Service quality and the moderating effect of Shari’ah perception on client satisfaction: A comparison of Islamic and conventional microfinance in Pakistan

Figures & data

Table 1. Reliability/Cronbach’s alpha

	Items in each case	CMI	IMI
Service quality	16	0.711	0.606
Shari’ah perception	7	0.534	0.570
Client satisfaction	4	0.927	0.760
Overall cronbach α	27	0.795	0.674

Notes: CMI = Conventional microfinance institutions; IMI = Islamic microfinance institutions.

Chart 1. Islamic Microfinance Institutions in Pakistan.

Source: Pakistan Microfinance Review (PMR, 2014).

Chart 2. Conventional Microfinance Institutions in Pakistan.

Source: Pakistan Microfinance Review (2014).

Table 2. Top Islamic microfinance institutions in Pakistan

No.	IMFIs	Loans (USD)	Borrowers
1	Akhuwat	54,940,813	469,017
2	Kashf foundation	44,480,269	249,251
Total		99,421,082	718,268

Source: Pakistan Microfinance Review (2014).

Table 3. Top conventional microfinance institutions in Pakistan

No.	CMFIs	Loans (USD)	Borrowers
1	DAMEN	10,920,704	44,814
2	RCDS	11,410,240	63,620
Total		22,330,944	108,434

Source: Pakistan Microfinance Review (2014).

Table 4. Literature summary

Author	Methodology	Sector	Country	Research findings
Erol and El‐Bdour (1989)	Qualitative approach	Islamic and conventional banking comparison	Jordan	Customers is reputation and image of organization, through which customers becomes satisfied on readily basis
Bitran and Lojo (1993)	Empirical	Manufacturing and service sector comparison	Europe	Strength & weakness of service provider according to service quality
Boulding et al. (1993)	Empirical findings	Corporate	Global	Perception of dimension of service quality are functions of customer’s prior expectations
Kwon and Lee (1994)	Quantitative approach	Retail banking	Singapore	SQ (service quality) leads to profitability which in return increase productivity. So higher SQ results higher customer satisfaction
Metawa and Almossawi (1998)	χ^2 tests	Islamic banking	Bahrain	Aware customers have highest satisfaction on IB’s elements of services
Dhumale and Sapcanin (1999)	Empirical	Islamic MFI and banking	Arab states	Islamic MF as tool for entrepreneurship and making customer satisfied
Naser et al. (1999)	Quantitative approach	Islamic banking	Jordan	Customers becomes satisfied on image of organization
Agus et al. (2000)	Quantitative approach	Manufacturing industry, corporate	Malaysia	Total quality management is to ensure client satisfaction by establishing the management system and corporate culture
Othman and Owen (2001)	Validity significance (weights & percentages)	Islamic banking	Kuwait	Service quality (Carter with 34 elements) Islamic banks
Caruana (2002)	Regression and ML estimators	IT and banking	Malta	Customer satisfaction as mediator, played role between service quality and service loyalty
Curry and Penman (2004)	Qualitative	IT and banking	Scotland	Proper use of technology in banking leads to customer relationship better
Khandker (2005)	Panel data approach	MFI	Bangladesh	MF loans results in lowering poverty
Ferro (2005)	Qualitative	Islamic and global banking	Global	Islamic MF with product diversification, create value
Mcintosh et al. (2008)	Retrospective panel data	Households	Guatemala, India, Ghana	Discrete events in MF improve households’ living
Obaidullah and Khan (2008)	Cases, empirical/qualitative	Islamic banking	Muslim countries around the globe	Micro, meso and marco level application of Shari’ah complaint products
Obaidullah (2009)	Qualitative	Islamic funds industry/Islamic banks	Saudi Arabia	Shari’ah acceptability of assets for inclusion in such equity funds
Zhang et al. (2009)	Mediating, moderating, and additive models	Manufacturing industry	Global	The firms with high product concept flexibility with respect to customer’s need, act independently and additively to predict customer satisfaction
Imai et al. (2010)	Binary treatment effect(tobit & propensity score matching model)	Microfinance Institutions	India	Poverty reduction by MFI loans are more in rural than urban areas
Bhuiyan et al. (2011)	Qualitative analysis	Islamic banking/Islami bank	Bangladesh	Islamic microcredit is an alternative approach to enhance the socio-economic status by accessing it and reduce poverty instead of conventional
Loke et al. (2011)	t-test	Telecommunication	Malay, China and Indian	Service dimensions are significant and positively influenced clients’ attitudes in terms of satisfaction and loyalty
Imai et al. (2012)	Cross sectional & panel data approach	Microfinance Institutions	Developing countries	Higher MFI loans leads to lower poverty indices
Saad (2012)	Quantitative (frequency& percentages)	Islamic MFI	Bangladesh	Islamic MF product diversification (MF outreach), Suitable Islamic microfinance products for suitable activities to implement in AIM
Zuraidah et al. (2014)	Empirical	Islamic MFI and conventional MFI	Malaysia	Fund Transfer, entrepreneur at micro level, social development and liabilities through Islamic and conventional MF
Rafay Muzamil et al. (2014)	Qualitative and quantitative both. Case study on akhuwat	MFI	Pakistan	Interest free microcredit generate good livelihood and income in KPK, case of Akhuwat
Rasheed and Masoumeh (2014)	Bartlestt’s test	Banking, insurance, and telecommunications industry	Malaysia	The SQ, trust & perceived value are taken as antecedents of clients loyalty
Munawar and Mariam (2014)	Regression	Banking	Pakistan	Service quality has positively link to customer satisfaction and customer loyalty
Kamel and Jalel (2015)	Cross sectional & panel data approach	Microfinance Institutions	Developing countries	Higher MFI gross loans per capita in portfolio results to reduce poverty
Hamzah et al. (2015)	Survey approach and questionnaire based, correlation	Islamic banking	Malaysia	There is a positive relationship between CS and SQ
Hashim and Dodo (2015)	Logistic regression	Microfinance banks	Nigeria	The extension of microcredit to larger poor households to mitigate the menace of poverty in Kano State

Table 5. KMO and Bartlett’s test

		CMI	IMI
Kaiser-Meyer-Olkin measure of Sampling adequacy		0.616	0.744
Bartlett’s test of sphericity	Approx. χ^2	9,544.079	4,810.909
	Df	351	351
	Sig.	0.000	0.000

Table 6. Correlation for variables and moderation

	CMI-model-1				IMI-model-1
	Service quality	Shari’ah perception	Client satisfaction		Service quality	Shari’ah perception	Client satisfaction
Service Quality	1				1
Shari’ah Perception	0.220**	1			0.128**	1
Client Satisfaction	0.514**	0.270**	1		0.528**	0.186**	1
	SQ-centered	SP-centered	SQ-SP-centered	Client satisfaction	SQ-centered	SP-centered	SQ-SP-centered	Client satisfaction
SQ- CENTERED	1				1
SP- CENTERED	0.220**	1			0.128*	1
SQ-SP-CENTERED	−0.328**	−0.120*	1		−0.399*	−0.145*	1
Client Satisfaction	0.514**	0.270**	−0.297**	1	0.528*	0.186*	−0.127*	1

* Correlation is significant at the 0.05 level (2-tailed) while N = 289.

** Correlation is significant at the 0.01 level (2-tailed) while N = 289.

Table 7. Model summary

	CMI-model 1	CMI-model 2	IMI-model 1	IMI-model 2
R	0.539	0.554	0.542	0.552
R^2	0.29	0.307	0.293	0.304
F	58.485	42.013	59.404	41.555
Sig. F change	0.000	0.000	0.000	0.000
Std. error	1.30686	1.29397	0.67306	0.66906
R^2 change	0.29	0.307	0.293	0.304
F-change	58.485	42.013	59.404	41.555
Durbin Watson	1.338	1.321	1.860	1.867

Table 8. Parameter’s comparison (based on T-value and p-value)

	CMI-model 1		CMI-model 2		IMI-model 1		IMI-model 2
	t	Sig.	T	Sig.	t	Sig.	t	Sig.
SQ	9.357	0.000	–	–	10.236	0.000	–	–
SP	3.234	0.000	–	–	2.406	0.017	–	–
SQ-centered	–	–	8.170	0.000	–	–	10.308	0.000
SP-centered	–	–	3.127	0.002	–	–	2.625	0.009
SQ-SP-centered	–	–	−2.594	0.010	–	–	2.105	0.036

Table 9. Hypotheses summary with findings

Hypothesis	Correlation	F	R² Status (R², R² change)	p-value	Upheld/rejected
H1 (Islamic)	0.528	–	–		Accepted
H1 (Conventional)	0.514	–	–		Accepted
H2 (Islamic)	0.186	–	–		Accepted
H2 (Conventional)	0.270	–	–		Rejected (it is not negatively correlated)
H3 (Islamic)	–	41.555	0.304	0.000	Accepted
H3 (Conventional)	–	42.013	0.307	0.002	Accepted
H4 (Islamic)			SQ*(alone) 0.279***		Accept
			SQ (in moderation case) 0.304
H5 (Conventional)			SQ (alone) 0.264***		Rejected (because moderation **SP form is more effective)
			SQ (in moderation case) 0.307

* SQ = service quality.

** SP = Shari’ah perception.

*** SQ alone is calculated separately. For IMIs its value is R = 0.528. R² and R² change are 0.279 while F and F change are 111.165 significant at 0.000 with Durbin Watson value of 1.864. While in case of CMIs its value is R = 0.514. R² and R² change are 0.264 while F and F change are 103.11 significant at 0.000 with Durbin Watson value of 1.201.

Table 10. Overview of hypotheses

Hypotheses	Accepted	Rejected
H1 (Islamic): Higher service quality will result in higher client satisfaction	Accepted
H1 (Conventional): Higher service quality will result in higher client satisfaction	Accepted
H2 (Islamic): Higher Shari’ah perception for Islamic microcredit will result in higher client satisfaction	Accepted
H2 (Conventional): Higher Shari’ah perception for conventional microcredit will result in higher client satisfaction		Rejected
H3 (Islamic): Shari’ah perception acts as a moderator variable between service quality and the client satisfaction	Accepted
H3 (Conventional): Shari’ah perception acts as a moderator variable between service quality and the client satisfaction	Accepted
H4 (Islamic): Service quality has stronger impact on client satisfaction in presence of Shari’ah perception than service quality has impact on client satisfaction alone in Islamic microcredit	Accepted
H5 (Conventional): Service quality has stronger impact on client satisfaction in presence of Shari’ah perception than service quality has impact on client satisfaction alone in conventional microcredit		Rejected

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