Academic journal article International Journal of Business

Trust Crisis in Islamic Banking: Empirical Evidence Using Structural Equations Modeling

Academic journal article International Journal of Business

Trust Crisis in Islamic Banking: Empirical Evidence Using Structural Equations Modeling

Article excerpt

I. INTRODUCTION

Although the Islamic financial system is still in its embryonic stage, Islamic banks are growing at a high, steady rate. The financial instruments and services of Islamic banks are gaining popularity1 despite the legal environments that are not heavily supportive in all marketplaces. Although the fraction of the Islamic industry's assets that are compliant to shari'ah (Islamic law) relatively to some of the largest banks in the world (e.g., Citigroup, HSBC, Barclays Bank, BNP Paribas) is very small, it is growing rapidly (Ariss, 2010). Chapra (2012) argues that Islamic banks must collect resources from a large scale and make them available to a larger scale such that social problems like poverty and unemployment can be alleviated.

The financial instruments and services offered by Islamic banks should hypothetically be in line with the maxims of shari'ah. Indeed, such instruments could be legally tradable only when they are free of riba2 (i.e., usury or interest), do not contain gharar (complexity and/or information asymmetry), maysir (gambling), and are halal (i.e., permissible). The specificities of Islamic banks' instruments and services are supposed to have a social responsibility in terms of poverty alleviation and economic welfare.

The review of previous studies related to Islamic banking reveals three approaches. The first approach is based on the comparison between Islamic and conventional banks (Chong and Liu, 2009; Ariss, 2010; Al-Ajmi et al., 2011). The second approach explores the analysis of Islamic finance's tradable instruments (e.g., Ebrahim and Rahman, 2005; Bouchard, 2009; Walkshäusl and Lobe, 2012). The third approach deals with regulation and institutional issues (Karim, 2001; El-Hawary et al., 2007).

The success of financial institutions depends, among other factors, on the degree of trust, either interpersonal or institutional (Gatfaoui, 2003). Several dimensions exist in the literature (Moorman and Zaltman, 1992): (i) cognitive (trust): when the trust is based on the knowledge of others; (ii) affective (confidence): when it is based on feelings toward others; (iii) conative (reliance): when it is part of organizational routines (Pluchart, 2010). The latter dimension of trust is designed as a process (Levicki and Bunker, 1996) which is sequential and represents "the expectations that are within a community governed by an honest and cooperative regular behavior, based on shared standards by other members" (Fukuyama, 1994).

Several studies focused on explaining the process of building a strong trust in financial institutions. However, very few studies were interested in the process and the corresponding determinants of losing trust in the case of Islamic banks. In fact, Ajili and Ben Gara (2013) argue that loosing trust in Islamic banks can be explained in terms of a weak legal framework, the fear of Islamic connotation activities, the low adaptation of customers with Islamic financial products, the lack of information and the lack of specialists/experts in the Islamic finance industry.

There are no previous studies that investigated the assessment of Islamic banks trust from the perspective of two different cultural environments, namely the Saudi Arabian and Tunisian contexts. Indeed, the study of trust in Islamic banks in Saudi Arabia and Tunisia is appealing for at least two reasons. First, Islamic banking is more anchored in Saudi Arabia's financial system since almost all Saudi banks offer Islamic financial products and services. Second, the sensitivity of Saudi customers and businesses is higher relatively to the sensitivity of Tunisian customers and businesses since the latter have a tighter access to a smaller array of Islamic financial instruments and services.

The research question of this article can be expressed as follows: do customers trust in Islamic banks? There are three main objectives of this article, namely (i) studying the conceptual differences between Islamic and conventional banks, (ii) determining the trust antecedents and facets in Islamic banks and (iii) explaining the reasons of losing trust in Islamic banks in different cultural contexts. …

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