The Customer’s Perception about Riba-Free Banking in Adoption of Islamic Banking

Abstract

Purpose – This paper aims to investigate the customer’s perception of Islamic banking and how riba-free banking influences the customer’s perception of Islamic banking. It also examines how mediator riba-free banking determines the adoption of Islamic banking.

Design/methodology/approach – The research targeted the 140 people of Lahore, using convenience and purposive sampling techniques to recruit and select participants. Individuals approached had to have a bank account in either a conventional or Islamic bank. Importantly, the study included only those who had knowledge and experience with banking services, whether conventional or Islamic.

Findings – The empirical results indicate that customer perception has significant and positive effects on riba-free banking, whereas customer perception has also a significant effect on the adoption of Islamic banking. Furthermore, the mediator variable Riba free Banking has also partially mediated between customer’s perception and adoption of Islamic banking.

Research limitations/implications – The current study was limited to the people of Lahore; there is a future need for Islamic banks should extend the duration of their campaigns regarding their products, which need assessment (Fatwa) by an Islamic scholar to effectively influence Muslim commitment and materialism. This approach would make these products more appealing to Customers in both economic and spiritual contexts.

Practical implications – Islamic bank managers should involve Islamic scholars and students as change agents to promote this banking system. Educating Customers and students by incorporating Fiqh Muamalah can strengthen their commitment and loyalty. Knowledge gained from business-related discussions can effectively influence Customers' preferences for Islamic banking practices.

Originality/value – This study contributes to customer perception literature and, specifically, to the decision-making process by developing and testing a mediation model of riba-free banking towards adopting Islamic banking.