The paper 'Service Quality in Islamic And Conventional Banking in the Middle East" is a perfect example of a marketing case study. Purpose: The aim of this paper is to review some of the key studies on banking service quality with particular attention to the Middle East and GCC countries that were published in the last three decades, and provide some future research directions. Methodology: a Literature review. Findings: Our review generated 11 research questions both for Islamic and conventional banking services of the Middle Eastern countries. Research Limitations/Implications: This paper reviews leading and current studies that are relevant, and provides future research directions for researchers and practitioners alike.
Future research should address each of the research questions as identified in this paper with empirical data/evidence. Originality Value: This paper would be useful for the researchers and practitioners in guiding their research questions, and answers to all of the research questions as identified in this paper could strengthen the banking industry in the Middle Eastern countries. Keywords: Service Quality, Middle East, Islamic Banking, Conventional Banking, Research Agenda, Literature Review. Paper Type: a Literature review. Introduction There are two types of banking systems that are currently in operation in most of the Middle Eastern and Gulf Cooperation Council (GCC) countries, and these are referred to as conventional and Islamic banking systems.
Conventional banks were established prior to Islamic banks and are guided by capitalist principles of the Western world that emphasize on wealth/profit maximization (Olson & Zoubi, 2008). In the early years of the Middle Eastern banking, most conventional banks were established as branches of large international banks originated in the European countries. For instance, the first commercial banking institution in Saudi Arabia was opened in the Port of Jeddah in 1927 and this was a branch of the Netherlands trading society.
Later, in the 1950s, the local commercial banks (e. g., Riyadh Bank, National Commercial Bank) were established in Saudi Arabia (Yavas, 1988). Islamic banking systems are often regarded as an alternative to conventional banking systems in the Middle East and GCC countries. The history of Islamic banking can be traced the back to early 1970s, the establishment of the Nasser Social Bank in Egypt. The research found that there were roughly 35 Islamic banks in various countries throughout the Middle East in 1985 (Erol & El-Bdour, 1989); and by 2009 Islamic banks spread over 50 countries (Hanif, 2010).
It is estimated that the annual growth rate of the Islamic banking industry was 8.2 percent during the 1990s. This growth spread from the Middle East to the countries in Europe, Africa, and Asia. As a result, the worldwide Islamic banking industry grew at a rate of 30% between 2004 and 2008 (GatehouseBank, 2008; Khan and Bhatti, 2008). This growth caused global conventional banks like HSBC, Citibank, and Standard Chartered bank to offer Islamic banking services to its target customers (Al-Smadi et al. , 2013; Naser et al. , 1999). Although Islamic and conventional banks operate in the same market, their respective growth rates, profitability, and assets vary markedly.
This discrepancy is particularly pronounced in the Middle Eastern and GCC countries. Although conventional banks typically possess greater assets than Islamic banks, the growth rates of Islamic banks are higher than that of the conventional banks. In this context, Hanif (2010) estimated that the Islamic banking volume had reached US$951 billion and that the Islamic banks had been operated in over 50 countries in 2009.
Similarly, Siraj and Sudarsanan (2012) found that the operating profit of Islamic banks had a faster growth rate than that of conventional banks. Furthermore, according to Siraj and Sudarsanan (2012), Islamic banks have consistently reported a higher return on assets (ROA) than conventional banks. A further review of customer total liability and deposits between 2006 and 2010 revealed a higher percentage of equity funds in Islamic banks (average 74 per cent) than in conventional banks (average 55 per cent) (Siraj & Sudarsanan, 2012).
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