THE FACTORS AFFECTING

CUSTOMERS INTENTION TO USE

INTEREST FREE BANKING
(A study conducted on Commercial bank of
Ethiopia under Wolaita sodo District)

Proposal Submitted to the Department of Economics for

the Partial fulfilment of the requirements of the Award of
the Degree of
MASTER OF ECONOMICS

NOV, 2019
Supervisor Scholar
Dr. Solomon K Afize Jemal

Department of Ecnomics
College Of Business and Economics
Wolaita Sodo University
Wolaita
Ethiopia
 Table of Contents
1. Introduction............................................................................................................................3
1.1 Background of the Study..................................................................................................3
1.2 Statement of the Problem.................................................................................................5
1.3 Objectives of the Study....................................................................................................9
1.3.1 General objective.......................................................................................................9
1.3.2 Specific objectives.....................................................................................................9
1.4 Research Questions..........................................................................................................9
1.5 Hypothesis of the Study..................................................................................................10
1.6 Significance of the Study................................................................................................10
1.7 Scope the Study..............................................................................................................11
1.8 Organization of the study...............................................................................................11
2. Literature Review.................................................................................................................12
2.1 Concepts of Interest Free Banking.................................................................................12
2.1.1 Interest Free Banking...............................................................................................12
2.1.2 Difference between Interest free and Conventional Banking..................................15
2.1.3 Basic Principles (Features) of Interest Free Banking..............................................16
2.2 Theoretical Review.........................................................................................................17
2.2.1 Innovation, Technology Adoption and Diffusion....................................................17
2.2.2 Theory of Reasoned Action (TRA).........................................................................17
2.2.3 Theory of Planned Behaviour (TPB).......................................................................17
2.2.4 Technology Acceptance Model (TAM).....................................................................18
2.2.5 Perceived risk...........................................................................................................19
2.3 Empirical Review...........................................................................................................20
2.3.1 Review of the Study at International Level.............................................................20
2.3.2 Status of Interest-Free Banking Finance in Sub-Saharan Africa.............................25
2.3.3 Review of the Study at National Level....................................................................26
2.4 Conceptual Framework...............................................................................................28
3. Proposed Research Methodology.........................................................................................29
3.1 Survey Methodology......................................................................................................29
3.1.1. Data Source and Method of Collection...................................................................29

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 3.1.2 Sampling Design......................................................................................................29
3.2 Sample Size....................................................................................................................30
3.3 Analytical model............................................................................................................31
3.3.1. Theoretical model...................................................................................................31
3.3.2. Empirical model......................................................................................................32
3.4 Variables to Be Used......................................................................................................33
3.4.1 Dependent Variables................................................................................................33
3.4.2 Independent Variables.............................................................................................33
3.5 Data Processing and Analysis........................................................................................36
References................................................................................................................................37
APPENDIX I............................................................................................................................44
1. FIELD RESEARCH PLAN.................................................................................................44
APPENDIX II..........................................................................................................................46
2. Budget Schedule...................................................................................................................46
APPENDIX Ⅲ.........................................................................................................................47
3 Blank Questionnaire..............................................................................................................47
APPENDIX Ⅳ.........................................................................................................................53
4. Interview Questions.............................................................................................................53

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 CHAPTER I
1. Introduction
1.1 Background of the Study

One of the most emerging trends in the global economies is the idea of Interest free banking
and Finance (Ahmed, 2000), that emerged in the global landscape as an alternative banking
system which is in line with values and ethos of Islam, and governed by the principles of
Sharia Law that requires not charge interest and avoid any unethical practices in achieving its
goals and objectives (Gait, A. & Worthington A., 2008). This form of interest-free banking
has developed over a long period of time in Egypt in 1963 with the introduction of new
products in the industry.

According to (Fakhrul-Ahsan, 1998) and (Usman, 2003), the role and functions of Islamic
banking within the banking system in a modern economy are very important, and in fact, it is
at the heart of every robust economy. Hence, Islamic banking is growing at an average rate of
15 present a year in size and number, which makes it the fastest-growing sector in the
financial markets of the contemporary world (Saidi, 2007) and . While, the global Islamic
banking and finance industry assets worth at over USD 1.3 trillion in 2012 and
expected to reach USD 2 trillion in next three to five years. However, despite the
growth in Islamic banking, there are concerns that development of Islamic banking
remains somewhat limited and that the industry may be suffering from a lack of innovation
(Khan, M.M and Bhatti, M.I, 2008b) and lack of initiatives in convincing customers that they
are really offering Shariah compliant products and not dressing up conventional banking
practices (Karbhari, 2004).

The current status of Islamic finance in Sub Saharan Africa is remains small, although it has
potential given the region’s demographic structure and potential for financial deepening
(IMF, 2017). Despite the growth of Islamic banking worldwide, as the others African
countries Ethiopian banking industry was continued to conduct most of their banking
transactions using traditional banking system because of lack of supportive regulatory and
policy regimes that facilitate the establishment of Islamic financial institutions is the most
important worth of mentioning. Since, Muslims believe that banking with the conventional
banks is against their religious faith; large numbers of potential Muslim customers are
not banking with the existing conventional banks available in the country. To satisfy the

3
community that have problem with the current banking system and to provide alternative
banking system the National Bank of Ethiopia (NBE) was expected to approve a directive
that paves the way for the establishment of what was called as the first Islamic bank
in Ethiopia. A circulated draft form of the NBEs directive has allowed Ethiopian
nationals to establish a bank exclusively engaged in interest- free banking, however, that
hope was short living one as the finally issued draft does not allow the establishment of full-
fledged Islamic financial institution. However, the directive has only opened the door for
existing commercial banks to create an interest-free banking window alongside of their
operations. This comes in to force in October 2011, but interest-free banking in Ethiopia
started only in September 2013, when the Oromia International Bank S.C launched the
service. The Commercial Bank of Ethiopia joined the market at the end of October, followed
by United bank S.C, which began providing the service on May 1, 2014. The introduction of
interest-free banking in Ethiopian banking industry is important for being a world class bank,
and in addition to provide options for the customers. (CBE June, 2014)

As the document of Commercial Bank of Ethiopia (CBE June, 2019) indicates that the
interest-free financial products and services offered under separate windows are Wadiya
Amanah account, Qard account, Mudaraba account, Bai – Salam mode of financing, Istisna
mode of financing, Ijarah mode of financing, Musharakah, Mudarabah, Qard al Hassen and
Kafala.

Interest free (Islamic) banking and finance witnessed a rapid expansion over the last few
decades and it is still currently expanding (EL-Hawary, 2004). For Interest free (Islamic)
banking to continue this expansion and succeed in any other setting, it has to be accepted and
positively perceived by the potential customers. This makes customers perception has
become an enduring research topic in banking (Holiday, 1996). Due to higher demand,
research should be conducted to check updates on customer’s perception and satisfaction of
Interest free (Islamic) banking product and services. Factors affecting customer’s intention to
use interest-free banking have been at the forefront of several research works in the
developed and some developing world. Nevertheless, there is very much limited published
works that investigate the factors influencing the use of interest-free banking from the
viewpoint of customers in the context of developing countries like Ethiopia. To date there
have been very few such studies, a remarkable exception was the study conducted by
(Muhumed, Mohamed, 2012) who studied Islamic banking prospect, opportunities and
challenges in Ethiopia, (Shaik Abdul Majeeb, 2014) that studied the Role and Progress of

4
Islamic Banking in India, Ethiopia and Rest of the World and The Potentiality of
Islamic banking in Ethiopia by (S.Sankaramuthukumar & A.Devamohan, 2008).

In Ethiopia, understanding customer’s intention toward interest-free banking is far more

crucial, mainly because interest-free banks have to compete with the long-established
conventional banks in a dual-banking system. The study on factors affecting of customer’s
intention to use interest-free banking services is timely and very important.

The aim of this paper is, therefore, to examine factors affecting the customer’s intention to
use interest-free banking in Ethiopian dual banking system in Commercial Bank of Ethiopia,
Wolaita Sodo District by deriving factors from the technology acceptance model (TAM)
developed by Davis (1989), theory of planned behavior (TPB) developed by Ajzen (1985)
and perceived risk from other previous studies.

1.2 Statement of the Problem

Banking system is one of the most important economic sectors and strongest financial
intermediaries in the economies that plays a key role in economic development in societies
through receiving the deposits of depositors and instead pay loans and facilities to applicants
and give interest (Iravani & Ghazali, 2012). So it is difficult to conceptualize how an
economy would operate and survive without the crucial services offered by banks. Business
organizations and especially the banking sector are operating in an environment characterized
by a complex and competitive climate (Agbolade, 2011). In today’s competitive world, banks
are starving to endure survival, in spite of their vital role playing in the economy. Therefore
the banks need to consider several criteria such as bank’s image and performance, speed of
transaction, channel of delivery system, banking convenience and product diversity to
attract customers to continuously do banking business with them and also changing
banking product and service they provided. In addition, to achieve their mission and
objectives, they will have to understand their customer’s perceptions (Metawa, 1998)
(Dusuki, W.A. and Abduullah, I.N., 2007).

Such scenario had also led to the changes in the customer’s taste and demand for better and
high quality banking services. So, banks are indebted to apply the financial innovation to
respond to such customer’s needs because Innovation is very important to allocate scarce
resources for sustainable growth of any industry. Interest free banking product and services
(Islamic banking), are no exception because financial innovation is typically associated with

5
the production of a new financial product or instrument; it may also involve an entirely new
financial intermediary system. This is because, from a functional perspective, financial
intermediation pools and optimally allocates scarce financial resources in an uncertain
economic environment (Merton, 1995).

A great deal of literatures has pointed out that since its emergence onto the financial scene in
the 1970s, Islamic banking has gained prominence, becoming one of the most important
players in the banking service industry today. The amount of its assets was estimated to be
1.7 trillion dollars in 2013 and is expected to reach 3.4 trillion dollars by 2018 (World Islamic
Banking Competitiveness Report, 2013-2014). Moreover, its ability to overcome the financial
crisis gave it the opportunity to realize a triumph, to take advantage over conventional
banking and to get more attention from politicians, investors, bankers, theoreticians and
researchers (Echchabi and Azouzi, 2014). On the other hand, Islamic finance is not yet
significant in most Sub-Saharan African countries, though several features make its
instruments relevant to the region (IMF, 2014).

Lack of supportive regulatory and policy regimes in Ethiopia don’t facilitate the
establishment of Islamic financial institutions there was no alternative banking systems for
those have problem with existing banking system until the NBE’s directive has allowed
Ethiopian nationals to establish a bank exclusively engaged in interest-free banking which
come in to force in October 2011, but started in September 2013. The introduction of Islamic
banking Window alongside with conventional operations in 2013 has generated new
dimension and phenomenal in banking sector in Ethiopia.

In Ethiopia, the introduction of Interest Free Banking Window alongside with conventional
operations generated a new dimension in banking sector of the country. From the outset,
many commercial banks anticipated much demand from the side of the target customers.
After its three years of implementation, however, IFB products attract the attention of few
customers. To support this argument, as per the CBE’s -MIS report, IFB maintains only less
than 3% of the total accounts of the bank. Moreover, IFB’s financing products able to attract
only a handful of credit customers. The total IFB financing amount was stood at Birr 171.58
million, i.e., only around 0.12% of the total credit portfolio of the bank as at December
31/2016. Further, IFB’s Depository and Investment products jointly able to mobilize Birr
4.14 billion only, or1.3% of CBE’s total deposits.

6
For ease of comparison, if we look at a single conventional depository product of the CBE,
Women’s Saving Account, which has the same age with IFB, however, able to mobilize Birr
12.67 billion of deposits as at December 31/2016, which is more than thrice-fold as compared
with IFB’s seventeen product-category deposit account performances in aggregate!

Moreover, interest-free banking is a new system in Ethiopia which needs a lot of effort and
resources to increase the knowledge of its adopters for proper awareness and better perceive
about interest-free banking products and to publicize of the products and services in the
banking industry for privileged investment and encouraging other banks to open up separate
window. Consequently, some bank still providing Deposit service and not yet financing as
the result of the ability of banks in giving out loans depends very much on their ability of
attracting deposits from their customers, since the principle does not allow them to finance
Murabaha projects from the bank’s conventional deposits and other banks does not show
initiation to open separate window except some of them. To collect significant interest-free
banking deposits banks have to attract customers because its achievement depends on
customers perceptions towards the banks product and services. For competitive survival,
understanding and adapting the innovations to customer motivation and behaviour is not an
option but an absolute necessity (Owusu-Frimpong, 1999).

Moreover, it is worrying, considering that nearly 34% of Ethiopia’s population consists of

102 million people are Moslems now. Why is the majority of the target population being less
interested in using those products is a critical question?

At international level, academic researchers such as Erol and El-Bdour (1989) have initiated
and published their pioneering study in order to understand the nature of customers’ attitude
toward its use. Thus, it became apparently clear right from its infancy; Islamic banking
adoption among some customers was motivated by religious zeal (Bley & Kuehn, 2004;
Metawa and Almossawi, 1998), while other customers considered adoption as a means to
harvest additional economic benefits (Dusuki & Abdullah, 2007; Erol and El-Bdour, 1989).
Similarly, studies have documented that pricing can affect one’s decision regarding which
bank to utilize and which banking services to give their patronage (Amin, 2008). However,
going beyond a description of customers’ religious zeal, economic benefits and costs,
researchers have also attempt to identify the causal inferences between the psychological
factors and the adoption of Islamic banking using the theory of reasoned action (Taib et al.,
2008; Amin et al, 2010; Amin et al, 2011; Wahyuni, Sakur and Arifin, 2013), theory of

7
planned behavior (Alam et al., 2011; Amin et al., 2013; Amin et al., 2014) and technology
acceptance model (Amin et al, 2008). Although, those earlier studies on this area add their
own contribution to the theory and stated their own policy implications, they were inclined
towards the Moslem dominated and or Arab countries, and hence, Ethiopia received little
attention in various literatures on this issue.

In Ethiopia, on the other hand, few studies were conducted on Interest Free banking. Among
these studies, Mohammed (2012) had studied the Prospects, Opportunities and Challenges of
Islamic Banking in Ethiopia. Debebe (2015) has conducted a study on Factors Affecting
Customers to Use Interest Free Banking by using the theory of Decomposed Theory Planned
Behavior (DTPB). Further, Teferi (2015) was studied about the Contribution of IFB to
economic development and its prospect in Ethiopia. Finally, Kerima (2016) contributed a
research paper on Challenges of Interest Free Banking Services. However, the study
undertaken in Ethiopia regarding Islamic banking by (Muhumed, Mohamed, 2012), (Shaik
Abdul Majeeb, 2014) and (S. Sankaramuthukumar & A.Devamohan, 2008) not covers
regarding Factors affecting customer’s intention towards use of interest-free financial
products and services at bank level. Consequently, it is significantly important to realize and
figure out the potential factors that influence usage of interest-free banking among
account holders of banking.

To sum up, the capacity of IFBs to gain substantial market share in a challenging financial
environment, particularly in a dual-banking system like Ethiopia, will primarily hinge on the
ability of IFB’s to formulate and implement successful marketing strategies. This will require
a clear understanding of the behavior, attitudes, and perceptions of their potential consumers
(Bobat, 2007).

Accordingly, in examining the above points, therefore, this study is aiming to fill the
knowledge gap by providing information on the important potential factors that may have an
effect on the intention of usage of interest-free banking in context of Ethiopia in order to raise
the awareness of the stakeholders for the greater success of the business.

8
1.3 Objectives of the Study
1.3.1 General objective

The general objective of study is to examine the factors affecting of customer’s intention to
use interest- free banking in Ethiopian Banking system with specific reference to Commercial
Bank of Ethiopia Wolaita Sodo district.

1.3.2 Specific objectives

 To assess the current status of interest-free financial products and services in

Commercial bank of Ethiopia at Wolaita Sodo District.
 To identify factors that influences the attitude of the customers towards use of
interest free banking.
 To identify the subjective norm that influences the customer’s intention to use
of interest free banking.
 To explore the impact of customers perceived behavioral control on intention
to use interest free banking.
 To examine the impact of perceived risk on customer’s intention to use of
interest free banking.

1.4 Research Questions

This study will be attempt to answer mainly the following research questions to achieve the
intended objectives of the study and to address the research problem properly in accordance
to Decomposed Theory of Planned Behaviour.

1. What is the current status of interest-free financial products and services seems like in
commercial bank of Ethiopia?
2. What is the impact of customer’s attitude on intention to use Interest Free Banking?
3. What is the impact of customer’s subjective norm on intention to use Interest Free
Banking?
4. What is the impact of customer’s Perceived behavioral control on intention to use
Interest Free Banking?
5. What is the impact of customer’s perceived risk on intention to use Interest Free
Banking?

9
1.5 Hypothesis of the Study

The following important hypothesis will be tested in the empirical finding of the research:

1. There is a significant positive relation between attitude and intention to towards the
use of Interest Free Banking.
2. There is a significant positive relation between perceived usefulness and intention
towards the use of Interest Free Banking.
3. There is a significant positive relation between perceived ease of use and intention
towards the use of Interest Free Banking.
4. There is a significant negative relation between perceived risk and intention towards
the use of Interest Free Banking.
5. There is a significant positive relation between perceived behavioral control and
intention towards the use of Interest Free Banking.
6. There is a significant positive relation between subjective norms and intention to
towards the use of Interest Free Banking.

1.6 Significance of the Study

The study will have a contribution practically and theoretically. Theoretically the Research
will add to the pool of knowledge and as a basis for further research in the field of
interest free banking.

While, practically the Ethiopian commercial bankers will use the findings from this study
to enhance their knowledge on the Ethiopian banking users of interest free banking. This
study also can assist the bankers in formulating different strategies and policies to
attract more banking users by knowing the customers level of intention towards use of
interest-free banking.

It will help the Commercial Banks that do not offer interest-free banking and would like to
adapt to offering these products and services.

It will help the consumers in terms of knowledge of the products, the more knowledgeable
the person is about the product, the more likely he or she will utilize the facilities.
Therefore, in order to capture greater market share, consumers must be well informed of the
products as well as the interest-free banking system itself. Not only does this study will
contribute to the theory, it is also intended to have practical value as well.

10
1.7 Scope the Study

The study will be bounded by both area coverage and problem addressed. The study will be
delimited to a section of the factors affecting the intention to use interest free banking in
commercial bank of Ethiopia under Wolaita Sodo district. Further, there are many financial
product and services provided by banks, and the researcher will be emphasized on the
interest- free financial products and services.

Further, various authors and researchers have proposed factors affecting the intention to use
interest free banking, which include a wide range of factors. This study however, will be
focuses on by deriving factors from the technology acceptance model (TAM) developed by
Davis (1989), theory of planned behaviour (TPB) developed by Ajzen (1985) and perceived
risk from other previous studies. The findings of this study would have had paramount
importance if all banks in the country included. However the recommendation provided can
help all branches of the bank over the country and other private commercial banks in Ethiopia
to have insight on work life balance and job satisfaction of employees and take corrective
measurement. In addition the study will include Interest free account holder customers,
staffs of separated window and branch manager of selected branches of Commercial bank of
Ethiopia located in Wolaita Sodo district.

1.8 Organization of the study

The study will be organized in five chapters. Chapter-1 will present the Background of the
study, Statement of the problem, Objective of the study, Research questions, Significance of
the study, and Scope and limitation of the study. Chapter-2 will present overview of relevant
conceptual issues, theoretical framework, and empirical studies and finally and knowledge
gap of related to the topic of the study. Chapter-3 will presents the methodology used in this
thesis. The chapter includes the research approach as well as describes the data collecting
and analysis methods that will be used. Chapter-4 Analyses and will Presents the research
findings obtained through the methodology by showing how the research objective has
attained and findings together contribute to the main purpose of the study. Chapter-5 will end
the thesis with Conclusion, Implication of the study, and suggestion for future study.

11
 CHAPTER II
2. Literature Review
2.1 Concepts of Interest Free Banking
2.1.1 Interest Free Banking
Islamic banking is a banking system or banking activity that follows the principles of Sharia
or the Islamic Law. In Islam, Sharia prohibits acceptance of specific interest or fees for loans
of money which is known as Riba, whether the payment is fixed or floating. Also the
investment in businesses that provide goods or services considered contrary to Islamic
principles is entitled as Haram. So Islamic banking prohibits Riba or interest. It pays the
investor profit-sharing dividends and offers borrowers fixed repayment rates and
conventional interest rates are considered as Halal or legitimate by Islamic laws (Kelana, C.
& Lai, C., 1998). In the late 20th century a number of Islamic banks formed to apply these
Shariah principles to private or semi-private commercial institutions within the Muslim
community. Eventually Islamic banking directs the development of Islamic economics.
Therefore 'Sharia compliant finance' is the more correct term of Islamic banking.

The first model of Islamic banking system came into picture in 1963 in Egypt. These banks
were actually more than financial institutions rather than commercial banks as they pay or
charge interest on transactions. By the end of 1970, several Islamic banking systems have
been established throughout the Muslim world, including the first private commercial bank in
Dubai(1975), the Bahrain Islamic bank(1979) and the Faisal Islamic bank of Sudan (1977).

Islamic banking offers the same facilities like to make money for the banking institute by
lending out capital as conventional banking system except that it strictly follows the rules of
Shariah or Fiqh al Muamlat. Islamic banking provides banking services that adherence to
Islamic law and ensure fair play to the customers. The Islamic law reflects the totality of
Allah’ commands that regulates all aspects of a Muslim. Also the Islamic finance is directly
involved with spiritual values and social justices. And under Islam there is no separation of
mosque and state or of business and religion (Nicholas, 1994). As in Islam simply lending out
money at interest is prohibited and therefore Islamic rules on transactions which are known as
Fiqh al-Muamalat have been created to prevent these activities. However the basic principle

12
of Islamic banking is based on risk-sharing which is a component of trade rather than risk-
transfer which is seen in conventional banking. As a result Islamic banking introduces
concepts such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture
(Musharakah), cost plus (Murabahah), and leasing (EIjara).

Islamic financial institutions take different forms. They may be

1. full-fledged Islamic financial institutions (for example Islami Bank Bangladesh Ltd,
Meezan Bank in Pakistan);
2. Islamic windows in conventional financial institutions (for example: Commercial
Bank of Dubai in UAE, HSBC, American Express Bank, ANZ Grindlays, BNP-Paribas,
Chase Manhattan, UBS, Kleinwort Benson, Commercial Bank of Saudi Arabia, Ahli United
Bank Kuwait, Riyad Bank;
3. Islamic subsidiaries of conventional financial institutions (Citibank subsidiary Citi
Islamic Investment Bank (Bahrain), UBS subsidiary Noriba Bank.

Sharia-compliant banking grew at an annual rate of 17.6% between 2009 and 2013, faster
than conventional banking, and is estimated to be $2 trillion in size; it is still much smaller
than the conventional sector. As of 2010, the Islamic banking industry was estimated to be
about 1/80 or 1.25% of conventional banking.

As of 2010, Islamic financial institutions operate in 105 countries. Statistics on Islamic

banking differ, but according to Ibrahim Warde, of those countries, five dominate Islamic
banking: Iran with $345 billion in Islamic assets; Saudi Arabia with $258 billion, Malaysia
$142 billion, Kuwait with $118 billion and UAE with $112 billion. Another source lists Saudi
Arabia as the dominate country as of 2006, with Bahrain #2, and Iran relatively insignificant.

According to the 2013–14 World Islamic Banking Competitiveness Report, Qatar, Indonesia,
Saudi Arabia, Malaysia, United Arab Emirates and Turkey represented 78% of the
international Islamic banking assets (excluding Iran) in 2012, and along with Bahrain are “the
driving factors behind the next big wave in Islamic finance". Sanctions have hurt Iran's
banking industry and "its Islamic financial system has evolved in ways that will complicate
ties with foreign banks," but Iranian banks accounted for over a third of the estimated total of
Islamic banking assets globally, according to Reuters. According to the latest central bank
data, its banking assets as of March 2014 totalled 17,344 trillion Rials or $523 billion at the

13
free market exchange rate. According to The Banker, as of November 2010, seven out of ten
top Islamic banks in the world are Iranian.

However the Islamic commercial law is actually based on four basic principles. The first
principle of Islamic business is based on profit and loss sharing and the second one is based
on fixed service fees and charges and the third is based on free of cost and no charges. The
other principles are changing with the situation of the business and its operation (Bellalah, M.
and Ellouz, S., 2004). The main and important models of Islamic banking system are as
follows:

a. Mudharabah is a venture capital that funds an entrepreneur who provides labour while the
banks provide finance so that both profit and risk are shared. Such participatory arrangements
between capital and labour reflect the Islamic view that the borrower must not bear all the
risk or cost of a failure. As a result it brings balanced distribution of income and not allowing
the lender to monopolize the economy.

b. EIjarawa EIqtina is similar to real estate leasing. Islamic banks handle loans for vehicles
in a similar way like selling the vehicle at a higher-than-market price to the debtor and then
retaining ownership of the vehicle until the loan is paid.

c. Musharakah is a joint enterprise or partnership structure with profit and loss sharing
instead of interest-bearing loans. It allows each party to involve in a business to share in the
profits and risks. Instead of charging interest as a creditor, the financier will achieve a return
in the form of a portion of the actual profits earned, according to a predetermined ratio.

d. Murabahah is the sale on the profit which is mutually agreed by both parties. It is actually
a request which is set by the client to the Islamic bank to leverage certain services or goods
for him and in return, the bank provides a definite profit to the client over the cost of the
services or goods.

e. Wadiah is safekeeping of a deposit. A bank is deemed as a keeper and trustee of funds. A

person deposits funds in the bank and the bank guarantees refund of the entire amount of the
deposit, or any part of the outstanding amount, when the depositor demands it.

Islamic banks have enjoyed phenomenal growth, from an asset base of barely US$ 1 billion
in 1975 and fewer than 10 Islamic banks (Martin, 1997). There are more than 180 Islamic
banks and financial institutions operating more than 8000 branches in different countries in

14
Asia, Africa, the Middle East, Europe and North America. It is expected that by 2010 Islamic
Banks and financial institutions will comprise 50 per cent to 60 per cent of the total private
savings of Muslims worldwide (Gainor, 1999).

The major determinant for the future of banking is the customers, as their preferences must be
the main focus of attention. This is because the customers’ mode of living comprises the
needs that the banks have to match (Eriksson, 2008). In today’s competitive environment, it
is imperative that bank managers develop the ability to determine the critical bank selection
factors for the segments of the market they wish to attract and serve (Har, K.Y. & Ta, H.P.,
2000).

2.1.2 Difference between Interest free and Conventional Banking

The key difference is that Islamic banking is based on Shariah foundation while the
conventional banking does not. (Rahman, 2007). Islamic bank’s functions and operating
modes are based on the Shariah rules. All business activities of Islamic bank must be in
compliance with Shariah requirements. Any transactions which violated the principle of
Shariah will be null and void. The second characteristic that distinct; Islamic banking from
Conventional banking is the nature of relationship between customer and the bank. In the
case of Islamic banking, the relationship between Islamic bank and customers is investor and
entrepreneur relationship. Islamic bank recognized customers as a partner rather than a
borrower or debtor as practiced in conventional banking (Khir, K., Gupta, L, Shanmugam B.,
2008). The next difference is the prohibition of Riba. The act of a bank to obtain any benefits
without bearing the liability of a transaction will be considered as ‘Haram’ or prohibited in
Islam (Haron, D.S., & Ahmad, N., 2000). Islamic bank believes that the income the bank
earns must be justified by the risk it shares with the customer in any transactions. On the
other hand, conventional bank is interest base oriented. Conventional bank charges and
receives fixed or floating interest rate for the financing and deposits. (Khir, K., Gupta, L,
Shanmugam B., 2008). The fourth difference is that Islamic bank usually provides financing
thru equity participation. In this mode of financing, the bank and entrepreneur will provide
capital jointly to carry out the business project. Profit and loss generated from the investment
will be shared based on the pre-agreed ratio between bank and the entrepreneur. In the case of
conventional bank, this type of practice is generally not available. The bank will only provide
financing to borrower on an interest basis (Khir, K., Gupta, L, Shanmugam B., 2008). Every
Islamic bank is required to have a Shariah Supervisory Board to ensure that all business

15
activities are in line with Shariah requirements. The board will decide what and which
activities Islamic bank can involve. On the other hand, conventional banking has no such
requirement. It can conduct its business operation at its own discretion as long as the bank do
not violated the law the guideline issued by the Bank Negara Malaysia (Khir, K., Gupta, L,
Shanmugam B., 2008).

2.1.3 Basic Principles (Features) of Interest Free Banking

Islamic banking is a unique type of banking system that devoid all forms of transactions that
are prohibited in Islam. So for any bank to be classified as Islamic bank, the following basic
principles must be adopted for its operations (Greuning and Iqbal, 2008); (Abraham, 2008);
(Islamic Financial Stability Forum, 2010); and (Sanusi, 2011):
a) Prohibition of interest (Riba). Interest means a fixed predetermined amount in addition to
the principal. It is prohibited in Islam. So for any bank to be called Islamic bank, it must not
engage in any interest related transactions, but rather, profit and loss sharing transactions.
b) Prohibition of speculation (gharar). The term gharar literally means hazard. More so, it
means transactions that have too much risk and are therefore linked to gambling. Since Islam
prohibits speculation, a potential Islamic bank will avoid all transactions with excessive risk.
c) Profit, loss, and risk sharing. Since interest is prohibited in Islam, the providers of funds
and the entrepreneur in an Islamic banking settings share the business risk and profits based
on mutual agreement. This act will equitably distribute income, enhance social justice, and
alleviate poverty etc.
d) Shariah approved activities. Islamic banking is a banking system that is based on
Shariah. So any transactions that are prohibited by Shariah in the likes of alcohol, gambling
etc. are avoided in Islamic banking. Islamic banks can only partake in transactions or
activities that are approved by the Shariah advisors.
e) Social Justice. Islam prohibits Muslims from any transactions leading to injustice and
exploitation of any kind, so Islamic banks can not engage in any transactions that will lead to
exploitation of any party.
f) Compulsory payment of zakat. It is mandatory for an Islamic bank to pay zakat. Zakat is
one of the five pillars of Islam.
g) Overseen by Shariah advisors. Every Islamic bank must be regulated by experts in
Islamic law who will have to audit the operations of Islamic banks and its products to make
sure that they comply with Shariah guidelines.

16
2.2 Theoretical Review

2.2.1 Innovation, Technology Adoption and Diffusion

Hoyer and MacInnis (2008, p. 415), defined innovation as an offering that is perceived as
new by consumers within a market segment and that has an effect on existing consumption
patterns. Rogers (1995, p. 11), also defined innovation as an idea, practice, or object that is
perceived as new by an individual or another unit of adoption. Technology adoption is the
choice to acquire and use a new invention or innovation channels over time among the
members of a social system. (Hall & Khan, 2002). And it is a kind of social change, defined
as the process by which alteration occurs in the structure and function of a social system
(Rogers, 1995, pp. 5–6). According to Rogers’s definition, innovation diffusion has four
important elements – an innovation, communication channels, time and social system.
Technology adoption and diffusion are two interrelated concepts. Adoption is the process by
which an individual becomes committed to continued use of an innovation. It occurs at the
micro level, being the individual’s Decision process leading to adoption or rejection.
Diffusion occurs at a macro level, being the process by which adoption spreads through a
specific culture (Angeli, Coventry, & Johnson, 2005).Adoption, resistance, and diffusion can
be influenced by the type of innovation, its breadth, its characteristics, and the social system
into which it is introduced (Hoyer & MacInnis, 2008). There are many well-known models
that are tested in various contexts and Technological products. In this study the widely known
models are discussed as follows:

2.2.2 Theory of Reasoned Action (TRA)

This theory, developed by Ajzen and Fishbein (1975), empirically indicated that an
individual’s behaviour intentions determine his or her actual behaviour. Behaviour intention
in turn is determined by the individual’s attitude toward the behaviour and subjective norms
which deals with the influence of the social environment on behaviour.

2.2.3 Theory of Planned Behaviour (TPB)

This theory, developed by Ajzen I. (1991), is an extension of the Theory of Reasoned Action
(Ajzen & Fishbein, 1975). Ajzen indicated that TRA has limitation in dealing with
behaviours over which people have incomplete volitional control. Ajzen introduced a new
variable, called Perceived behavioural control, to the TRA model and developed the Theory
of Planned Behaviour. The theory of planned behaviour (TPB) suggested that human
behaviour is determined by intention to perform the behaviour, which is affected jointly by

17
attitude toward behaviour, subjective norm and perceived behavioral control (Ajzen, 1991,
2002). Attitude (ATT) is the general feeling of people about the desirability or undesirability
of a specific behavior. Subjective norm (SN) expresses the perceived organizational or social
pressure of a person who intends to perform a particular behavior. Perceived behavioral
control (PBC) reflects a person's perception of the ease or difficulty of implementing a
particular behavior.

The ability of TBP in providing a useful theoretical framework for understanding and
predicting the acceptance of new information systems is demonstrated (Ajzen, 2002).
Armitage and Conner (2001) analyzed previous studies using the TBP in a meta-analysis
study. The major conclusion was support for the efficacy of the TPB and the suggestion that
more work on new variables is needed to increase the predictability of the model.

2.2.4 Technology Acceptance Model (TAM)

To understand, predict and explain why people accept or reject information systems;
researchers have developed and used various models to understand the acceptance of users of
the information systems. The technology acceptance model (TAM) that was introduced by
Davis, Bagozzi, and Warshaw (1989) is one of the most cited models that researchers used to
study underlying factors that motivate users to accept and adopt a new information system
(Al Shibly, 2011). The primary goal of TAM is to provide an explanation of factors affecting
computer applications' acceptance in general. In addition, this model helps researchers and
practitioners to identify why a particular system is unacceptable (Davis, 1989).

Davis Proposed two theoretical constructs, “Perceived Usefulness” and “Perceived Ease of
Use”, which are theorized to be fundamental determinants of Information Technology use.
He then studied the effect of these two constructs on actual information technology usage
behaviour of users (self-reported current usage and self-predicted future usage). TAM has
been employed in itself or by incorporating it with other models in almost all kinds of
researches related with technology adoption. Particularly, TAM is the common model for
most researchers in the area of Electronic banking adoption. Based on two separate empirical
studies conducted by Davis, he found out that “Perceived Usefulness” is significantly
correlated with both self-reported current usage and self-predicted future usage. “Perceived
Ease of Use” is also found to be correlated with current and future usage behaviour (Davis,
1989, p. 324).

18
Perceived usefulness (PU) is defined as the degree to which a person believes that using a
particular system would enhance his or her job performance. Perceived ease of use (PEU)
refers to the degree to which a person believes that using the system will be free of effort.
Attitude (ATT) explains a person's favourable or unfavourable assessment regarding the
behaviour in question. Intention (INT) is a measure of the strength of a person's willingness
to use effort while performing a certain behaviour. The external variables in the model refer
to a set of variables that can influence information system adoption indirectly through
perceived ease of use and perceived usefulness (Davis et al., 1989). According to Taylor and
Todd (1995), constructs of TAM are almost measured in the same way in every context.
Furthermore, TAM is a reliable instrument and empirically sound. Several meta-analysis
studies have provided sufficient data about TAM to be highly credible and rationally explain
up to 40 percent of the behavioral intention to use (King and He, 2006; Yousafzai, Foxall,
and Pallister, 2007). In addition, several studies have applied TAM to evaluate users'
adoption in different settings such as electronic commerce (Gefen, Karahanna, and Straub,
2003); electronic learning (Arbaugh, 2000); internet banking (Al Sukkar and Hasan, 2005)
and e-government (Alhujran, 2009).

Davis suggested that using an information system is directly determined by the behavioural
intention to use it, which is in turn influenced by the users' attitudes toward using the system
and the perceived usefulness of the system. Attitude and perceived usefulness are also
affected by the perceived ease of use. According to TAM, greater perceived usefulness and
the perceived ease of use of new technology will positively influence the attitude toward this
system. The attitude, in turn leads to a greater intention to use the system, which positively
affects one's actual use of the system. TAM supposes that, other thing being equal, perceived
usefulness is influenced by the perceived ease of use because the easier a technology to use,
the more useful it can be.

2.2.5 Perceived risk

Consumer behaviour studies define perceived risk (PR) in terms of the customer's perception
of the uncertainty and potential adverse consequences of buying a product or services. The
degrees of risk that customers perceive and their own tolerance of risk tacking are factors that
influence their purchase decision (Nasri, 2011). On another hand, introducing a new
technology may involve both benefits and risks to the user, and before deciding to adopt the
technology, the individual may want to weigh risks and benefits. Interest free banking

19
services will not be an exception to this general rule. A larger perception of risk will reduce
the perceived benefit of the technology (Horst, Kuttschreuter, and Gutteling, 2007).

Previous studies mentioned that perceived risk was a major factor that influences the
adoption of new banking services (Polatoglu and Ekin, 2001; Tan and Teo, 2000).
Featherman MS and Pavlou PA (2003) defined perceived risk as the potentiality of loss in the
pursuit of a desired outcome of using electronic services. It increases with the higher level of
uncertainty or with an increased chance of negative consequences (Lu, Hsu, and Hsu, 2005).
Most of the researchers noted that customers' perceived risk was a kind of multi-dimensional
construct, and such dimensions may vary according to the product or service type. Five
dimensions of perceived risk have been identified in the previous studies (Featherman MS
and Pavlou PA, 2003; Kuisma et al., 2007; Lu et al., 2005; Natarajan et al., 2010). These
dimensions are: performance risk, social risk, financial risk, privacy risk and time risk.

2.3 Empirical Review

2.3.1 Review of the Study at International Level

(Erol C, 1989) And (Erol and R. El-Bdour,, 1990) conducted study in Jordan where they
marked three selection factors for Islamic banks: reputation, confidentiality and efficient
services which prevail that religion is not a basic factor for selecting Islamic banking. They
find out that it is not a religion that attract customer towards Islamic banking, but it is the
products and services which attract the customer towards any conventional and Islamic
banking. (Omer, 1992) States that customer are highly unaware of Islamic banking they used
Islamic products and services only due to religious association and that why they don’t prefer
conventional banking as well as element of interest which is prohibited in Shariah therefore
they choose Islamic banking but few customers do that.

(Leeds, 1992) Argues from his study that due of service quality and professional good attitude
customer satisfaction increase and it becomes a cause to decrease in the erosion of customer.
There are 40% of customers who turn to another bank due to of bad services. The dealing of
personnel with the customers is also includes in quality services. In consumer behaviour
research it’s found out that when the quality of services is delivered to customers its
automatically creates a good relationship. (Haron, S., Ahmad, N., &Planisek, S, 1994)
Analysed the three most basic factors for bank selections are efficiency, speed and
friendliness as well as behaviour of customer but they also found that 40% of respondents

20
choose Islamic banking because of Islam factor. Similarly, Naser et al. conducted the same
study in Jordan and surveyed 206 customers but their study found that 70% respondents
select Islamic banks due to religion factor.

(Hegazy, 1995) Found in Egypt that customers on the basis of religion and Islamic laws use
Islamic banking services but still they compare the services and products of both bank and
then made a final decision of selecting a bank. (Levesque. T., & McDougall, H.G., 1996)
Argue that service quality is correctly determinate as it has an influential effect on customer
satisfaction. Poor service will cause customer dissatisfaction and they easily switch to another
bank. (Gerrard, P, & Cunningham, J,B.,, 1997) Indicated through the result of their study that
in Singapore clients are conscious and ready to compromise and go on for Shariah abidance.
The Islamic banks are entitled with the slogan of Islamic banking system and their abidance
of Shariah which gratify and inspire the clients on this very ground. (Metawa, S.A. and
Almossawi, M., 1998) Focus on the customer approach while selecting a bank and finally
concluded that Shariah principles are the primary factor. They examined that customer
thinking and feelings associated with products and services lead to customer satisfaction. If
customers satisfied with the business then they not only like to come again and again along
with they become a marking tool for products offered by company by having positive word
of mouth same the case will be if customers are dissatisfied with the company’s product it
comes through negative word of mouth which create a challenge not only the products they
are using but also for company overall products.

As per Jordan, (Naser, K., Jamal, A. & Al-Khatib, L, 1999) argues that consumer also relate
the bank reputation as per religious beliefs as the need for their Islamic bank support. The
result of a research conducted by Naser et al. showed that factors influencing clients to select
Islamic banks are religious reasons, bank reputations, competitiveness and of course the
profit. Conclusion can be drawn from this study is that consumer select an Islamic bank
because of both the religious factor and economic factors. (Zeithmal VA, Parasuraman A,
Malhotra A, 2000) States that competition prevails in banking industry so service quality
factor becoming famous among customers which help to gain competitive advantage and help
to maintain long term relationship with customer. (Hanson, 2000) Conducted study in south
west and found that organization must developed strategy that enhances the service quality
standard as it enhances the level of services. Many researchers in the world found the
relationship between customer satisfaction and service quality. He advised that in order to
meet the customer needs and wants organization must improve their services.

21
(Sureshchander GS, Chandrasekharan R, Anantharaman R., 2003) States that in Indian banking
industry’s technological factors are more important than human factors of service quality.
(Wang Y, Lo H & Hui YV, 2003) Examined in China that due to of the intense competition
in banking industry, the Islamic and conventional banks want to capture the current and
potential customers. Bank realized that service quality is important for survival in
competitive atmosphere and in today’s world. (Vitell, S.J. and J.G.P.Paolollo, 2003) study
depict that religion is indirectly a dominant factor of practices, belief and ethical of consumer
but it is a substantial element of both relativism and idealism. (Bley, J. and K. Kuehn,, 2004)
Concluded that in United Arab Emirates the preference of selecting Islamic banks is
motivated by religious values not by financial knowledge. More the customer has religious
association the larger the preference of selecting Islamic banks. They conducted a surveyed in
which they want to point out the student knowledge and thinking towards Islamic banking.
They found interested result wile examined hypotheses on: aspect of religion, cultural
differences and knowledge of Islamic product etc. Study analyses that due to language
barriers it prohibits students to learn Islamic financial system. Nevertheless, the study was
mainly concentrated towards having an adequate marketing and education policy on Islamic
banking and economics.

(Curry, A., & Penman, S., 2004) analysed in Scottish that bank must meet the customer needs by
providing their services through managing the resources in proper way as well as keep check
on it because differentiations in service quality is a major factor in competitive environment
of banking industry. Customer retention is achieved by providing the right service at right
time which gives long term benefits to the organization. (Flavian et al., 2005) presented that
in the competitive environment; bank image is strong factor to hold market positions which
help in creating and sustaining the trust between customers and their respective banks as trust
has a powerful influence on performance of organization. (Dusuki AW and Abdullah NI,,
2006) Concluded in Malaysian customer service considered as an important factor while
selecting Islamic banks. Respect must provide to customer and they should treated by
knowledgeable personnel with gracious and friendly way. Staffs play an influential role in
enhancing the customer satisfaction. Bank must provide adequate training to their employees
who enhance the abilities and competences of employees which will consequently increase
the satisfaction of customer which is the main purpose of the bank.

(Ahmad WMW, Rahman AA, Ali NA, and Semen AC, 2006) Concluded in Malaysian that the senior
management must keep the factors under consideration which influence the customer

22
decision for choosing Islamic banks like mass media services, external influence,
convenience and Islamism of products. Due to of religious exposure, a person tend to be
more religious which attract towards Islamic financing. Such groups of customer who are
more religious are expected customer and there is a need to describe Islamic products in
detail to such group. They also reason out that religion is a basic choice for Islamic banks.
(Al-Hawari M., & Ward T., 2006) Found out that in Australia, relationship of financial
performance and service quality is linked with customer satisfaction. Despite of having a
fully satisfied customer, organization should focus to maintain a positive relationship
standards’ with their customers. (Dusuki, A.W. & Abdullah , N.I., 2007) Found in Malaysia
bank employee is also an important factor which attract customer while making decision of
selecting bank (efficiency and effectiveness in transaction handling, knowledge and
experienced bank personnel and staff friendliness). Employee ability to communicate trust
onto customers, competences and courtesy of employees is major abilities that a good
employee should have. They also reveal that religion factor is the major one that drives
individual towards Islamic banking.

(Gait, A. & Worthington A., 2008) Examined that the factors which are important for choosing
the Islamic banking are service quality, bank reputation, religious and pricing aspects.
Among the consumer the idea of Islamic banking is new and they having less knowledge
about Islamic finance, Islamic banks must develop innovative and strong marketing program
so that customer should aware about new Islamic products and services. (Amin, M. & Isa, Z.,
2008) Study found that awareness of Islamic product and services are highly compared
between Muslim and non-Muslim customer in Malaysia. The majority of Islamic banking
customers are satisfied with the service quality in all aspect. (Ahmad, W., A.Rahman,
N.A.Ali and A.C Seman, 2008) Found in Malaysia that there is a dominant difference
between religion and selection of bank. Muslim only select Islamic banks due to that fact that
is what religion said and required. This research depicts that people who are more associated
with religion select Islamic bank for their deposits transaction. In Malaysia, (Tan, 2009)
analysed that services play important role in customer satisfaction. She explored that
customer are more satisfied with the speed of transaction along with accessible location, fast
services , parking facilities and reception gets at bank rather than customer is less satisfied
with the bank size and mass media advertising in Malaysia Islamic band criteria. (Osman I,
Ali H, Zainuddin A, Rashid WEW, & Jusoff K., 2009) Concluded in Malaysia that
conformation to Islamic Principles was sensed as the primary method. Despite of the fact that

23
customer know that services offered by international banks are better but still due to of
religious factor they select Islamic banks. To maintain market positioning, Islamic banks
provide quality service that increase satisfaction of customer which consequently lead to
customer retention. Instead of depending on Islamic image they have to give quality products
and services.

(Al-Ajmi, J., Hussain, H.A & Al-Saleh, N., 2009) study depicted in Bahrain that customer select
Islamic banking not only on the basis of Islamic values but there are also other factors which
influence their decision like economic factors which compasses services and costs, influence
of family and friends, conveniences factors like parking facility, accessibility to ATM,
location of branches, image of bank like social responsibility, financial strength and risk etc.
In order to enhance the customer Islamic banking operation must generate profitability as the
competition is with conventional banking but Islamic banking should keep in their mind
Islamic values and Shariah principles. It creates a challenge for Islamic banking to satisfy the
customers who are already satisfied with conventional banking products and services, with
their products which are entirely new and lacks standardization which consequently enhances
cost of transaction. (Marimuthu M, 2010) examined that along with the religious values and
belief there are many factors include in selecting Islamic banking like ATM, service
quality ,influence of family and friends but they don’t play a substantial role in selecting
Islamic banking. In such aspect customer should have knowledge and awareness as well as
banks should take the responsibility to describe different feature that Islamic banks offer.
( Ahmed et al., 2010) Concluded that the customer perception of Islamic banks is greater than
conventional banks. Their study show that there is a difference of perception of male and
female customer of Islamic banks but customers of conventional banks have same perception
of service quality. Manager musk takes initiative steps by focusing the demographic aspects
of customer while improving the quality of products. Bankers must develop strong marketing
programmers to attract large number of customers and specific strategy to meet the customer
needs. Islamic banking while developing a new product and services based on Shariaha
principles must give awareness to customer about its product and services in order to compete
in the long run with conventional banking. (Rahim Mosahab, 2010) Researched in Iran and
found that customer association with the bank leads to customer satisfaction in long run. If
customer expectation related to quality services and products are meet it consequently create
customer satisfaction.

24
(Mirr, 2011) Analysed in Bangladesh that if customer is satisfied it leads to loyalty which is a
major factor in Islamic banking. Customer satisfaction is associated with several factors like
bank image, attitude of banking staff with customer, low banking service charges, its location
etc. Documentary prove, friendly environment of bank, minimum time taking for executing
any function also help in building customer satisfaction. Bank staff must communicate in
understandable and easy way with customers which enhance customer satisfaction.

(Idris AR, 2011) analysed that religious thinking that customer have in their mind regarding
selection of Islamic banks are interest free transaction, conformation of Shariah laws, social
contribution in form of zakat ,transparency and honesty but Islamic banks not only take
favour from religious aspect of customer but also provide quality products and services.
(Alam, S.S., R. Mohd and B. Hisham, 2011) Prevailed in Malaysia religion has a powerful
impact in directing the behaviour of human being in social and personal aspect.

2.3.2 Status of Interest-Free Banking Finance in Sub-Saharan Africa

The financial sector in some Sub Saharan Africa countries has been growing rapidly in the
past two decades. New products have been introduced and financial institutions are playing
an increasing role in financial intermediation, including cross-border financial flows.
However, Islamic finance in Sub Saharan Africa remains small, although it has potential
given the region’s demographic structure and potential for financial expanding. As of end-
2012, about 38 Islamic finance institutions comprising commercial banks, investment banks,
and takaful (insurance) operators were operating in Africa (Dow Jones, 2012). As Estimates
based on Bank scope and Zawya, April 18, 2012 out of this, 21 operated in North Africa,
Mauritania and Sudan, and 17 in Sub-Saharan Africa. Botswana, Kenya, Gambia, Guinea,
Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal and Tanzania have Islamic banking
activities.

There is also scope for development in Zambia, Uganda, Malawi, Ghana and Ethiopia as all
but Zambia have relatively large Muslim populations Zambia is interested in using Islamic
finance instruments to fund investment in the mining sector. In Uganda, the central bank has
started the process of amending its banking regulations to allow for the establishment of
Islamic banks and three Islamic banks have applied for a license. In particular, four countries
have considerable potential for becoming a regional hub of Islamic finance activities such as
South Africa, Nigeria, Kenya and Mauritius.

25
2.3.3 Review of the Study at National Level

In Ethiopia few studies have been undertaken as the interest free banking also has short
history. Among few Mohamed Muhumed, (2012) who studied Islamic banking prospect,
opportunities and challenges in Ethiopia and concluded Muslims everywhere want Islamic
Banking and offers huge opportunities to exploit that Islamic banking face the challenge of
lack of awareness and understanding, legal, supervisory, regulatory and/or institutional
challenge, negative attitude of people towards Islamic banking (wrong association with
religion), lack of trained human resource, capital resource constraints and lack of suitable
banking policies. Shaik Abdul Majeeb, (2014) that studied the Role and Progress of Islamic
Banking in India, Ethiopia and Rest of the World and the studies result Ethiopia of economic
development, largest population and well growing condition of financial markets and
infrastructure areas the National Bank of Ethiopia (NBE) directive allowed banks to provide
interest-free banking service using a separate window along with their other banking services
to serve the public and Oromia International Bank, a private financial institution, becomes the
first to implement interest-free banking [Islamic banking] in Ethiopia.

In addition, Teferi (2015) has studied on “Contribution of IFB on Economic development and
Its Prospect in Ethiopia”, and his work has identified that introduction of IFB does not only
create inclusive financial system for the Muslim population but also has a potential to
influence and enhance the economic development of the country through resource
mobilization and employment creation by encouraging people to use the banking system.
This study focused on contribution of IFB on economic development and its prospects rather
than factors affecting adoption or development of IFB. Similarly, Mohammed (2012) has
studied the “Prospects, Opportunities and Challenges of Islamic Banking in Ethiopia” and his
work has identified the potential challenges as: lack of awareness, regulatory and supervisory
challenges, institutional challenges, lack of support and link institutions, gap in research and
development in Islamic studies, lack of qualified human resource as well as wrongful
association with specific religion and the global terrorism. This study was undertaken before
the practical introduction of the IFB in the country. Therefore, it was not based on actual
observation of facts on the ground. Further (S.Sankaramuthukumar & A.Devamohan, 2008),
which studied the Potentiality of Islamic banking in Ethiopia and the result from the study
revealed as the Ethiopian Muslims are vibrant and they establish their identity in spite of that
fact that Ethiopia is a Christian dominated country. Ethiopian Christians have no way

26
affected or influenced the Ethiopian Muslims. Of course, this is good from society’s point of
view, since both the communities (Christians and Muslims) live in peace and harmony. This
indicates the potentiality for the establishment of an Islamic bank for Ethiopian Muslims.

Karima (2016) study has identified the challenges to deliver IFB products as lack of
commitment of the bank, lack of Shariah advisor, lack of supportive supervisory directive,
lack of capacity to deliver full range of IFB products, lack of awareness of customer,
inadequate marketing and promotion, double taxation, nature of IFB products, inaccessibility
of IFB products, the IFB being delivered in a Window model. The study lacks model
specification and lacks in exploring behavioural intention to adopt interest free banking.
Analysing the above empirical review at international level most of studies have varies by
theoretical models and components of variables that invites researcher to contribute some
standard model of adoption particularly on interest free banking. In addition, there is no
research undertaken in Ethiopia regarding customers’ intention towards adoption of IFB
product and services. Hence, this study emphasized on Interest free financial products and
services to determine their intention toward interest-free financial product and services at
bank levels.

27
2.4 Conceptual Framework

As discussed in the related literature review part of this study, a conceptual framework was
developed based on the technology acceptance model (TAM), the theory of planned
behaviour (TPB) and previous empirical studies carried out in relation to perceived risk. The
relationship between dependent variable and independent variables is illustrated in the
schematic diagram as follows:

Attitude

Perceived
usefulness

Perceived ease of
use
Intention to us Interest
free banking
Perceived
behavioral control

Subjective norms

Perceived Risk

Figure 3.2.1 Theoretical framework of the factors affecting the intention to use
Interest free banking

This research model is unique in that it is comprehensive by integrating the most powerful
theories and models that previous studies don’t. Moreover, this research model consists of
most of the factors that influence e-banking adoption, and has constructs that are related to
social, behavioural and technological issues derived from different theories and models
previously developed in relation to the acceptance of a new technology. Hence, this study
different from previous studies in that it combines constructs from theories and models while
previous studies focused only on the constructs from one model. Several related studies
emphasis on one side of factors and ignore others.

28
 CHAPTER III
3. Proposed Research Methodology

3.1 Survey Methodology

3.1.1. Data Source and Method of Collection

The task of data collection begins after a research problem has been defined and research
design/ plan chalked out. While deciding about the method of data collection to be used for
the study, the researcher should keep in mind two types of data viz., primary and secondary.
Thus, data will be collects from both primary and secondary sources.

In this study the primary data will be collected through semi structured interviews and close-
ended structured questionnaire items through the adaptation and modification of instruments
from previous studies in the area of intention studies and usage of innovations would use to
collect information about the importance of different factors that affect customers intention
while using the product and services from IFB account holders.

The secondary data are those which have already been collected by someone other than the
investigator himself, and as such the problems associated with the original collection of data
do not arise here. This study will be conducted by gathering secondary data from various
sources such as researches, international journal articles; E-sources research papers
conducted locally, important books, related to the topic, and etc.

The researcher will design questionnaire for IFB account holders using both English and
Amharic language. For measuring this information the Likert scale method will be used to
range the responses: strongly disagree, disagree, Neutral, Agree, and strongly agree, with a
numeric value of 1-5, respectively. As different researcher’s explained, Likert-scale will be
used to ask many people the same questions and examining their answers research questions.
So that the researcher will use cross sectional filed survey in which independent and
dependent variables are measured at the same point in time using a single questionnaire

3.1.2 Sampling Design

The researcher will assume that the all branches of CBE operate in a similar manner with
respect to policies and practices despite the fact that they are located in geographical areas
that span the state and differ with the size of employees. Therefore the researcher will be used

29
stratified random sampling to select the sample from target population for the study. In
stratified random sampling the researcher first, stratifying the total population into stratum
and used simple random sampling in selecting the representatives following the method of
proportional allocation under which the sizes of the samples from different stratum were
relatively kept proportional to the sizes of the stratum. The samples of total population will be
stratifies on the basis of branches grade. From the total of 21 branches, sample branches will
be selected on the assumption to represent all branches by grouping in to four strata that is
grade 1, grade 2, grade 3 and grade 4 branches based on their employees’ size and number of
customers they serve according to Commercial Bank of Ethiopia and selected through simple
random sampling proportionally. After selecting the branches, respondents from each branch
were selected by using census because each member of the population is homogenous in each
grade.

3.2 Sample Size

The sample size determination for the study will be based on Taro Yamane’s ‘a simplified
formula to calculate sample sizes’.

N
n=
1+ N ( e ) 2

Where:

n = Sample Size

N = Total Population

e = Margin of Error

1 = Constant Number

A 95% confidence level and p=.05 are assumed

40189
n=
1+ 40189 (.05 ) 2

40189
¿ =396
21.4175

30
Therefore, the sample size for the study will be 396 and 5% of the sample size will be added
which is 20 to minimize the effect of non-response rate and therefore the total sample will be
416.

3.3 Analytical model

3.3.1. Theoretical model

The measurement of customers’ intention of to adopt interest free banking service is will be
undertaken with the aid of TAM, TPB and PR variables. TAM was first introduced by Fred
Davis in 1989 to predict user acceptance of new technologies. According to TAM, attitude
toward new technology is jointly influenced by two main constructs; perceived usefulness
(PU) and perceived ease of use (PEOU). He argued that perceived usefulness will directly
influence the behavioral intention. If a certain new technology improves the performance of
users, potential users will develop a positive intention to adopt it. Moreover, perceived
usefulness is influenced by perceived ease of use. Whenever the technology is free of effort,
potential users will realize its usefulness.

The extension of the original theory of reasoned action had led to the formation of the theory
of planned behavior with the introduction of a new construct; perceived behavioral control to
the earlier variables of TRA (attitude and subjective norms). According to this theory,
perceived behavioral control is a situation in which the resources and opportunities available
to a person must to some extent dictate the likelihood of behavioral achievement. Of greater
psychological interest than actual control, however, is the perception of behavioral control
and its impact on intentions and actions (Ajzen, 1985).

31
Both TAM and TPB complement each other. While constructs like attitude, subjective norms
and perceived behavioral control from TPB predicts intention to use E-banking technology,
perceived usefulness and perceived ease of use from TAM predicts attitude. Many studies
conclude that perceived risk is the main factor that influences customers’ intention to use e-
banking. In addition, Perceived risk influences both of TAM and TPB constructs (Schmiege
et al, 2009).

Vijayasarathy and Jones (2000) show that perceived risk negatively influenced both
perceived usefulness toward online shopping and perceived ease of use to shop online. Other
studies similarly find that perceived risk negatively influenced consumers’ perceived
usefulness or perceived ease of use to purchase on the internet (Davis et al, 1989). According
to Schmiege et.al (2009), there is a relationship between TPB and perceived risk. Perceived
risk influences intention and attitude negatively. Alireza et al (2010) argued that there is a
relationship between TPB and perceived risk. Perceived risk influences attitude negatively.
All the variables were integrated to develop the general research model of this study. Hence;
the following conceptual framework is developed to serve as a roadmap to analyses the entire
study.

3.3.2. Empirical model

As discussed in the related literature review part of this study, a conceptual framework was
developed based on the technology acceptance model (TAM), the theory of planned
behaviour (TPB) and previous empirical studies carried out in relation to perceived risk.
Based on the conceptual framework of the study, the following empirical model is developed.
Thus, parameters for the following functional relationships were estimated using the
empirical model. Regression as opposed to other techniques as it is widely accepted model in
many of the studies carried in the new banking service adoption (Alireza et al., 2010 and
Alenezi et al., 2010).

INT = β0+β1Att+ β2 PU+ β3 PEOU+ β4PBC+ β5SN+ β6PR+β7CTU+ε

32
Where:

INT = customers’ intention to use interest free banking, Att = attitude of customers, PU =
perceived usefulness, PEOU = perceived ease of use, PBC = perceived behavioral control,
SN = subjective norms, PR = perceived risk and ε = is the error term for any missing variable
in behaviour of human account, assumed to distribute normally with zero mean and σ
standard deviation and is independent of the error terms associated with all other
Observations. β0 = the intercept value of the regression surface.

3.4 Variables to Be Used

3.4.1 Dependent Variables

The dependent variable is Intention.

Intention is defined as how hard someone is willing to try to perform a behavior and what
level of determination one is planning to use toward performing the behavior in question.
According to Fishbein and Ajzen (1975) and Orobia et al. (2016), is a states that assumes
individuals make rational decisions (intention) pertaining to their actions. This means that for
every behavior there must be an intention to perform hat behavior. It thus follows that the
higher the behavioral intention, the greater will be the probability of performing the behavior
in question (Gumeletal., 2015).

3.4.2 Independent Variables

a. Customers Attitude

According to (Ajzen, I. and Fishbein, M., 2000) attitude is defined as evaluative effect of
individuals‟ negative or positive feelings in a specific behavior performing. Actually, attitude
is related to behavioral intention of individuals considering the fact that they shape their
intentions to do a specific behavior in the direction of which they have positive outcome
(Tan, M., & Teo, T., 2000). Likewise, Attitude toward behavior is the degree to which an
individual has unfavorable or favorable appraisal or evaluation of behavior in the question
(Ajzen, I. and Fishbein, M., 2000). There is a tendency to think that Interest free banking is
reserved for people of Islamic religion. But, Islamic institutions and instruments have
developed in countries where Muslims are minority like United States. Countries with a
significant proportion of Muslims have largely adopted Islamic Banking, Malaysia and
Pakistan is common example. Attitude of consumers regarding a specific service is able to

33
influence the adoption decision of users to adopt the service or idea. In many studies in
numerous contexts the significant positive influence of attitude toward usage and adoption of
new innovation, product or services has been pointed. In this regard, Attitude has been used
in context of using Islamic personal financing (Amin et al.., 2011), the usage intention of
Islamic diminishing home partnership financing (Taib et al.., 2008), mobile banking adoption
(Puschel et al.., 2010), the usage intention of Face book (Suki et al., 2012). The attitude
towards the behavior is determined by the sum of accessible behavioral beliefs, which refers
to the subjective probability that the behavior will achieve expected outcomes positively or
negatively. As a result the current study will aim to consider the potential effect of
customers‟ attitude in adoption and usage of Interest free financial products and services
from perceived attributes of attitudinal belief toward an innovation.

b. Subjective norm

Subjective norm can simply be defined as the individual perception of the likelihood of
significant others to approve or disapprove behavior and the motivation to comply with those
perceptions (Ajzen, 1991); (Ajzen, I. and Fishbein, M., 2000). To elaborate more differently,
subjective norm is the social pressure to act in a particular manner taking into cognizance the
positive or negative consequences emanating from people that can exert their influence on
someone’s action. Subjective norm is determined by the sum of normative beliefs which
reflects the perceived behavioral expectation or opinions of important referents individuals or
groups. In this study subjective norm is composed of normative beliefs. Perceived behavioral
control

c. Perceived behavioral control

Perceived behavioral control is simply defined as people’s perceptions of their ability to

perform a given behavior or factors that may impede the performance of the behavior (Ajzen,
1991). It measures the degree to which a person has control over his behavior and how
confident he feels about being able to perform or not to perform the behaviour. Perceived
behavioural control is determined by the sum of accessible control beliefs which refers to the
perceived presence of requisite resources and opportunity to perform a given behaviour
(Ajzen, 1991). This is in terms of the resources and opportunities with which a person utilizes
to achieve a desired behaviour such as access to money, time and other resources and the
individual’s self-confidence and ability to perform the behaviour. This definition
encompasses two components: - Self-efficacy and facilitating conditions.

34
Self-efficacy is defined as an individual’s self-confidence in his or her ability to perform
behaviour. It predicts intentions to use a wide range of technologically advanced products.
Self-efficacy indicated in various study as it is positively influencing behavioural control of
adopter (Sharma, S and Bock, G., 2005); (Teo, T. S. H. and Pok, S. H., 2003); (Nor, 2005);
(Taylor, S., & Todd, P., 1995a); (Ndubisi, 2004); (Püschel, et al., 2010) and (To, et al., 2008).
Thus, this study intends to investigate the extent influence of knowledge and confidence of
customers on their behavioural control towards Interest free banking adoption (usage).

d. perceived usefulness

Davis et al. (1989) defined perceived usefulness as the degree to which a person believes that
using a particular system will make them enjoy its benefits

Perceived usefulness had been confirmed that can be important in influencing intention and
use by the extensive research in the past .There is also extensive empirical evidence that
supports the significant positiv effect of perceived usefulness on behavioural intention (e.g.,
Davis et al., 1989; Jackson et al., 1997; Venkatesh, 1999).

e. Perceived ease of use (PEU)

Perceived ease of use (PEU) refers to the degree to which a person believes that using the
system will be free of effort. Extensive research has provided evidence that perceived ease of
use had a significant effect on usage intention, it is an important predictor. Perceived ease of
use can be an important determinant, perhaps even more than perceived usefulness, of
information system success when process-oriented issues are at the forefront of users’ minds
(Venkatesh, 1999). A considerable of prior studies supported the significant effect of
perceived ease of use on behavioral intention, either directly or indirectly through perceived
usefulness and attitude (e.g., Davis et al., 1989; Jackson et al., 1997; Venkatesh, 1999).

F. Perceived Risk

Peter and Ryan (1976) defined perceived risk as a kind of subjective expected loss, and
Feather man and Pavlou (2003) also defined perceived risk as the possible loss when
pursuing a desired result. Perceived risk theory has been used to explain consumers’
behavior. Considerable research has examined the impact of risk on traditional consumer
decision making (Lin, 2008). Six components or types of perceived risk have been identified:
financial, performance, social, physical, security and time-loss (Jacoby and Kaplan, 1972;

35
Roselius, 1971). However, the dimensions of perceived risk may vary according to the
product (or service) class (Featherman and Pavlou, 2003).

3.5 Data Processing and Analysis

The data which will be obtained from the selected branches will be analysed according to the
objective of the study. After collecting the questionnaires, the data will be analysed after
being transmitted to Microsoft Excel spread sheet. The following step will be the data in
Microsoft Excel spread sheet will import into STATA 14. In this method, we will be able to
derive a result or priority of the respondents place on each factor after the data organized and
analysed by the SPSS software.

Once data is collected, it is necessary to employ statistical techniques to analyse the

information, as this study is quantitative in nature. Therefore, reliability testing will be
conducted in testing the consistency and stability of the responses that had been collected.
Moreover, demographic profile analysis will be examined as well. In addition, description
statistical analysis such as means, standard deviations and variance were gained for the
interval scale independent and dependent variables will be conducted and as well as setting
up a ranking table for the independent variables by allocating the sequences of highest to the
lowest mean value.

Furthermore, the call for the use of Pearson Correlation analysis has been using in testing the
hypothesis part to investigate the relationship between the independent variables and
dependent variable. Besides that, the linear regression analysis also will be conducted in
order to model the function of the independent variables, corresponding parameters and an
error term through equation.

36
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43
APPENDIX I
1. FIELD RESEARCH PLAN

Field research plan from nov, 2019 up to jun, 2020

no Activities nov dec jan feb mar apr may jun

1. Submitting first draft of the *

proposal to advisor

2. Taking comments and finalizing *

drafted proposal

3. Submitting final proposal *

4. Proposal defense *

5. Taking comments and finalizing *

the proposal

6. Data collection *

7. Data analysis and interpretation *

8. Writing the First draft research *

report

9. Submitting of the first draft of *

research report

10. Taking comments and finalizing *

the research report

11. Submitting of the final draft *

second draft of research report

12. Taking comments and writing

finalizing the final draft of

44
 research report *

13. Submitting of the final draft of *

research report to the advisor and
department

14. Thesis defense *

15. Period of rework on examiners’ *

comment

16. Submitting of thesis *

45
APPENDIX II

2. Budget Schedule
descr U Quantity
No iption of items nit Unit cost Unit total cost

1 Secretary page 200 5 1000

2 Papers Pack 3 150 450

3 Photo copy page 300 0.5 150

4 Pen Piece 5 5 25.00

5 Binding cost Piece 7 10 70

6 Telephone cost period 10 100 1500

7 Transportation Trip 40 trip 20 1480

8 Food and soft drinks 60 50 3000

9 invitation 30 50 1500

10 Internet access min 8000 0.25 2000

sub total 11175

Contingency 10% 1117.5

Grand total 12292.5

46
APPENDIX Ⅲ
3 Blank Questionnaire
Department of Economics
College Of Business and Economics
Wolaita Sodo University
Wolaita Sodo
Ethiopia

QUESTIONNAIRE

Questionnaire needs to be completed by customers of Commercial Bank of Ethiopia under

Wolaita Sodo District.

Dear Participants

My name is Afize Jemal Mohamed. I am a postgraduate student in the Department of

economics: at Wolaita Sodo University. I am conducting a study on “factors affecting
customers Intention to use Interest free banking” as a part of the Masters on Economics
program.

This study is conducted on Commercial Bank of Ethiopia; Wolaita Sodo district with the aim
of identifying the factors affecting customer’s intention to use interest- free banking in
Ethiopian Banking system. Therefore your answers are very important and valuable for the
successful completion of the study.

Please fill all the questions given below to the best of your knowledge accordingly. The
information you provide will be kept confidential and will be used only for the study purpose.

I thank you in advance for your cooperation.

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Important points to be noted while filling the questionnaire

1. There is no need to write your name or any other personal identity

2. For all questions, Please put “X” on the answer inside the box. There is no right or
wrong answers

Part One- Demographic Information

Gender Male Female

Age 18- 20 21-30 31-40 41-50

Above 50

Religion Christian Muslim Other

Level of education Secondary school Certificate Diploma

Degree Masters PHD

Type of employment Public sector Private Sector

Self-employment Students Other

Experience in using Interest Free banking services

Less than one year 1-2 years 3-4 years

More than 4 years

Level of Income Less than 600 601 to 1,650 1,651 to 3,200

3,201 to 5,250 5,251 to 7,800 7,801 to 10,900

More than 10,900

Part two- Views Regarding factors affecting the Intention to use IFB
This part is divided into four sections, in each section there are statements that indicate what
determines customer’s intention toward use of Interest free financial products and services
that you are required to fill. In this part as your agreement with the statement Mark “X”
against your answer and alternatives as:

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 Strongly

Disagree

Strongly
Neutral
disagree

Agree

Agree
No. Questions or descriptions
I know properly the IFB services currently
1.1 offered by Commercial Bank of Ethiopia. 1 2 3 4 5
I know It is simple to understand the differences
1.2 between IFB and conventional financing. 1 2 3 4 5

IFB transactions offered under separate window

1.3 are proper for activity I deal with. 1 2 3 4 5

IFB that offered separate windows is beneficial

1.4 as its financing is based on shares profit/ loss 1 2 3 4 5
made out of it than conventional one.
The features and benefits of IFB offered under
1.5 separate windows can fit with my banking 1 2 3 4 5
needs than as it depends on sharia.
IFB that offered under separate windows is a
1.6 good complement to their values as it depends 1 2 3 4 5
on sharia.
Interaction with financial product and services
1.7 that offered by Commercial Bank of Ethiopia 1 2 3 4 5
under IFB service require a lot of mental effort
to understand.
The different name the banks use for financial
products and services offered under interest free 1 2 3 4 5
1.8 window from the conventional make it difficult
to understand and use.
The money deposited and loaned whether in
1.9 cash and kind via interest free window is clear 1 2 3 4 5
while transacted.
Commercial Bank of Ethiopia trusted by
1.10 customers for IFB as it depends on sharia law. 1 2 3 4 5

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 Disagree
Strongly

Strongly
disagree

Neutral

Agree

Agree
No. Questions or descriptions

As IFB is advantageous for both lenders and

1.11 borrowers its establishment in CBE influenced 1 2 3 4 5
me to use it.
Introduction of IFB service is good idea as it
1.12 provides solution to those with existing 1 2 3 4 5
financial problems.
The simplicity to understand and use of Arabic
1.13 name and concept applied to IFB influenced me 1 2 3 4 5
to use it
I heard and understood about IFB products and
2.1 services offered by Commercial Bank of 1 2 3 4 5
Ethiopia under separate windows from my
family
2.2 I heard and understood about IFB products and
services offered by Commercial Bank of 1 2 3 4 5
Ethiopia under separate windows from my
friends
I heard and understood about IFB financial
2.3 products and services offered by Commercial 1 2 3 4 5
Bank of Ethiopia under separate windows from
Religious person
I heard and understood about IFB products and
2.4 services offered by Commercial Bank of 1 2 3 4 5
Ethiopia under separate windows from
Religious Institutions
I heard and understand about IFB financial
2.5 products and services offered by Commercial 1 2 3 4 5
Bank of Ethiopia under separate windows from
Website
I heard and understood about IFB products and
2.6 services offered by Commercial Bank of 1 2 3 4 5
Ethiopia under separate windows from
Advertisement on TV or Radio

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 Disagree

Strongly
Neutral
Strongly
disagree

Agree

Agree
No. Questions or descriptions
2.7 I heard and understood about IFB products and
services offered by Commercial Bank of Ethiopia 1 2 3 4 5
under separate windows from Pamphlet and
Brochures
2.8 Most people whose opinion I value influence me
on using IFB products and services. 1 2 3 4 5
2.9 Information I get from Religious institutions
about IFB products and service influenced me on 1 2 3 4 5
using it
2.10 The sufficiency and understandability about IFB
products and services marketing strategy need 1 2 3 4 5
adjustment as it influence to use these products
and services.
3.1 The government body is initiative to fulfill the
banking need of those without banking yet. 1 2 3 4 5
3.2 There is E-banking for all branches that used to
send and borrow the amount saved under IFB 1 2 3 4 5
service in Commercial Bank of Ethiopia.
3.3 I know how and for what to use Interest free
financial products and services offered by 1 2 3 4 5
Commercial Bank of Ethiopia
3.4 I would be able to use Interest free financial
products and services offered by Commercial 1 2 3 4 5
Bank of Ethiopia under interest free banking,
even if I have never used it before because it is
similar with conventional products and services.
The knowledge I have about IFB financial
3.5 products and services offered by Commercial 1 2 3 4 5
Bank of Ethiopia under separate windows
influenced me on using of it.

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 Government supports on expanding IFB services
3.6 as alternative to conventional systems is 1 2 3 4 5
influenced me on using of it
The easily transacting IFB financial products and
3.7 services in Commercial Bank of Ethiopia is 1 2 3 4 5
influenced me on using of it.
I intend to choose IFB products and services.
4.1 1 2 3 4 5
It is likely that I will use IFB products and
4.2 services 1 2 3 4 5
I plan to use IFB products and services for my
4.3 business financing 1 2 3 4 5
I predict that I would use IFB financial products
4.4 and services offered under interest free banking in 1 2 3 4 5
the future
I believe it is useful for me to use IFB financial
4.5 products and services offered under interest free 1 2 3 4 5
banking
My general intention to use IFB financial
4.6 products and services offered under IFB is high. 1 2 3 4 5

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APPENDIX Ⅳ
4. Interview Questions
1. What do you think about the current status of interest free banking in Commercial bank of
Ethiopia? Is it going as it planned? What do you think about IFB in future?

2. Do you think your bank is going to serve customers in accordance of report that Interest-
free banking mainly targets individual and institutional customers that do not want interest on
their deposits? Which religious group mostly interested with these services? Does the criteria
needed involves non-Muslim properly to use these services?

3. As the IFB is in accordance of sharia law do you believe non-Muslim accept sharia law
and adopt these services? Is there non-Muslim customers in your bank those used these
services?

4. Do you think as your bank properly undertaking awareness creation activities? What
methods mostly used by your bank to aware the customers about IFB?

5. Do you believe as your bank properly customized the existing information technology
system to make simple transaction procedures in IFB?

6. What do you think about support from government body on initiation, government
regulation, policy and procedures needed on IFB provision and expansion?

7. As your bank keep separate book account and windows in respect of IFB operation, do
your bank trusted by customers as there is a proper maintenance of records for all
transactions for segregation of funds or activities from conventional one?

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