any other

University or Institution.

Name: Alia “ Wasiq”

Registration Number: 402- 1009008BSC Dissertation Paper –Kardan University

Supervisor: Mr. Saeed Gul

ACKNOWLEDGEMENT

In the Name of ALLAH!

I extremely appreciate being supported by my all teachers who have taught and

trained me and enabled me to conduct this research on ProfileAnalysis of Islamic

Banking Customers and Conventional BankingCustomers in Kabul Afghanistan

I would like to present my special thanks and sense of gratitude to Mr. Saeed Gul,

who has guided me tirelessly and thoroughly along with useful and kind feedback as a

supervisor of this dissertation.

Meanwhile, I wouldthank my constructive friends who had been consistently

supportive to me in writing and advising throughout the whole research process,

which provides me an incredible experience.

At the end, no acknowledgment can compensate my respected family, where they

have always spread their love in terms of supporting and advising me. Truly, what I

am today is all the result of all their devoted prayers and love.

Alia “Wasiq”

Abstract

Afghanistan is a developing country in which most of the industries are in growing

phase, Islamic Banking is the recent approach, which is familiarizing among the

banking industry of Afghanistan.

Banking an aggressive growing industry of Afghanistan, which is in introductory

phase of introducing Islamic banking, hereafter, this research focuses on the profile

analysis of Islamic banking Customers and conventional banking. This research will

specifically focus on behavior of Islamic banking users to study their market status

and situation interims of their ability and buying power to know their choice of saving

in the Islamic banking and conventional banking along with their preferences in the

selection of banking account nature and types.

Although the majority user of banking in Afghanistan are male but still to have a

gender equality as far as possible access female users opinions are also considered for

this study, among 65 respondents the researcher had access to only 18 females and

their opinions has been taken into consideration.

As lack of this research, only Kabul province users has been considered for this study

and to have a vital review of the responses several ages categories are considered

where the majority of respondents are of a mature age of 25 to 50 years and a very

less minority of over age and teenagers has been considered, and most of the

respondents educational levels are in undergraduate and graduate levels.

For this study the respondents with different levels of income has been considered,

where majority of them has experience with conventional banking and a minor

number of them 23 out of 65 respondents has the experience of Islamic banking.

Islamic banking system familiarity is comparatively very less than conventional

banking where it requires huge efforts of advertising to familiarize the services

offered by the Islamic banking systems

However, Afghanistan is an Islamic country. Islamic banking system providers must

ensure the public awareness and conceptual clarity about the advantages of Islamic

banking over conventional banking and disclose the benefits associated with Islamic

banking

Overall trust over Islamic banking in Afghanistan is comparatively low where efforts

are required to build up trust on Islamic banking

Table of contentTitle Page.....................................................................Error! Bookmark not defined.

Declaration of Authorship.............................................................................................ii

ACKNOWLEDGEMENT............................................................................................iii

Abstract.........................................................................................................................iv

Table of content.............................................................................................................v

Chapter One...................................................................................................................1

1 Introduction and overview......................................................................................1

1.1 Introduction......................................................................................................1

1.2 Research Question............................................................................................2

1.3 Objectives.........................................................................................................2

1.4 Significance......................................................................................................2

1.5 Scope Of the Study…………………………………………………………...2

1.6 Scheme of thesis...............................................................................................3

Chapter Two...................................................................................................................4

2 Literature Review....................................................................................................4

2.1 Banking............................................................................................................4

2.1.1 Function of Commercial Banks by Heffernan..............................................4

2.1.1.2 Advance Loan............................................................................................6

2.1.1.3 Discount Bills:............................................................................................6

2.1.1.4 Creation of credit:......................................................................................6

2.1.1.5 Investment:.................................................................................................6

2.1.1.6 Agency service:..........................................................................................6

2.2 What is an Islamic Bank?.................................................................................7

2.2.1 Prohibition of Interest or Usury....................................................................7

2.2.3 Moral and Social Values...............................................................................8

2.2.5 Difference from conventional banks.............................................................9

2.3.1 Practical Aspects of Islamic Banking in Afghanistan.....................................10

2.3.2 Challenges.......................................................................................................11

2.3.3 Trade Financing..............................................................................................11

2.3.4 Car financing...................................................................................................11

2.3.5 Consumer Banking..........................................................................................12

To conclude:.............................................................................................................12

Chapter Three...............................................................................................................13

3 Research Methodology..........................................................................................13

3.1 Research Method……………………………………………………………13

3.2 Population......................................................................................................13

3.3 Sample Size....................................................................................................13

3.4 Sampling Technique.......................................................................................13

3.5 Research Tools...............................................................................................13

3.5.1 Primary Data:.........................................................................…….……..13

3.5.2 Secondary Data:..........................................................................................14

3.6 Data Analysis……………………………………………………………….14

3.7 Limitation of the Study…………………………………………………….14

Chapter Four................................................................................................................15

4 Analysis and Findings...........................................................................................15

Chapter Five.................................................................................................................40

5 Conclusion, Recommendation and Appendixes...................................................40

5.1 Conclusion......................................................................................................40

5.2 Recommendation............................................................................................42

5.3 Bibliography...................................................................................................43

5.4 Appendixes.....................................................................................................44

Chapter One

1 Introduction and overview

1.1 Introduction

Afghanistan is a developing country in which most of the industries are in growing

phase, Islamic Banking is the recent approach, which is familiarizing among the

banking industry of Afghanistan.

Banking an aggressive growing industry of Afghanistan, which is in introductory

phase of introducing Islamic banking, hereafter, this research focuses on the profile

analysis of Islamic banking Customers and conventional banking. This research will

specifically focus on behavior of Islamic banking users to study their market status

and situation interims of their ability and buying power to know their choice of saving

in the Islamic banking and conventional banking along with their preferences in the

selection of banking account nature and types.

The banking sectors have played a vital role in Afghanistan, economic development

in past one decade and Islamic banking is widely regarded as the fastest growing

sector in the Middle Eastern financial services market. Billion worth of funds are now

managed according to Shariah. As Islamic banking is a new concept in our country

and all citizens of Afghanistan are Muslims and this document would also help other

nations therefore its very import for them to know about Islamic banking and its

products schemes.Islamic banking system must steer clear of interest. Theoretically

speaking, there is no concept of loans and credits in Islam for financing trade, industry

and agriculture except Qard Hassana and where profit and loss sharing is not feasible

like interest free loans given by federal government to provincial governments for

their developmental needs. Islamic banks, therefore, involve themselves in financing

(short, medium, and long term) for the working capital requirements, and also

contribute to the capital of an enterprise by participating in its equity. These

financings are on profit and loss sharing basis. Islamic banks also mobilize resources

on profit and loss sharing basis as distinct from interest payments to depositors on

predetermined rates.Prohibition of interest is ordained in Islam in all forms and intent.

This prohibition is strict, absolute and unambiguous. So with this reference the project

titled has been conducted, based on the primary research in Azizi Bank, and literature

review and secondary data from various sources. Division has been prepared to get a

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better insight into the Islamic Banking practices applied by MB with reference to

DAB guidelines provided to them to practice accordingly. With reference to this

context, this research project is been prepared to find out customers satisfaction and

awareness about Islamic banking in Afghanistan. This research project includes

meaning and definition of Islamic Banking, Riba, and Islamic banking procuts such as

Musharaka, Mudarabah, Murabaha, Ijarah, Salam and Istisna.

1.2 Research Question

Based on the discussion and to accomplish the objective of this researchone questions has

been formulated; what is the people perception toward Islamic banking and

conventional banking practices in Kabul Afghanistan?

Which best services they can provide to their Customers?

What are the reasons behind the loyalty?

1.3 Objectives

Specifically, this research mainly seeks to achieve the following objectives:

o To analyze the Customers profile ofIslamic banking and conventional

bankingin Kabul, Afghanistan

o To find the reason behind their loyalty to Islamic banking and

conventional banking

o To suggest new ways for future improvement of Islamic banking

1.4 Significance

The paper will help Islamic banking operation in Afghanistan to formulate and

suggest better strategies for future improvement of Islamic banking in Kabul and

Other provinces of Afghanistan.

1.5 Scope Of the Study

The scope of the study is limited to provide guideline only to Kabul based Banks; this

research is not applicable to any other part of Afghanistan and elsewhere,

8

1.6 Scheme of thesis

Chapter One: Introduction and overview

This chapter includes a background to the study, its objectives, problem statement,

and significance of the study, scope of study and chapter plan of study.

Chapter Two: Literature Review

This chapter reviews the literature about what is done related to the topic.

Chapter Three: Research Methodology

This chapter describes the methods chosen to conduct this research.

Chapter Four: Analysis and findings

This chapter is the main part of this thesis where the research is analyzed and the

findings of this research are discussed.

Chapter Five: Conclusion and recommendations

In this chapter, the purpose of conducting this research is concluded and the

researcher’s recommendations are given to the problems pointed in this research.

Also in this chapter, the references and material used during data collection are cited.

9

Chapter Two

2 Literature Review

2.1 Banking

Banks is an institution, which deals with money.

Bank draws surplus money from those who are not using it and lend to those who are

in position of using it for productive purpose such as gold smith, merchant,

moneylender.

The Primary function of bank is to receive the deposits and lend it to the local people

like. Traders, farmers.

Such institutions are called commercial bank. (Heffernan, 5 May 2005)

2.1.1 Function of Commercial Banks by Heffernan

a. Receiving Deposits (accepting deposit)

b. Advance Loans

c. Discount Bills

d. the Creation of Credit

e. Investment

f. Agency service:

2.1.1.1 Receiving Deposits (accepting deposit)

It is very important function, because the stability of bank mainly depend on the funds

deposited by the people, According to Heffernan deposits are of following three

kinds. (American Bankers Association , 2014)

Deposits are of three kinds:

2.1.1.1.1 Current or Demand Deposits:In this case, the Customers is allowed to

deposit or withdraw money as and when he likes. He may thus deposit or withdraw

money several times in a day if he likes. Usually the businesspersons open this type o

account.

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No interest is allowed by first class banks on current account deposits but some banks

do allow interest in case the balance does not fall below a certain minimum limit.

(Heffernan, 5 May 2005)

2.1.1.1.2 Saving bank Account. This account as its name suggests is for those

persons who want to make small savings. In this case deposits can be make only up to

certain amount and withdrawals are allowed only twice or thrice a week. Not

exceeding a certain amount. The rate of interest on this type of account is lower than

the fixed account. (American Bankers Association , 2014)

2.1.1.1.3 Fixed Deposit Account.In this type of account, a certain amount is

deposited for a fixed period such as six months; one year or longer. The amount

cannot be withdrawn until the expiration of fixed period. The interest allowed on

fixed deposit varies with the period for which the deposit is made. (Heffernan, 5 May

2005)

2.1.2How to open a bank account:

A person desirous of opening a current or saving account with a bank has to fill in a

printed form, which is obtainable free from a bank. Banks usually require that a new

depositor must be introduced by one of its existing Customers. Thus, the application

form duly filled must be endorsed by some old Customers of that bank. If the bank is

satisfied, it will obtain the full signatures of the Customers in the Autograph book for

future reference. After all these formalities, the Customers makes the first deposit, and

he will be given Checkbook (Heffernan, 5 May 2005).

2.1.3Check Book:

The bank provide checkbook containing a number of checks. It enables a Customers

to make withdrawal from his account or make payment to various parties by issue of

checks. Heffernan has described the kinds of check into three following forms.

(Heffernan, 5 May 2005)

Kinds of checks:

2.1.3.1- Open Check:

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An open check is that which is not crossed. It may be bearer or order. The bankers

pay an open check over the counter.

1.1.3.1.1 Bearer Check

The bearer check is one, the payment of which is made to the person who presents it

at the counter of the bank. The bank gets the signatures of the payee on the back of

the chick before making the payment of the check. The bearer of the check may or

may not be known to the bank.

1.1.3.1.2 Order check.

A check, which is paid at the counter only when the bearer is known to the bank if the

holder of the order check is not known to the bank, the bank, may demand the

identification from him. (American Bankers Association , 2014)

1.1.3.2 Crossed Check:

A check may be crossed by drawing two parallel lines across the face of it. A crossed

check cannot be paid over the bank counter. The amounts of such checks are only

deposited in the account of the person to whom it is payable. Specimen of crossed

check. (American Bankers Association , 2014)

2.1.1.2 Advance Loan

Commercial banks also advance loans to merchants, traders, and charge interest on

that loan. It is the major source of income for the bank.

It also issues notes for short-term long term, medium term. (Heffernan, 5 May 2005)

2.1.1.3 Discount Bills:

Commercial banks provide the facility of discounting the bill. E.g. if Farid promised

to pay that amount of credit after one month and Farid will sign the paper now this

bill will be with Mr. Qadir now if Qadir needs money before one month. He will go to

bank, will discount the bill in the bank, and will receive money.

The discount bill maturations date is 3 months. (Heffernan, 5 May 2005)

2.1.1.4 Creation of credit:

Commercial banks provide the facility of credit by lending money for short term long

term and medium term.

2.1.1.5 Investment:

The bank also makes investment in different company or industry. 12

2.1.1.6 Agency service:

Collects and pay on behalf of Customers. (American Bankers Association , 2014)

2.2 What is an Islamic Bank?

There is no standard way of defining what an Islamic bank is, but broadly speaking an

"Islamic bank is an institution that mobilizes financial resources and invests them in

an attempt to achieve predetermined Islamic ally -acceptable social and financial

objectives. Both mobilization and investment of funds should be conducted in

accordance with the principles of Islamic Shari'a". (Albaraka, 2015)

1. Prohibition of Interest or Usury

2. Ethical Standards

3. Moral and Social Values

4. Liability and Business Risk

2.2.1 Prohibition of Interest or Usury

The principles of Islamic finance are established in the Qur'an, which Muslims

believe are the exact Words of God as revealed to the Prophet Mohammed. These

Islamic principles of finance can be narrowed down to four individual concepts.

The first and most important concept is that both the charging and the receiving of

interest are strictly forbidden. This is commonly known as Riba1 or Usury. Money,

on its own, may not generate profits. When Riba infects an entire economy, it

jeopardizes the well-being of everyone living in that society. When investors are more

concerned with rates of interest and guaranteed returns than they are with the uses to

which money is put, the results can only be negative.

Adherents of Islam believe that the Qur'an is the final book of God's word following

both the Torah and the Bible. As a result, there are a number of similarities between

the Islamic, Christian and Jewish faiths.

Quoting Shaikh Saleh Abdullah Kamel, Chairman and Founder of Albaraka Banking

Group; Usury is forbidden in all the three religions, Judaism, Christianity and Islam,

but it is the people who forget the rules of Allah. All societies, nowadays - Muslims,

Christians and Jews - deal with Usury. (El-Gamal, June 2000)

2.2.2 Ethical Standards

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The second guiding principle concerns the ethical standards. When Muslims

invest their money in something, it is their religious duty to ensure that what they

invest in is good and wholesome. It is for this reason that Islamic investing includes

serious consideration of the business to be invested in, its policies, the products it

produces, the services it provides, and the impact that these have on society and the

environment. In other words, Muslims must take a close look at the business they are

about to become involved in.

In all facets of the financial system, Islam has certain rules, certain regulations as to

how Muslims should go about participating in these activities. For example, in share

trading or the securities market, Islam looks at the activities of the companies, to

establish whether or not the companies are involved in activities, which are in line

with Sharia'a. (El-Gamal, June 2000)

2.2.3 Moral and Social Values

The third guiding principle concerns moral and social values. The Qur'an calls on all

its adherents to care for and support the poor and destitute. Islamic financial

institutions are expected to provide special services to those in need. This is not

confined to mere charitable donations but has also been institutionalized in the

industry in the form of profit-free loans or Al Quard Al Hasan.

An Islamic bank's business includes certain social projects, as well as charitable

donations. Islamic banks provide profit-free loans. For example, if an individual needs

to go to hospital or wants to go to university, we give what is called Quard Al Hasan.

This Quard Hasan is normally given for a short period of one year and the Islamic

bank does not charge anything for that. (El-Gamal, June 2000)

2.2.4 Liability and Business Risk

The final principle concerns the overarching concept of fairness, the idea that all

parties concerned should both share in the risk and profit of any endeavor. To be

entitled to a return, a provider of finance must either accept business risk or provide

some service such as supplying an asset;otherwise, the financier is, from a Sharia'a

point of view, not only an economic parasite but also a sinner. This principle is

derived from a saying of the Prophet Mohammed (May Peace be upon Him) "Profit

comes with liability". What this means is that one becomes entitled to profit only

when one bears the liability, or risk of loss. By linking profit with the possibility of

loss, Islamic law distinguishes lawful profit from all other forms of gain.

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In order to insure that these principles are followed, each Islamic institution must

establish and provide itself with an advisory council known as a Sharia'a Board. The

members of Sharia'a Boards can include bankers, lawyers or religious scholars as long

as they are trained in the Islamic law, or Sharia'a.

In 2001, the Industry witnessed a remarkable development in this regard by the

initiative of the Accounting and Auditing Organization for the Islamic Financial

Institutions or AAOIFI. At that time, AAOIFI's standards were enhanced to include

elements that aim at broadening the role of the external auditor. Now according to

these new developments the external auditor is also required to look for compliance

with Sharia'a rules as defined by the Sharia'a supervisory board of each bank and in

accordance with the Sharia'a standards AAOIFI has begun to issue. (El-Gamal, June

2000)

2.2.5 Difference from conventional banks

Source: Reprinted with permission from Albarka

(http://www.albaraka.com/default.asp?action=article&id=46)

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http://www.albaraka.com/default.asp?action=article&id=46

2.3.1 Practical Aspects of Islamic Banking in Afghanistan

The Islamic banking was introduce in Afghanistan in the year 2008 and 2009. Which will operates under the Shariah Committee involvement of famous religious scholars from Afghanistan and other countries.Da Afghanistan Bank (Central Bank of Afghanistan) prepared the law and Central Bank of Afghanistan established the Islamic banking section. This law is approved by parliament. It estimated that the total economy of Afghanistan circulate up to US$33 billion. Morethan US$4.2 billion is deposit in 17 banks and branches of national and international banks.

Currently there is no full-pledge Islamic bank in Afghanistan and all the conventional banks have been providing Islamic Banking in Afghanistan. Most of them provide liability side products for deposits while investment side products are on the lowest level. The reason for the underdevelopment of Islamic investment in Afghanistan is the lack of Islamic law and regulations.The Islamic banking law was approve in September 2011. There are some parties interested to apply for a full Islamic bank licenses. To date five conventional banks are licensed to offer Islamic banking windows in Afghanistan: 1. Kabul Bank2. Afghan Bank Mille 3. Afghan United Bank4. Maiwand Bank5. Ghazanfar Bankall the above banks has started Islamic banking in 2009 and 2010. Before this, there was no concept of Islamic banking in Afghanistan. Generally, all these banks offer liability products under Mudarabah, Musharakah, Qard Hassan, and Wadiah. All of the above banks has a Shariah board to advice on the Shariah compliancy of its products while there are Shariah advisors are on the board of the rest of the banks, which offer Islamic products and having limited number of investment products under Musharakah, Mudarabah and Ijarah.(Hamdard, Dr. Alam Khan, April 27, 2011)

All these banks haveabout 99% Customers as Afghans and Muslims the majority of them do not use banks due to the involvement of interest. Out of 30 million Afghans, only 1.8 million use banks. Ulamas and religious scholars have been very cooperative

16

in preaching and promoting Islamic banking in Afghanistan.(Dr. Alam Khan Hamdard, April 27, 2011 )

2.3.2 ChallengesThere are many challenges in Afghanistan's Islamic banking sector, which include the following: 1. Lack of public awareness about banking2. Lack of Shariah compliant technology and techniques3. Lack of Shariah agreement among Ulema and Scholars4. Insufficient investment capital5. Lack of Shariah Compliances6. Lack of Shariah Scholars' understanding of Islamic principals7. Lack of Islamic banking law8. Lack of regulations9. Lack of Shariah compliant technical support10. Poor human capacity in banks and financial institutions11. Lack of Fiqh councils(Dr. Alam Khan Hamdard, April 27, 2011 )

2.3.3 Trade Financing

Trade financing is the growing part of Islamic investment in Afghanistan and majority banks use Murabahah for trade financing as well as Musharakah. Afghanistan is depending on the import goods and many banks do finance trade and commerce using the above principles. Generally, traders are using Murabahah and Bai Mowajal to do their trade in Afghanistan. This is call Ograie mean the credit-based sale with weekly repayment of installment and it is very famous. Because of familiarity with this principle already in practice, Afghan traders do like to use this principle for trade financing. Sharia compliance Letter of Credits has been used for trade financing using the principles of Musharahah, Mudarabah and Murabahah.(Dr. Alam Khan Hamdard, April 27, 2011 )

2.3.4 Car financingMurabahah has been the best principle for house financing, car financing, and trade financing. Leasing or Ijarah is also under the consideration to be use in Car financing.

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In Murabahah the bank buys or prepares to buy the Car first and then sell it to the Customers. Some banks use Murabahah by disclosing the cost and profit margin while the rest use Bai Mowajal to sell after a 5% to 10% down payment is settle in the beginning with a tenor of three to 15 years. Kabul Bank, Azizi Bank and Bank Millie have already started housing finance for long term.(Dr. Alam Khan Hamdard, April 27, 2011 )2.3.5 Consumer BankingConsumer banking is the most favorable banking in Afghanistan and there has been a lot of trust from the public in consumer financing. Tell now few banks introduced car-financing schemes under Murabahah and Ijara Sum Bai (Hire Purchase) principles of Islamic Banking.(Dr. Alam Khan Hamdard, April 27, 2011 )2.3.6 Characteristics of Islamic banking in Afghanistan* More clearness* Asset backed banking* Honesty in profit and loss sharing* More control on funds* Low Risk in Islamic Banking and Investment * Un-availability of Islamic Insurance or Takaful (Dr. Alam Khan Hamdard, April 27,2011 )

To conclude:

Islamic banking is an institution that mobilizes financial resources and invests them in

an attempt to achieve predetermined Islamic ally -acceptable social and financial

objectives. Both mobilization and investment of funds should be conducted in

accordance with the principles of Islamic Shari'a, and conventional banking is an

institution, which deals with money, Bank draws surplus money from those who are

not using it and lend to those who are in position of using it for productive purpose

such as gold smith, merchant, moneylender.

Currently there is no full-pledge Islamic bank in Afghanistan and all the conventional

banks have been providing Islamic Banking in Afghanistan. Most of them provide

liability side products for deposits while investment side products are on the lowest

level. The reason for the underdevelopment of Islamic investment in Afghanistan is

the lack of Islamic law and regulations.

18

The Islamic banking law was approved in September 2011. There are some parties

interested to apply for a full Islamic bank licenses

Chapter Three

3 Research Methodology

3.1 Research Method

This chapter deals with the methodology adopted in conducting the study .This

chapter is organized as followers; population, sampling, research tools, scope of

study, limitation of study, Data anlysis

3.2 Population

All Islamic banking sector has been selected as population, Afghanistan, since

number of Islamic bankers are limited in Kabul only Ghazanfar bank Customers has

been chosen for Islamic banking response against the conventional banker responses

from the Azizi bank Customers. Overall population for this has been considered only

Customers of Ghazanfar Bank with Azizi Bank.

3.3 Sample Size

Sample size for this research is two banks have been selected as sample. The reason

behind selecting a minor number of respondents is that which banks as part of their

obligation they do not reveal the personal information of user.

3.4 Sampling Technique

The information in this research has been gathered from primary and secondary

sources of information. The researcher used books, journals, and research papers for

collecting secondary information, and for primary source of information, and the main

tool was questionnaires and personal visits with Customers.

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3.5 Research Tools

3.5.1Primary Data:

The primary data of this research is the information collected from 65 Customers of

Islamic and conventional banking in Kabul. The questionnaires were filled during

individual discussion and meeting.

3.5.2 Secondary Data:

The researcher used reliable sources of secondary information such as book, journals,

internet and research papers for information gathering. .

3.6 Data Analysis

The collected data were statistically analyzed; using the statistical package for social

science software representing like table and charts were used to ensure easy and

quick interpretation of data. Responses were expressed in percentage. Data from the

completed questionnaire were checked for consistency. The item were grouped based

on the responses given by the respondents and were coded for easy usage of the

statistical package for social science. This method was because it is the best

instrument to identify, compare, describe and reach a conclusion

3.7 Limitation of the Study

This study only provides a basic profile analysis of Islamic banking and conventional

banking user in Kabul, Afghanistan. Where it only provides the opinion of limited

number of users. The research is limited to Kabul only, not applicable elsewhere.

During conduction of this research, many problems has been encountered with these

following limitations and constraints:

Time factor was one of the crucial limitations to the study.

Facing complex problems while conducting the research was a tough time I had, as it

was much challenging for me to reach conclusion but through consulting my friends

and teachers.

Family problem was one of the crucial limitations to the study.

Organizational standard factor was one of the critical limitations to the study.

Secondary data and searcher on Quantitative Research method for primary data.

20

Chapter Four

4 Analysis and Findings

This chapter is the main part of this thesis where the research is analyzed and the

findings of this research are discussed graphically and respectively interpreted. The

content of this chapter includes solutions to demographic factors of research and

solutions to questions supporting the objectives of the research. Questions have been

analyzed via frequency and mean analysis.

Sources: : As show in the bellow pie chart and table in accordance the collected data

via questionnaire from the customers of Azizi bank and Ghanzanfar bank from

different offices thar are working as a customer with both banks in afghanistan.

From the Customers in Main branch of azizi bank and Ghazanfar bank.

Tolo tv and their emplyee .

Kisha, arai city, jolde paitakht and middical complex hospetals.

A case study on selected banks of afghanistan (azizi bank) By hartullah

mujadedi on -21/02/2016 slideshare.net

Table 4.1

Frequency Percent Valid Percent Cumulative Percent

Valid Male 47 72.3 72.3 72.3

Female 18 27.7 27.7 100.0

Total 65 100.0 100.0

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Figure 4.1: gender of the respondents

Source:field survey 2/2016

The respondents for this research were 72 % Male and rest 28 % were female

Customers and user of the Islamic and conventional banking

What is your age


Valid Lee Then 25 Years 9 13.8 13.8 13.8

25-40 Years 35 53.8 53.8 67.7

41-50 Years 17 26.2 26.2 93.8

Above 50 Years 4 6.2 6.2 100.0

Total 65 100.0 100.0

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Figure 4.2: age of respondents

Source: field survey 2/ 2016

The age of our research respondents were 14% less than 25 years, 54% Between 25

and 40 years, 26% 41 to 50 years and 6% were above 50 years

Table 4.3


Valid Secondary School Certificate 7 10.8 10.8 10.8

Bachelor Degree 34 52.3 52.3 63.1

Master Degree 24 36.9 36.9 100.0

Total 65 100.0 100.0

Figure 4.3: Education level respondents24

Source: Field survey 2/2016

The education level of the respondents were 11% secondary school certified 52 %

holding bachelor degree holder and 37 % were master degree holders participated to

fill the questionnaire of this research

Table 4.4


Valid 20001-25000 7 10.8 10.8 10.8

25001-30000 18 27.7 27.7 38.5

30001-35000 21 32.3 32.3 70.8

Above 35000 19 29.2 29.2 100.0

Total 65 100.0 100.0

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Figure 4.4: Monthly income respondents


The monthly income of the respondents to the research was 11% has between 20000

to 25000 Afs, 28% has income between 25000 to 30000, 32% has income of 30000 to

35000. In addition, 29% respondents has income above 35000

26

Table 4.5


Valid Islamic Banking Syestm 23 35.4 35.4 35.4

Conventional Banking Syestm 42 64.6 64.6 100.0

Total 65 100.0 100.0

Figure 4.5: previous experience with Islamic banks or conventional banks

Source : Field survey 2/2016

In this research from the total 100% respondents 35 % has, the previous experience

with Islamic banking and the remaining65% respondents has experience with

Conventional Banking because the Islamic banking is new in Afghanistan

27

Table 4.6


Valid Less than 1 Year 31 47.7 47.7 47.7

1-3 years 34 52.3 52.3 100.0

Total 65 100.0 100.0

Figure 4.6: Total period of interaction with Islamic banking syestm


The respondents to this research responds the total period of interaction with Islamic

banking were 48 % those who have interaction for less than one year or new users and

the old users or being in touch with Islamic banking between 1 to 3 years were 52%

of total users

28

Table 4.7


Valid Less than 1 year 8 12.3 12.3 12.3

1-3 years 22 33.8 33.8 46.2

3 years or more 35 53.8 53.8 100.0

Total 65 100.0 100.0

Figure 4.7: Total period of interaction with conventional banking syestm


The respondents to this research responds the total period of interaction with

Conventional banking was 12 % those who have interaction for less than one year or

new users and the users being in touch with Conventional banking between 1 to 3

years were 39% and those who were in touch for more than 3 years were 54% of total

users

29

Table 4.8


Valid yes 20 30.8 30.8 30.8

no 45 69.2 69.2 100.0

Total 65 100.0 100.0

Figure 4.8: practical use of mudaraba saving accouunt


The respondents to this research responds the Practical Use of Mudaraba Saving

account 31 % those who were in use already and 69% for those who were not in

practical use of mudaraba saving account in Islamicbanking system

30

Table 4.9


Valid yes 25 38.5 38.5 38.5

no 40 61.5 61.5 100.0

Total 65 100.0 100.0

Figure 4.9: practical use of mudaraba deposit account


In this research the total number of respondents who were in practical use of

mudaraba deposit account were 39% and the other 61% of them are not in practical

use of mudaraba deposit account in Islamic banking system

31

Table 4.10


Valid yes 27 41.5 41.5 41.5

no 38 58.5 58.5 100.0

Total 65 100.0 100.0

Figure 4.10: practical use of murabaha car financing


42% of our respondents say that they are in real use of murabaha car financing

account and the remaining 58% of the respondents are not using it in Islamic banking

system

32

Table 4.11


Valid yes 28 43.1 43.1 43.1

no 37 56.9 56.9 100.0

Total 65 100.0 100.0

Figure 4.11: practical use of murabaha contract


The respondents of this research who are in practical use of murabaha contract

account respond yes 43% and the remaining 67% respond no for the usage of

murabaha contract account in Islamic banking

33

Table 4.12


Valid yes 37 56.9 56.9 56.9

no 28 43.1 43.1 100.0

Total 65 100.0 100.0

Figure 4.12: practical use of musharaka running finance


The respondents who say yes to the practical use of musharaka running finance

account were 57% and those who were not in practical use of musharaka running

finance account were 43% of the total respondents

34

Table 4.13


Valid yes 48 73.8 73.8 73.8

no 17 26.2 26.2 100.0

Total 65 100.0 100.0

Figure 4.13: practical use of musharaka Account

Source:Field survey 2/2016

74% of the respondents say yes to the practical use of musharaka account in Islamic

banking and the remaining 26% of the respondents were not in practical use of

musharaka account in Islamic banking system

35

Table 4.14


Valid yes 48 73.8 73.8 73.8

no 17 26.2 26.2 100.0

Total 65 100.0 100.0

Figure 4.14: practical use of salary account


In conventional banking system 74% of the respondents say yes for the practical use

of salary account in conventional banks and the remaining 26% of the respondents

were not in practical use of salary account in conventional banks

36

Table 4.15


Valid yes 21 32.3 32.3 32.3

no 44 67.7 67.7 100.0

Total 65 100.0 100.0

Figure 4.15:practical use of saving account


In this research 32% of respondents say yes in practical usage of saving account and

the remaining 68% of the respondents were not in practical usage of saving account in

conventional banking system

37

Table 4.16


Valid yes 12 18.5 18.5 18.5

no 53 81.5 81.5 100.0

Total 65 100.0 100.0

Figure 4.16: practical use of fixed deposit account


The respondents to this research who were in practical usage of fixed deposit account

were 19% and the remaining 81% respondents who were not in practical usage of

fixed deposit say no to our question for practical use of the fixed deposit account in

conventional banking system.

38

Table 4.17


Valid yes 59 90.8 90.8 90.8

no 6 9.2 9.2 100.0

Total 65 100.0 100.0

Figure 4.17: practical use of current account


Thoserespondents who have current account in conventional banks were 91% who

were in practical use of current account and the remaining 9% were don’t have current

account in conventional banking they may have other account in conventional banks

39

Table 4.18


Valid yes 57 87.7 87.7 87.7

no 8 12.3 12.3 100.0

Total 65 100.0 100.0

Figure 4.18: practical use of internet/mobile banking


In total 100% of respondents there are 88% of respondents who were in practical use

of internet or mobile banking say yes the remaining 12% of the respondents say no for

practical use of internet or mobile banking in conventional banking system

40

Table 4.19


Valid yes 38 58.5 58.5 58.5

no 27 41.5 41.5 100.0

Total 65 100.0 100.0

Figure 4.19: practical use of bank account


The respondents to this research responds yes to practical use of bank statement were

59% of the total having account in conventional banks and the remaining 41% of

respondents were not using bank statement of conventional banks

41

Table 4.20


Valid yes 53 81.5 81.5 81.5

no 12 18.5 18.5 100.0

Total 65 100.0 100.0

Figure 4.20: practical use of western union and swift


In this research 82% of the respondents were in practical use of western union and

swift of conventional banking Customers, the remaining 18% were not in practical

use of western union, and swift of conventional banking say no

42

Table 4.21


Valid yes 27 41.5 41.5 41.5

no 38 58.5 58.5 100.0

Total 65 100.0 100.0

Figure 4.21: practical use of credit card


The respondents who were in practical use of the credit card in conventional banks

were 42% and the remaining 58% were not using the credit card of conventional

banks respond as no

43

Table 4.22


Valid yes 52 80.0 80.0 80.0

no 13 20.0 20.0 100.0

Total 65 100.0 100.0

Figure 4.22: practical use of ATM


In this research, 80% of our respondents practically use the ATM of conventional

banks and the remaining 20% were not practically using the ATM of conventional

banks

44

Mean analysis for usage of Islamic bank products in Kabul Afghanistan

According to std Deviation formula Where X represent each value in the population,x is the mean value of the sample ∑ is the summation,and n-1 is the number of values in the sample minus1.

N Minimum Maximum Mean Std. Deviation

Are you in practical use of mudaraba saving account 65 1.00 2.00 1.6923 .46513

Are you in practical use of mudaraba deposit account 65 1.00 2.00 1.6154 .49029

Are you in practical use of murabaha car financing 65 1.00 2.00 1.5846 .49662

Are you in practical use of murabaha contract 65 1.00 2.00 1.5692 .49904

Are you in practical use of musharaka running finance 65 1.00 2.00 1.4308 .49904

Are you in practical use of musharaka Account 65 1.00 2.00 1.2615 .44289

Valid N (listwise) 65

Mean analysis for usage of conventional bank products in Kabul Afghanistan

N Minimum Maximum Mean Std. Deviation

Are you in practical use of salary account 65 1.00 2.00 1.2615 .44289

Are you in practical use of saving account 65 1.00 2.00 1.6769 .47129

Are you in practical use of fixed deposit account 65 1.00 2.00 1.8154 .39100

Are you in practical use of current account 65 1.00 2.00 1.0923 .29171

Are you in practical use of internet/Mobil Banking 65 1.00 2.00 1.1231 .33108

Are you in practical use of bank Statement 65 1.00 2.00 1.4154 .49662

Are you in practical use of western union and swift 65 1.00 2.00 1.1846 .39100

Are you in practical use of credit card 65 1.00 2.00 1.5846 .49662

Are you in practical use of ATM 65 1.00 2.00 1.2000 .40311

Valid N (listwise) 65

Source :Field survey 2/2016

In this research our respondents respond to the Islamic banks product practical usage

as average were 9.1538, while for the conventional banks product practical usage by

the respondents of this research as average were 12.3538 which is more than the

Islamic banking product used by Customers because the Islamic banking is very new

in the market.45

Chapter Five

5 Conclusion and Recommendation

5.1 Conclusion

Although the majority user of banking in Afghanistan are male but still to

have a gender equality as far as possible access female users opinions are

also considered for this study, among 65 respondents the researcher had

access to only 18 females and their opinions has been taken into

consideration.

As lack of this research, only Kabul province users has been considered for

this study and to have a vital review of the responses several ages categories

are considered where the majority of respondents are of a mature age of 25 to

50 years and a very less minority of over age and teenagers has been

considered, and most of the respondents educational levels are in

undergraduate and graduate levels.

For this study the respondents with different levels of income has been

considered, where majority of them has experience with conventional

banking and a minor number of them 23 out of 65 respondents has the

experience of Islamic banking.

Half of the respondents have interaction with Islamic banking over a year

and remaining half has interaction with IBS for less than one year, while for

conventional banking only 8 of respondents has interaction with CBS for less

than year, and majority has interaction for over than a year among which 35

respondents has interaction with conventional banking system over the three

years.

Islamic banking system users are majorly investing and are involved in

mudaraba saving, mudaraba deposit, murabaha car financing, murabaha

contract, musharaka running finance and musharaka account. Meanwhile, the

conventional banking users are involved in much more activities of bank

rather than only few specified fields such as Islamic banking users. The

conventional banking users are involved investing and interaction with

47

salary, saving, fixed deposit, current accounts, internet/mobile banking,

western union and swift, credit cards and automatic teller machines.

As result, here is the satisfaction level of Islamic banking users about

respective accounts:

Majority of Mudaraba saving account users are satisfied of the account where

it encompasses a percentage of 57 percent and a minor of 14 percent are

highly satisfied and around just 29 percent are in neutral condition about their

satisfaction with the account. On the contrary, for mudaraba deposit account

majority of 30 percent has negative point of view and 30 percent with neutral

status and a minority with satisfaction and highly satisfaction.

Half plus users of Islamic banking murabaha car financing are unsatisfied

and in neutral condition and less than half 43 percent are satisfied with the

services. Similarly, murabaha contract users are highly against this service

where around 61 percent unsatisfied and in neutral condition only a minority

is satisfied of the services.

On average users of musharaka running finance are very close to being

neutral about their satisfaction, but on the contrary the users of musharaka

account on average are in between highly satisfied and satisfied status.

Here are on average results of the users of conventional banking services:

Over 72 percent of the salary accounts of conventional banking users are

highly satisfied from the service of salary account and a very minority of 14

percent each is in neutral and unsatisfied condition. Similarly, over 61 percent of

saving accounts users are satisfied with service and around 40 percent of which in

very satisfied status.

On the contrary, around 75 percent of conventional banking services users are

in neutral and unsatisfied condition about the service of fixed deposit only a

minority of 26 percent are satisfied.

Similar to other form of conventional banking system users 75 percent are

satisfied with current account service and on mean study 1.86 results indicate

that users are in between highly satisfied and very satisfied and only 25

percent are neutral and unsatisfied with current account.

Users of internet/mobile banking and bank statement are on average satisfied

from these services where for internet banking/mobile banking users are in

48

between satisfied and highly satisfied while for bank statement most of them

are satisfied.

Western union and swift users are majorly satisfied with this services which

encompasses 83 percent and very less percentage is in neutral condition, and

for half of the users are satisfied from the credit card services and around 30

percent are neutral and only a minor percentage of 7 are not satisfied of this

service, and on average users of ATM are in between satisfied and very

satisfied.

On a comparison study majority of the conventional banking system users are

highly satisfied with services offered by their respective bank and Islamic

banking system users are relatively low satisfied with services of Islamic

banking.

As far as the satisfaction level of Islamic banking users are concern with

employee behavior, facilities, equipment and their locations they are highly

satisfied of the behavior and satisfied of facilities, equipment and locations.

On the contrary, users of conventional banking users only little number of

respondents has a negative satisfaction, which on average they are satisfied

close to being neutral, which means they are less satisfied in comparison to

Islamic banking users.

If we take into consideration the selection of bank for users of Islamic banking

they are highly influenced by the religious point of view, friends and family

point of view, and by easy access and relatively minors which select by their

profitability, and similarly conventional banking system users are influenced

via above mention ways including the popularity of the bank

49

5.2 Recommendation

After analysis from research findings researcher has come up with following

recommendations:

Islamic banking system familiarity is comparatively very less than

conventional banking where it requires huge efforts of advertising to

familiarize the services offered by the Islamic banking systems

However, Afghanistan is an Islamic country. Islamic banking system

providers must ensure the public awareness and conceptual clarity about the

advantages of Islamic banking over conventional banking and disclose the

benefits associated with Islamic banking

Overall trust over Islamic banking in Afghanistan is comparatively low where

efforts are required to build up trust on Islamic banking

To motivate more customers toward Islamic banking in Afghanistan ,Islamic

banks have to improve their services and provide the transparent information

50

5.3 Bibliography

Albaraka. (2015). Islamic Banking. Retrieved October 25, 2015, from Albaraka:

http://www.albaraka.com/default.asp?action=article&id=46

American Bankers Association . (2014). The Business of Banking: What Every Policy

Bartell, S. (1993). Building strong customer relation .Bank Marketing

Maker Needs to Know . Washington, D.C.

Dr. Alam Khan Hamdard. (April 27, 2011 ). Chief of Islamic banking at Kabul Bank.

Practical Aspects of Islamic Banking in Afghanistan .

El-Gamal, M. A. (June 2000). A Basic Guide to Contemporary Islamic Banking and

Finance. Houston: Rice University.

Hamdard, Dr. Alam Khan. (April 27, 2011). Chief of Islamic banking at Kabul Bank.

Practical Aspects of Islamic Banking in Afghanistan , 1, 6.

Heffernan, S. (5 May 2005). The Wiley Finance Series. In Modern Banking (p. 736).

john Wiley & Sons.

Iqbal, M. Molynex, p.(2016),Thirty years of Islamic Banking :History Perfoemance

and Prospects.New York: Springer

51

5.4 Appendixes

Primary data for this research has been collected via following questionnaires

As Part of My MBA Research Thiess at Kardan University The Research Will Inves-

tigate The Profile Analysis Of Islamic Banking Customers and Conventional

Banking Customers In Kabul Afghanistan This Is Highly Appreciate If you Could

You Answer The Flowing Questions. Any Information Obtained in This Research

Will is Remain Confidential.

Questionnaire

1. Name__________________________

2. Resident of_____________________

3. Age _________________________

i: Less than 25 years ii: 25-40 years iii: 41-50 years

iv: Above 50 years

4. Education______________________

i: Under Secondary School ii: Secondary School Certificate iii: Bachelor

Degree iv: Master Degree

5. Your Monthly Income In AFS ________________

52

i: Less than 20000 ii: 20001-25000 iii: 25001-30000 iv: 30001-35000

v: Above 35000

6. Do you have any previous banking experience with:

i: Islamic Banking System ii: Conventional Banking System

7. State the total period of interaction with:

Islamic Banking System: i: Less than 1 year ii: 1-3 years iii: 3 years or more

Conventional Banking System:i: Less than 1 year ii: 1-3 years iii: 3 years or more

8. Are you in practical usage of the following Islamic banking products/services?

i. Mudaraba Saving Accounts Yes No

ii. Mudaraba Deposit Account Yes No

iii. Murabaha Car Financing Yes No

iv. Murabaha Contract Yes No

v. Musharaka Running Finance Yes No

vi. Musharaka Yes No

9. Are you in practical usage of the following Conventional bank products/services?

i. Salary Accounts Yes No

ii. Savings Accounts Yes No

iii. Fixed Deposit Accounts Yes No

iv. Current Account Yes No

v. ATM Yes No

vi. Mobil/Internet Banking Yes No

vii. Bank Statement Yes No

viii. Swift & Western Union Yes No

ix. Credit Cards Yes No

53

10. Please tell us how satisfied you are with the current Islamic banking products/services

you often use:

Very Unsatisfied Unsatisfied Neutral Satisfied Very Satisfied

i. MudarabaSaving Accounts_______ ________ ______ _______ __________

ii. Mudaraba Deposit Financing_____ ________ ______ _______ __________

iii. Mudaraba Car Financing ______ ________ ______ _______ __________

iv. Murabaha Contract _______ ________ ______ ______ __________

v. Musharaka Running Finance_____ _______ ______ ______ _________

vi. Musharaka Accounts _______ ________ ______ _______ __________

11. Please tell us how satisfied you are with the current Conventional banking

products/services you often use:

Very Unsatisfied Unsatisfied Neutral Satisfied Very Satisfied

i. Salary Accounts __________ ______ ______ ______ __________

ii. Savings Account __________ ______ ______ ______ __________

iii. Fixed Deposit Accounts______ _____ ______ _________________

iv. Current Account ________ _____ ______ _______ __________

v. ATM _________ ______ ______ _______ __________

vi. Mobil/Internet Banking_______ ______ ______ _______ __________

vii.Bank Statement _________ ______ ______ _______ __________

viii.Swift & Western Union______ ______ ______ _______ __________

ix.Master/Credit Cards ________ _____ ______ _______ __________

12. Please indicate how satisfied you are with the Islamic banking delivery

system

Islamic Banking System: Satisfied UnsatisfiedProfessional Conduct of Employees 1 2 3 4 Facilities and Equipment 1 2 3 4Convenient Location 1 2 3 4

13. Please indicate how satisfied you are with the Conventional banking delivery

system

Conventional Banking System: Satisfied Unsatisfied

Professional Conduct of Employees 1 2 3 4

54

Facilities and Equipment 1 2 3 4

Convenient Location 1 2 3 4

14. Please state the factors leading to your choice of selection of Islamic bank:

Important Unimportant

i. Religions inclination 1 2 3 4

ii. Family and Friends 1 2 3 4

iii. Easy access to bank 1 2 3 4

iv. Profitability 1 2 3 4

15. Please state the factors leading to your choice of selection of Conventional

bank:

Important Unimportant

i. Popularity 1 2 3 4

ii. Family and Friends 1 2 3 4

iii. Easy access to bank 1 2 3 4

iv. Profitability 1 2 3 4

55

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