Journal of Environmental Treatment Techniques  
2021, Volume 9, Issue 1, Pages: 44-49  
J. Environ. Treat. Tech.  
ISSN: 2309-1185  
Journal web link:  
Assessing Customer Selection Criteria of Islamic  
Banking in Malaysia  
Muhammad Hilmi Zakaria, Zalina Zainudin , Abdul Razak Abdul Hadi  
Universiti Kuala Lumpur, Malaysia  
Received: 21/08/2020  
Accepted: 05/10/2020  
Published: 10/10/2020  
Before the existence of Islamic banking in Malaysia, the financial services activities were dominated by conventional way of lending  
which is interest-based lending. Since the establishment of Islamic financial services in 1962, there has been enormous growth in the Islamic  
products in the banking sector and expected to account for 40 per cent of total financing in Malaysia. However, Islamic banking sector is  
experiencing stiff competition from its counterpart, the conventional banking sectors every turn. Bank’s ability to fulfil the customer  
requirements is claimed to be one of the essential factors to overcome this stiff competition. This study reviews the literature on the factors  
affecting customers’ selection criteria adopting Islamic banks. The study focusses on analysing three factors that play role on customer  
selection for Islamic banking namely religion, social influence, and bank image. Conclusion of the literature are drawn that among the  
important selection criteria are religion, social influence, and bank image. This study will be useful for Islamic banks to gain more insight  
and maintain their existence customer, and policymakers, regulators, and the relevant stakeholders a strategize a method towards the  
development and growth of Malaysia Islamic banking and finance industry.  
Keywords: Islamic banking, customer selection criteria, religion, Malaysia  
banking transaction must be accompanied by genuine underlying  
trade and business activities that generate legitimate and fair  
profits (9). (10) added that Islamic banking not only prohibit  
usury, but also any business that associates with the activities of  
uncertainty, liquor, gambling, and any unethical business. The  
main product that being offered by Islamic banks can be further  
divide into five categories which are deposit, financing,  
investment, trade financing and card services (11). Islamic  
banking industry is emerging with an estimation worth of US$1  
trillion and reportedly to be among the most rapidly emerging  
sectors in the fiscal world (10).  
Up to this date, there are 16 Islamic banks were established in  
Malaysia granted licenses to operate as full-fledge Islamic banks  
under the monitory of Bank Negara Malaysia with 11 of them  
were local banks while the remaining five are from foreign bank  
Islamic banking and finance have been practiced in the Muslim  
world since the Middle ages (1). The development and the market  
on Islamic banking and services is one of the most powerful  
sectors in the overall banking market in the world today (2).  
Meanwhile in countries like Malaysia, Islamic banking has  
becoming a major role in the mainstream banking industry (3). It  
also started gaining popularity in other part of the world such as  
in Europe and the USA (4). (5) further argue that Islamic banking  
is operating in almost every continent. Plus, in some Asian  
countries, Islamic banks had emerging into new market  
segmentation. In the year 1983, the first Islamic Bank in Malaysia  
were established and known as Bank Islam Malaysia Berhad  
BIMB) in 1983. While the early development of Islamic  
financial institution can be traced back with the establishment of  
Malaysian Pilgrimage Board or Tabung Haji in 1963 and been  
suggested by Yang Mulia Ungku Aziz (6). Unlike their  
counterpart, the conventional banking system and Islamic  
banking system are quite differed in term of the contract and the  
In addition, the creation of Islamic banks draws more  
opportunities for those who have religious barriers in doing  
financing (7). Since successful operation of Islamic banks in some  
countries such as Malaysia, Sudan and Bahrain, the existence of  
Islamic banking seems offering an alternative method of  
commercial banking (8). Islamic banking is governed by Shariah  
rules that prohibit interest-based transaction and the Islamic  
As the end-2017, the figure for Islamic banking system total  
assets stood at RM 829.4 million and the figure is steadily  
increasing from 2014. The figure indicates a positive growth from  
the Islamic financial sector. Plus, the total number of financing  
created by Islamic financial institutions grew by 10.5 per cent in  
2018 to RM 668.7 billion (2017; 9.4 per cent) while conventional  
loan growth grew by 3 per cent (13). Moreover, Islamic financing  
grew 11.8 per cent during 2016 compare to 9.4 per cent on 2017.  
This is mainly because of the numerous demands for shariah  
compliance financial solution for household sector (14).  
Corresponding author: Zalina Zainudin, Universiti Kuala Lumpur, Malaysia. E-mail:  
Journal of Environmental Treatment Techniques  
2021, Volume 9, Issue 1, Pages: 44-49  
Table 1: List of Islamic Banks in Malaysia  
Name Ownership  
acknowledge the critical factors so that appropriate measures can  
be taken by the Islamic financial institutions to keep pace with  
conventional bank. Thus, it is worth to study and investigate the  
critical factor that persuade customer in adopting Islamic banks  
since its establishment about 57 years and Islamic banking are not  
applicable in Malaysia but also across the globe. Even though  
there are more than 50 countries worldwide that using Islamic  
banking and finance services (18), and there are many countries  
where Islamic banking and finance are still alien to them and need  
to be study. To expand, it is vital for the Islamic banking industry  
to understand the main reason why the customer would choose to  
adopt Islamic banking and finance method.  
Technically, this paper will provide more insight by  
incorporating Malaysian’s perception towards Islamic banks and  
the factor that motivate them to adopt Islamic banks. The  
necessity of a continuous research in area in important in order to  
obtain a deeper insight of the adoption behavior of the Malaysian  
banking customers towards Islamic banking and services  
Affin Islamic Bank Berhad  
Al Rajhi Banking & Investment Corporation  
Malaysia) Berhad  
Alliance Islamic Bank Berhad  
Ambank Islamic Berhad  
Bank Islam Malaysia Berhad  
Bank Muamalat Malaysia Berhad  
CIMB Islamic Bank Berhad  
Hong Leong Islamic Bank Berhad  
HSBC Amanah Malaysia Berhad  
Kuwait Finance House (Malaysia) Berhad  
Maybank Islamic Berhad  
MBSB Bank Berhad  
OCBC Al Amin Bank Berhad  
Public Islamic Bank Berhad  
RHB Islamic Bank Berhad  
1,19,20). Hence, in this study first will investigate the individual  
Standard Chartered Saadiq Berhad  
perception of Malaysian towards Islamic banking. Next, it  
attempts to identify the critical factors that influence the adoption  
of Islamic banking. Up to this date, there is no comprehensive  
answer to the question why Islamic banking are unable to attract  
more customer.  
Source: (12)  
Table 2: Islamic Banking System Total Financing  
Total Financing  
RM billion  
Literature Review  
Studies regarding bank adoption criteria has been investigated  
Source: (13)  
from different context. Several studies have put their effort in  
understanding customer preference in choosing their bank to  
finalize their financial transaction. There are quite significant  
numbers of Islamic bank has increased the number of choices for  
the customer to adopt them and the factors discussed by the  
scholar are 1) Islamic Bank adoption criteria 2) Religion 3) Social  
influence as well as 4) Bank Image.  
However, the percentage of Shariah-compliant financing share  
as a proportion to total banking sector financing only increase by  
.7 per cent from 34.9 per cent during 2017 (13). It indicates that  
the remaining share still under conventional banking systems.  
Similar goes to total deposit where the market share for the total  
deposit and investment account for Islamic banking were only  
4.9 per cent. Both of the figure could be an indicator that the  
.1 Islamic Banks Adoption Criteria  
Up to this day, according to (21), currently there are 16 Islamic  
public unwilling to adopt Islamic banking system.  
By practice, the creation of Islamic banking is not only limited  
to the Muslim, but it is open to the non-Muslim as well. However,  
Islamic banking faces some difficulties and some challenges in  
changing the mind-set of the public. First, Islamic banking has  
been thought as the banking services are only applicable for the  
Muslim only. The perception has brought an effect where some  
of the non-Muslim are reluctant to participate with the Islamic  
banking services (15). Next barriers come from the Muslim  
perception towards Islamic banking itself. Some of the Muslim  
rejected the idea of Islamic banking because of the misperception  
that Islamic banking is replication of it counterpart, the  
conventional banking (16). The investigation found that Islamic  
banking in Pakistan failed to differentiate themselves with the  
conventional banking and lead to wrong perception by the  
Pakistani consumers and the general perception about Islamic  
banking products are not totally Shariah-compliant. Thus,  
religious matters are important to the Pakistani before they can  
accept Islamic banking. Meanwhile in India, the challenges is to  
change the perception regarding Islamic banking is only meant  
for Muslim (17). The other challenge faced that been highlight in  
the study are the guideline and regulation. Plus, low participation  
and awareness from the public regarding Islamic banking  
possibly the cause of the low adoption in certain countries (2).  
Based on the data above and the arguments, it is crucial to  
banks and 26 conventional banks. This further shows a very stiff  
competition between banks. In order to remain successful bank,  
22) reported that a bank need to understand customer behavior  
and capable to fulfil customer needs. In order to distinguish  
between conventional banking system and Islamic banking  
system (4) rule out some of the differences include the fact that  
the prohibition of interest in Islamic banking system and the risk  
and profit-loss sharing (PLS) is to help to enhance the  
productivity of the business. A lot of past literature being  
documented regarding the factors for banks adoption such as  
convenience, bank image, profit rate, service quality, availability  
of automated teller machine (ATM), customer perception, social  
influence and so on (7,15,2329).  
2.2 Religion  
The discussion on the important of religion in selecting bank  
have raised for quite some time but still there is not definite  
answer that exists stating religion is the main factor for selecting  
Islamic banks (16). It is becoming an important role in people  
lives through shaping their believe, knowledge and attitudes (30).  
Some of the past literature found that even for Muslim, they are  
quite suspicious on Islamic banks whether the Islamic banks is  
following shariah or just replicating the conventional. The  
perception of the customer itself played a bigger role for them to  
Journal of Environmental Treatment Techniques  
2021, Volume 9, Issue 1, Pages: 44-49  
adopt Islamic banks and it also has become an enduring topic in  
the banking industry (31). A study by (32) revealed that among  
the non-Muslim in Malaysia, the Baby Boomers have slightly  
different perception compare with X-Generation whereas, X-  
Generation has a more favorable towards Islamic banks.  
Surprisingly, in the study, over two-third of the respondents from  
the non-Muslim agreed that the establishment of Islamic banking  
do not contradict with their religious believe.  
the quality of service provided to the customer and charging a  
lower profit rate.  
The ongoing controversy has led this study to examine the  
contribution of religion towards the customer to select Islamic  
banks. Since Malaysia is a multi-racial country and Islam is not  
only religion that have been practice in Malaysia, it is wise to  
include the religion factor in the study. Plus, from the studies and  
argument above, it explains why religion should be tested for a  
better understanding  
23), confirmed that religion is one of the important elements  
as it capable to influence the customer cognitively and  
behaviourally. A survey from Kingdom of Bahrain by (33)  
investigate the important adoption criteria that are considered by  
the customer in choosing Islamic banks. The study found that  
religious is the main factor followed by service quality. In this  
studies, financial benefit is the lesser important factor that  
influence customer. It means that most of the customer in Bahrain  
is attracted to Islamic banking more because of the religious  
factor. On the same note, (34) study the respondents from  
Bangladesh to seek the impact of conventional interest rate  
towards Islamic banks profitability. On the ground of 320  
respondents, the study find that the respondents choose to select  
Islamic banks on the basis of religious believe.  
In the context of Ghana, (28) found that Muslim in Ghana have  
a positive perception towards Islamic banking in all aspect  
compared to the non-Muslim. Muslim in Ghana have a stronger  
intention to adopt Islamic banking than the non-Muslim.  
Comparing with other factors such as banks products, service  
quality, profit, bank image, cultural and religion, (35) finding  
indicates that religion preferences are the most important  
considerations in selecting a bank. The study also revealed that  
bank image and profit on deposit do not have influence in bank  
selection. (36) draws a conclusion based on their finding, a person  
who tend to be more religious will select Islamic banks as their  
financial provider. (37) focus on lower income group in Kuala  
Lumpur found an interesting finding. The result showed that not  
only religious but also attitude and services provision are the main  
predictor as well for the customer to choose Islamic banking  
products. In other study conducted by (38) by using modified  
Theory Planned Behavior (TPB) showed that religion continues  
becoming the dominant factor for the people to choose Islamic  
banks. This shows that the banks have to maintain their activities  
and products align with Shariah. While above result mostly  
indicates that religion is important factor, (24,39,40) stated  
otherwise. The studies however show that religion is not the main  
criteria for Islamic banks selection. (24) revealed in their research  
that customer tend to select their banks based significantly on  
bank image rather than religious. While (39) from the result based  
on 284 respondents in Johor Baharu identify that social influence  
and bank image is more important than religion.  
2.3 Social Influence  
(41) defined social influence as a change in an individual’s  
feeling, thought and behavior towards certain thing based on  
interaction or feedback from the people surround him/her. Social  
influence can further classify as the influence from family’s  
member, friend and also neighbor (42). While (43) mentioned that  
social influence may arise from their personal interaction with  
customer and service employee. (44) select six items to measure  
social influence in their study on selection criteria on Islamic  
house financing namely, spouse, parents, co-workers, friends,  
children, and others. The result from the study confirm that social  
influence it is found to be an important factor over selection  
criteria on Islamic home financing. It shows that, customers are  
prone to accept other people’s opinion before they select their  
financial provider. The founding also been supported by (45)  
which focus on the intention to adopt Islamic banking products.  
Even though the study found that social influence does give a  
minor positive influence on the intention to use Islamic banking  
products, it shall not be overlooked. It implies that customer still  
rely on the opinions of other before using Islamic banking  
products. (46) also examined the applicability of the theory of  
reasoned behavior (TRA) in predicting Mauritanian intention to  
adopt choose Islamic banks. A sample of 227 respondents was  
collected and the findings revealed that social influence would  
affect the Mauritanian people to adopt Islamic banks in  
Mauritania. The findings also showed the one of the main factors  
for the correspondent to deal with Islamic banks is awareness.  
In the Indonesia context, (47) provides evidence that social  
influence significantly and positively influences the intention the  
Indonesian to select Islamic banks. In supporting this, (48)  
conduct a research that focused on East Malaysia, social influence  
is important to develop the people intention to choose Islamic  
banks for their mortgage financing. This means that others  
opinion is being consider by the applicant before choosing which  
financial provider they would choose. On the same note, a study  
by (49) proves the significant effect of social influence in an  
individual’s decision to opt diminishing musyrakah financing.  
The strongest factors among all factors in the study is self-efficacy  
which it has becoming an eye opener to the Islamic banks. It  
explains that a personal judgement and expectation towards  
Islamic banks products effect their intention to adopt any Islamic  
banking and financial services.  
This may be due to the respondents is closer and to be apart  
among their colleague and peers. (11) on the other hand, stated  
that major factors behind selecting Islamic banking are services  
charges, social influence, and convenience. They further argued  
that only 38.9 per cent of the respondent agreed that religion is  
the main motive for them to choose Islamic banking. The study  
by (40) found religious factor is selecting Islamic banks are  
ranked as minor leading factors. The most important factors for  
Kuwaiti are quality of services and lower services charge. The  
data from the study’s lead to a conclusion that using religion  
motive only is not a strong reasoning for the customer to  
patronage Islamic banking. Islamic banks have to focus more on  
On the other hand, an empirical investigation done by (50)  
stated differently. Their found that social influence do not have  
influence towards the adoption on Islamic banks in Tunisia. The  
study concluded that consumer intention to adopt Islamic banks  
are mainly by the information the obtain from the promotional  
campaign they receive from the Islamic banks. A recent study by  
(51), point out that social influence does not give any effect to the  
university students in Ghana in selecting the banks. The students  
are more likely to consider cost as the main factor for them in  
Journal of Environmental Treatment Techniques  
2021, Volume 9, Issue 1, Pages: 44-49  
choosing a certain bank. Similar with (52) where social influence  
was ranked the most less important criteria in bank selection.  
Although the study based on commercial bank selection, it also  
valid to be used to the Islamic banks. These studies, however, uses  
university student as respondent where they cycle of opinion  
received are less reliable mainly because they do not have enough  
experience with the banking products and services compare to the  
working adults. Thus, it failed to capture an adequate impact of  
social influence on the selection of an Islamic banks. On the basis  
of this argument, this study proposed to extend the work by  
adding social influence as one of the factors need to include in  
this study.  
loyalty. The study concluded that a bank image is a vital aspect to  
maintain the market position and effect the success of the bank  
such as customer patronage.  
The exact relationship between bank image and Islamic bank  
adoption criteria has remained a matter of debate. Even though  
the above past literature stated that bank image has led customer  
to choose either to choose Islamic banks or to use Islamic banks  
products and services, there are still some findings report  
differently. (40) reveal in their finding, bank image was ranked at  
11 out of 12 factors that been tested. The main factors for  
selection of Islamic banks are quality or service, low service  
charges and responsive bank staff. Therefore, this study proposes  
that bank image to be included in this study as one of the factors  
in assessing customer selection for Islamic banks.  
.4 Bank Image  
Back in 1960, a review on image reveal that bank image in  
United Kingdom (UK) was good as gold (53). He stated that  
image that brought by the bank act as a brand image where can be  
define as a unique characteristic which distinguish one bank to  
another in the same class. The image created not only give an  
impression towards the public, but it also creates recognition and  
builds credibility (54). During the financial crisis 2007-2008, the  
image of the bank had been tarnished badly and lead to a trust  
issue among the stakeholders, the investors and attitude of  
consumers (55). In order to rebuild back a positive image, Islamic  
banks in Bahrain and Malaysia have invested in socially  
responsible and ethical investments to rebuild the overall  
corporate image of an Islamic banks (56). A survey study by (44)  
examined the selection criteria for Islamic home financing among  
the customer in Malaysia. The result showed that bank image and  
reputation play an important role in selecting Islamic home  
financing. A good bank image creates more positive perception  
and confident between Muslim and non-Muslim and this led to an  
increase in applicant in Islamic banks. Meanwhile, a comparative  
analysis by (57) reveal bank image is important for foreign bank  
customer while for local bank customer, knowledge and  
convenience are more important for them. In term of gender,  
female showed a better response on bank image and the core  
product differ the male, internet banking is important for them.  
From student’s perspective, availability, or automated teller  
machine (ATM), bank image and convenience parking space are  
among the top five factors in bank selection criteria (58). The  
young prefer to deal with reputable and well establish banks that  
have a good image. It shows that the banks can easily capture their  
future prospect by engaging with various public relation  
activities. Moreover, from the study, the researcher conclude that  
young people tend to act independently rather than relying to  
other opinions or recommendation. Similar with the findings by  
Proposed Conceptual Framework  
3.1 Theory of Planned Behavior (TPB)  
In explaining the behavior or the customer, this study employs  
theory of planned behaviour to assessing customer selection  
criteria of Islamic banking in Malaysia. This study will enlighten  
Malaysian customer behaviour in selecting Islamic banks. Theory  
of planned behavior is an upgrade from