Conceptualizing the Impact of Religiosity on the Preferences for Islamic Banking in Mirpur (Azad Jammu and Kashmir): An Empirical Analysis

Abstract

Over the years, Islamic banking has emerged as a viable alternative to conventional banking, especially after the global financial crises of 2008. Despite the fact that the existing literature emphasizes on this significant shift in customers’ preferences in favor of Islamic banking, there are only a few studies that investigate the actual motives behind this shift. Hence, the key objective of this study is to identify the different factors that explain consumer preferences regarding Islamic banking services, specifically in Mirpur. Even more specifically, this study explores the role of religiosity in influencing consumers’ choice of Islamic banking in Mirpur. To test whether or not religiosity affects consumer preference for Islamic banking, the logistic regression technique has been used for the data analysis. The overall results reveal that besides the conventional variables, the religiosity level of customers, Shariah compliance of an Islamic bank, and knowledge of the respondent about prohibition of interest (Riba) in Islam have positive, and significant effects on consumers’ selection of Islamic banks. Based on these empirical findings, this study suggests that along with improving delivery and quality of services, Islamic banks should emphasize on Shariah compliance which provides a sustainable competitive advantage for Islamic banks over conventional banks.