DETERMINANTS OF ISLAMIC BANKING PRODUCTS SELECTION IN SRI LANKA AND WAY FORWARD

Abstract

The Islamic finance industry in Sri Lanka gained a considerable market share in the banking industry. Though a prominent business conglomerate has been given licenses to operate as a full-fledged Islamic bank, other institutions also operate as Islamic banking windows. A rational banking client generally considers various factors when selecting a bank for financial dealings. Attractive rate of return, hassle-free customer service and proximity are among the priorities. Sharia compliance factor is the utmost important factor for Islamic banking clients. Strong Presence of conventional banks and a population-wise smaller Muslim customer base, Islamic banks still face challenges in attracting new customers to sell their shari'a-based products. Thus, this study investigated why the only Islamic bank in the country is unable to attract more customers for their services. Also, this study attempted to find strategies for Islamic financial institutions to increase their market share local market and globally. The Theory of Reason Action (TRA) is used to develop the theoretical framework of the study. To achieve the objectives of the study, primary data has been collected through a survey of 124 respondents in Sri Lanka. Convergent and divergent validity was proved through Confirmatory factor analysis. Structural Equation Modelling results indicate that customer selection of Islamic Banking products is positively influenced by product awareness, availability of branches and rate of return. The results provided by the study would give some ideas to the bankers on how to attract more customers for future sustainability. This includes to enhance customer awareness towards Islamic banking products. This would also assist the other stakeholders and prospective investors to join the Islamic banking industry in future.