The adoption of Islamic banking services in Malaysia

The purpose of this paper is to examine the level of understanding of Islamic banking concepts and the factors that influence Islamic banking adoption in Malaysia, based on Rogers’ (1983; 2003) Diffusion of Innovation. Specifically, the impact of perceived attributes and other variables (understanding, consumer innovativeness and bank personnel’s professionalism) on Islamic banking adoption is examined.

A quantitative approach using a sample of 200 working MBA students in a leading public university in Malaysia was used. The instrument used was a self-administered questionnaire survey.

The level of understanding of various Islamic banking concepts is below average. A logistic regression reveals that the understanding of Islamic banking concepts and perceived advantage significantly influences the adoption of Islamic banking services.

The small sample size of 200 individuals may render the findings ungeneralizable. Future studies may use a larger sample from across Malaysia and incorporate other independent variables, such as religiosity and Islamic financial literacy.

The Malaysian government can provide tax incentives and conduct educational roadshows on Islamic banking. Educating prospective consumers on the advantages of Islamic banking as opposed to conventional banking would provide more objective benefits that would boost the adoption of Islamic banking.

The results of this paper will be useful for Islamic financial institutions to increase their marketing and promotional efforts to keep pace with stiff competition within the industry.