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Trust crisis in islamic banking: Empirical evidence using structural equations modeling.


This paper studies the trust crisis of the Islamic banking industry through a comparative approach. While Islamic banking harks back to the maxims stemming from Islamic law (i.e., poverty alleviation, equitability, and social justice), little is known about its failure in terms of trust. This paper is a first attempt to model the variables explaining the trust crisis by comparing Saudi Arabian and Tunisian Islamic banking industries. The empirical design is based on a questionnaire analyzed using structural equations modeling. The empirical findings show that the trust is heterogeneously assessed in the two cultural contexts. Various measures can be enforced to strengthen the trust in Islamic banks in both countries. Examples of interesting measures are related to Islamic products development and favorable regulatory reforms that need to be 'unleashed' to maintain the trust and sustain the competitiveness and growth of Islamic banks.

JEL Classifications: G1, G21, Z1

Keywords: Islamic banking; trust; cross-cultural study; structural equations modeling; Saudi Arabia; Tunisia


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 popularity (1) 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 riba (2) (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; Walkshausl 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.

In order to explore our research question and reach the stated research objectives, we adopt a research methodology based on a questionnaire and uses structural equations modeling. The major results show a variety of implications. For example, we show that the Saudi customers' trust is less sensitive to the costs of Islamic products and services than the Tunisian customers' trust. In addition, the customers in both countries seem to be aware of the supplementary legal considerations that need to fosterer to increase their trust.

The remaining of this paper is organized as follows. Section II presents the conceptual background and develops the hypotheses. Section III discusses the research methodology. Section IV presents the data and explains the results. Section V concludes.


A. Some Underpinnings on Islamic and Conventional Banks

Over the last 40-plus years, the Islamic banking industry had grown at a rate of 15 percent (Beng, 2004; Aggarwal and Yousef, 2000; Khan, 2010). Iqbal (2001) claims that the total deposits during 1990-94 grew at an annual rate of 8.8 percent. According to the World Islamic Banking Competitiveness Report (3) 2014-15, various aspects characterize the Islamic banking industry. Some of these aspects include the following: - the international Islamic banking assets with commercial banks set to exceed US$778b in 2014; - the global profit pool of Islamic banks is set to triple by 2019; - Islamic banks in Saudi Arabia, Kuwait and Bahrain represent more than 48.9%, 44.6% and 27.7% market share respectively.

The financial instruments and services of Islamic banks are gaining popularity despite the legal environments that are not heavily supportive. The Islamic financial system stems from shari'ah's maxims and principles aiming at preserving social justice, equity, and economic welfare. Furthermore, the modern studies of shari 'ah focus on its close enforceability in business practice in terms of spurring entrepreneurship, fair commercial and financial transactions, efficient financing tools, and protection of property rights. (4)

The most important shari'ah's maxim is the prohibition of riba (i.e., interest or usury). Islamic banks generate returns to their depositors in terms of profitability of the projects in which their funds are invested. Rammal and Zurbruegg (2007, p. 66) maintain that "since Muslims cannot receive or pay interest, they are unable to conduct business with conventional banks. To service this niche market, Islamic financial institutions have developed a range of halal interest-free financing instruments that conform to shari 'ah ruling, and therefore are acceptable to their clients."

The Islamic banks' financial instruments and services should hypothetically be in line with the maxims of shari 'ah. Indeed, such instruments and services could be legally tradable only when they are free from riba, do not contain gharar (complexity and/or information asymmetry), maysir (gambling), and are halal (i.e., permissible). Alongside with these features, these instruments and services should have some social responsibility in terms of poverty alleviation and economic welfare. The activity of Islamic banks should furthermore be ethically appealing to individuals and companies (Mansour et al., 2015-a).

Bedoui and Mansour (2015) show that the standard financial performance must not dominate all objectives since supplementary objectives must be taken into account. The authors propose a Pentagon-shaped structure of performance that stems from maqasid al-shari 'ah (i.e., objectives of Islamic law). They show that the performance of Islamic banks has several attributes and is not limited to the financial dimension. Indeed, their main theoretical result is that an Islamic bank that maximizes its financial profitability at the expense of the other objectives is poorly performing from the perspective of maqasid al-shari 'ah.

Table 1-a gives some insights about the baseline differences between Islamic banks and their conventional counterparts on the basis of the following criteria: foundation, objectives, interest payment, incentive-driven problems, socially-oriented vision, risk-sharing and profit distribution. The comparison of both types of banks shows sheer evidence that they are different on many grounds. Banning the trading of financial instruments involving interest is the heart of conflict between Islamic and conventional banks. Schoon and Nuri (2012, p. 31) maintain that "people have devised ways to evade the prohibition on interest by applying, for example, partnership contracts which were allowed as long as the lender would assume some risk for which he would be entitled to a share of the profit. Contracts for the sale of goods on a deferred payment were equally permitted due to the fact that they were based on a trade."

Although Islamic banks first appeared and propelled in the Muslim World, some conventional banks in OECD countries (e.g., HSBC's HSBC Amanah Finance, Citibank's Citi Islamic Bahrain, and JP Morgan) provide Islamic financial instruments and services through Islamic windows. While there are various products traded by Islamic banks, the most known are de jure based on the principle of profit-and-loss sharing (PLS principle). The popular financial instruments based on the PLS principle are mudarabah (finance trusteeship) and musharakah (equity partnership) and PLS sharing accounts to individual customers. The PLS-based arrangements are theoretically appealing. However, several recent studies (e.g., Khan, 2010) show that Islamic banks' participation in these instruments is very low since they are reluctant to get involved owing to the corresponding high risk of the PLS-financed projects, Islamic banks' low appetite for risk, and the related monitoring costs (Archer and Abdel Karim, 2007). In addition, the depositors of Islamic banks are not willing to take risks due, inter alia, to the low level of transparency in the banking system. Although the PLS principle is appealing, Islamic banks may find it difficult to attract depositors as well as businesses, which may cast doubt on the effectiveness of the 'Islamicity' of their business operations.

Mansour et al. (2015-a, p.51) investigate the extent to which Islamic banks' traded financial instruments are ethical. The authors conclude that "the practice of Islamic banking misrepresents Islam and does not contribute to solve social problems. The interaction between maqasid al-shari'a (objectives of Islamic law) and qiyas (deductive analogy) provides a supplementary tool for interpreting the failure of the prior in terms of the practical misuse of the latter by Islamic banks. This essay provides an interpretive approach to the current debate about why Islamic banking has failed and suggests ways to move cautiously in the future."

The failure of Islamic banks is engendered by the misrepresentation of maqasid al-shari'ah in practice (Chapra, 2012). Indeed, most of Islamic banks in the world either chosen willingly or were forced (i.e., for profitability purposes) to not be 'fully' compliant to shari'ah. Khan (2010) concludes that Islamic banks follow shari'ah in a 'disguised' way. The misrepresentation distorted the vision of Islam and brought forth a trust crisis between Islamic banks and their individual customers and businesses. Indeed, the trust of businesses and individual customers towards Islamic banks has been impaired. Recent studies (e.g., Habib, 2011-b; Dusuki, 2010; Dusuki and Abdullah, 2007) show that there is distortion in the vision of maqasid al-shari 'ah.

As claimed in the legendary treatise of Al-Ghazali (1109/1937), the vision of maqasid al-shari 'ah brings benefits, justice, and equitability to individuals and society as a whole. The financial innovations that are traded in modern Islamic financial markets are supposed to achieve such goals. However, recent studies (e.g., Dusuki (2010)) document that the financial innovations that are compliant to shari'ah brought forth several controversies. Indeed, Dusuki (2010, p. 204) that "some innovations which try to achieve the same economic outcome like conventional instruments distort the vision of Islamic economics based on justice and equitability. This distortion stems from the restricted view of understanding shari'ah, by only focusing on the legal forms of a contract rather than the substance especially when structuring a financial product. The overemphasis on form over substance leads to potential abuse of shari'ah principles in justifying certain contracts which is in fact contradictory to the shari 'ah text and ultimately undermining the higher objectives of shari'ah."

Islamic banks developed several financial products over the last forty-plus years either to create value, diversify portfolios or hedge risks. Mansour et al. (2015-b) developed a PLS-based financing model based on increasing musharakah in which the cash flow risk is hedged recursively. The Islamic financial engineers were poorly performing over the same period because the only achievement they did is limiting the set of instruments to the classical modes and/or suggesting hybrid products without innovative ideas in terms of value creation and risk hedging. Accordingly, no innovations have been developed to meet the needs of modern financial markets and face the new phenomena such as market integration, capital-market imperfections, and shocks transmission. The poor performance of Islamic financial engineers (i.e., lack of specialists/experts) did not provide innovative Islamic financial instruments that can draw the attention of individual customers and businesses. Iqbal (2012) claims that the current products traded by Islamic banks and shari 'ah-compliant financial institutions were developed centuries ago and do not sufficiently meet the needs of modern society. Habib (2011-a) criticizes the set of Islamic financial innovations and evaluates the product development including the types of products used by Islamic banks and the approaches adopted to develop them.

There is wide gap between the ideals of Islamic banks and their business practices in real world inasmuch as it is frequently hard to distinguish between the products offered by Islamic and conventional banks. The following citation gives an interesting insight regarding this issue: Khan (2010, p. 850) argues that the rules of Islamic banks make them "more economically efficient than conventional banking and promote greater economic equity and justice. To what extent, then, do actual Islamic Banking practices live up to the ideal, and how different are they from conventional banking? A preliminary investigation shows that, three decades after its introduction, there remain substantial divergences between IBF's (Islamic banking and finance) ideals and its practices, and much of IBF still remains functionally indistinguishable from conventional banking."

Iqbal (2012) argues that there are many examples of clear divergences in theory and practice. According to Iqbal, the most serious divergences are (i) genuine versus synthetic murabahah, (ii) individual versus organized tawarruq (iii) buy-back arrangements in sukuk, (iv) ensuring fixed return through hybrid contracts, and (v) problems in shari'ah-validation procedure. The latter divergence can have a sizable impact on the loss of trust. Indeed, when Islamic banks are not endowed with highly qualified experts/specialists in the field who can provide customers and business with distinguished products and business solutions that meet their needs, the trust level becomes impaired. As a consequence, Islamic banks fail to sustain the trust of their customers and businesse.

The lack of experts/specialists can be revealed through two reasons. The first reason consists in the inefficient contribution of Islamic banks' shari'ah boards. The latter consists in few scholars in Islamic jurisprudence that exclusively certify the products as shari'ah-compliant through a simple replication of conventional banks' products using Islamic terminology, standard and interest-based banking products (Khan, 2010). In this respect, Islamic banks' failure consists in camouflaging the products of conventional banks behind the 'Islamic identity' without a genuine innovation in the specificities of the products they offer. The second reason is that there are too few scholars in the industry who are eligible to issue fatwas (i.e., Islamic legal certifications). Morais (2007) argues that the prominent scholars are less than twenty in the world. They are present in more than 40 boards in Islamic banks to simply give their certifications or translate financial monikers into the jargon of shari'ah to give them the Islamic label. (5) After an interview with a banker from National Bank of Dubai, Foster (2009) maintains that the issuance of fatwas became like shopping. Indeed, the banker claims that, if a shah 'ah scholar does not issue the certification, "we phone up another scholar, offer him a sum of money for his services and ask him for a fatwa. We do this until we get shari 'ah compliance."

The Islamic banking industry faces a variety of failures and potential challenges. Indeed, Islamic financial institutions, not only Islamic banks, face a variety of potential challenges that basically stem from their current failures. As Table 1 -b shows, Islamic financial institutions are principally facing the challenge of innovating new Islamic financial products and services that are simultaneously profitable and satisfying the needs of their clients. In other words, Islamic banks must specifically pioneer new Islamic financial innovations that not only meet the requirement of shari 'ah but also help them to increase their market share and sustain their long-term growth.

B. Trust in Banking

The concept of trust is used in many social disciplines not only in the field of marketing or banking (Wang and Emurian, 2004). Despite this overlap between a variety of fields, the concept of trust remains quite complex and difficult to measure in banking institutions, which explains the lack of studies dealing with financial institutions. This is due to the multifaceted trust construct (6) (Gefen, 2000). In fact, Belanger and Carter (2008) argue that the trust is defined differently in numerous studies. For example, Soderstrom (2009) identifies 29 different types of trust all of which are somewhat different and related to each other in different ways (Masrek et al. 2012). However, marketing academicians have accepted that trust is fundamental for building and maintaining service relationships.

Trust is defined as an expectation (Frisou, 2000), belief (Schurr and Ozanne, 1985; Anderson and Weitz, 1989; Anderson and Naurus, 1990; Ganesan and Hess, 1997; Gurviez; 1999; Gurviez and Korchia, 2002), a willing (Moorman et al. 1993; Chaudhuri and Holbrook, 2001), a behavioral intention or feeling (Bories, 2007). Mayer et al. (1995) define trust as "the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trust or irrespective of the agility to monitor or control that other party". According to Muawanah (2010), trust is a willingness to act on the basis of beliefs about the motives of other parties and the level of risk involved with action. Trust is often used interchangeably with credibility, reliability, or confidence.

There is a trend in the marketing literature to distinguish between two types of trust, namely the interpersonal trust and organizational trust (Doney and Cannon, 1997; Ganesan and Hess, 1987; Zaheer et al. 1998; Ben Amour, 2000; Kennedy et al. 2001; Gatfaoui, 2003). In fact, interpersonal trust involves the relationship between two individuals, especially the customer-seller relationship, while organizational trust refers to the relation between customers and organizations. According to Gurviez and Korchia (2002), organizational trust is traditionally made up of three dimensions, namely credibility (competence or expertise), integrity (honesty) and benevolence related to the morale side of trust (Moulins et al., 2010; McKnight et al., 1998; Hadj Khalifa and Kammoun, 2009).

Consumers maintain relationships with the service provider because they consider that the latter has the required technical skills (competence) and will do their best to address potential problems (benevolence) (Moulins et al., 2010). Thus, the organizational trust is based on the credibility of the company and the corresponding interest in customer satisfaction (good intentions). These two dimensions of trust are observed through different studies, e.g., Bidault et al. (1995), Hadj Khalifa and Kammoun (2009) and Bin Mohamed et al. (2011). Mansour et al. (2010) study the criteria used by UK customers to rank banks. The authors show that the costs of services are at the top of their priorities to exhibit their preferences. We therefore consider that the cost of products and services need to be included as variable influencing the antecedents of trust.

While trust emerges quickly, it also can be fragile and might be broken (Kim et al., 2009). In fact, Ajili and Ben Gara (2013) show that the reluctance toward Islamic banks can be explained by the absence of a specific legal framework, the fear of Islamic connotation activities, the low familiarity of customers with the Islamic banking products, the lack of information and the lack of specialists in Islamic finance. This reluctance is expected to have a negative effect on trust (Bin Mohamed et al., 2011). Figure 1 redesigns the four hypotheses through the conceptual model.

Hypotheses are suggested based on the prior theoretical development:

Hypothesis 1 (H1): The lack of specialists/experts has a negative impact on the Islamic banking trust.

H1-a: The lack of specialists/experts has a negative impact on the credibility of Islamic banking.

H1-b: The lack of specialists/experts has a negative impact on the integrity of Islamic banking.

H1-c: The lack of specialists has a negative impact on the benevolence of Islamic banking.

Hypothesis 2 (H2): The absence of a specific legal framework has a negative impact on the Islamic banking trust.

H2-a: The absence of a specific legal framework has a negative impact on the credibility of Islamic banking.

H2-b: The absence of a specific legal framework has a negative impact on the integrity of Islamic banking.

H2-c: The absence of a specific legal framework has a negative impact on the benevolence of Islamic banking.

Hypothesis 3 (H3): Higher costs of products and services have a negative impact on Islamic banks trust.

H3-a: Higher costs of products and services have a negative impact on the credibility of Islamic banks.

H3-b: Higher costs of products and services have a negative impact on the integrity of Islamic banks.

H3-c: Higher costs of products and services have a negative impact on the benevolence of Islamic banks.

Hypothesis 4 (H4): The fear of Islamic activities connotation has a negative impact on the Islamic banking trust.

H4-a: Fear of Islamic activities connotation has a negative impact on the credibility of Islamic banking.

H4-b: Fear of Islamic activities connotation has a negative impact on the integrity of Islamic banking.

H4-c: Fear of Islamic activities connotation has a negative impact on the benevolence of Islamic banking.



The main objective of this article is to test the trust in Islamic banking in two different cultural settings, namely Saudi Arabia and Tunisia. For this aim, we opt a quantitative research based on questionnaire distributed to Islamic banks' customers. The data collection spanned over June 2015-August 2015.

There is a variety of measurement scales for trust (Siriex and Dubois, 1999). However, almost all of them are all inspired from the trust measurement scales developed by Gurviez (1999). Thus, we adapt this measurement scale to measure the trust construct completed with four items from the measurement scale developed by Haj Khelifa and Kammoun (2009). The original scale of the authors was developed in French.

The trust antecedent we have expounded in the previous section is measured through a single measurement scale. This is due to the absence of measurement scales for these variables in the literature. For this aim, we conducted 30 individual interviews with marketing professionals in order to generate one item for each variable.

Trust measurement scales adopted from the literature were translated into Arabic in order to facilitate the understanding of the questionnaire in both countries (Tunisia and Saudi Arabia) as recommended by Fehri (2004). We opt for the method of double translation because it is frequently used in cross-cultural empirical studies. All items have been translated from Arabic into French.

We choose a convenient sample of customers of Islamic banks in both countries. Data were obtained when clients come to their banks (from 9 a.m. to 12 p.m.). Respondents were asked to state their level of agreement or disagreement with the items of the questionnaire using a five-point Likert scale, ranging from 'strongly disagree' to 'strongly agree'. At the end, we collected 350 usable questionnaires in each country. This sample size is compliant with the rule of Hair et al. (2006) and is sufficient for structural equations modeling (SEM) (Roussel et al., 2002) using Amos 18.

SEM is used to test the causal relationship between non-observable variables. It helps econometricians to test hypotheses and measurement models taking into consideration the measurement errors (Roussel et al. 2002). This method will be used in our research. We will adopt the two-step modeling approach as recommended by Anderson and Gerbing (1988).


The profiles of respondents used in this research can be summarized in Table 3 that shows some characteristics. Table 3 shows a variety of differences between the two countries. For example, it is noticeable that the respondents in Saudi Arabia are dominated by males.

The data analysis followed a two-step approach for the SEM method as recommended by Anderson and Gerbing (1988) in order to ensure the reliability of the measurement model as well as examining the structural model. In the first step, exploratory and confirmatory factor analyses are used to assess the dimensionality, reliability and validity of constructs using SPSS 21. In the second step, the causal relationships among all constructs will be studied and the structural model is tested using SEM.

A. Model Measurement

In cross-cultural studies, the dimensionality of scales used must be evaluated by an exploratory factor analysis (EFA), as indicated by Venkatraman and Grant (1986). If the scale is applicable in different contexts, its structure factor and the model should be equivalent across all cultures. Thus, a component analysis with varimax rotation using SPSS 21 software was conducted. The results are presented in Table 4.

After a varimax rotation, the measurement scales maintain the same factor structure as set out in the literature. The reliability indices (e.g., Cronbach's alpha) are acceptable for all dimensions of trust. According to Hair et al. (2006), Cronbach's alpha for all constructs is considered as acceptable when it is beyond 0.7. In our case, this means that the data instruments used in this research are valid and reliable. The final measurement models for all constructs were further examined via confirmatory factor analysis (CFA) using AMOS 18. Table 5 shows the indices results for all the CFA measurement models.

The overall level reveals an adequate model fit with the chi-square statistic ([chi square] = 362.154, p = 0.001) being significant and all the baseline comparison indices (CFI = 0.977; TLI = 0.973; RMSEA = 0.043 < 0.05; AGFI= 0.814). These indices indicate a good fit of the measurement model. The measurement scale used has a good internal reliability as indicated in Table 6. The average variance extracted (AVE) for each construct is higher than 0.50, which supports the convergent validity of the constructs (Fornell and Larcker, 1981).

B. Structural Model

The proposed hypotheses, causal relationships and estimation of the strength of relationships between the variables were tested using structural equation modeling through AMOS 18. The result of the model's goodness-of fit determines whether the hypotheses are supported by empirical data or not (see Figure 2 and Table 7).

C. Discussion and Policy Implications

In order to discuss the results and infer the corresponding policy implications, we interpret the regression fits in Table 7. Regarding the impact of lack of specialists/experts on the trust in Islamic banks, it is clear that there is a strong negative significant relationship between the two variables. This confirms the fact that the lack of specialists/experts in both countries impairs the customers/business trust in Islamic banks. Hypothesis 'H1-a' is therefore supported. The same result applies to the relationship between the lack of specialists/experts and integrity and benevolence. Hypotheses 'H1-b' and 'H1-c' are supported. The three antecedents (credibility, integrity and benevolence) exhibit clearly a negative impact on trust in both countries.


In statistical terms, we can argue that the structural relationship is stronger in Saudi Arabia more than in Tunisia. This means that the trust of Saudi customers and businesses is highly sensitive to the lack of specialists/experts inasmuch as they consider that the inefficient contribution of shari'ah scholars and Islamic financial engineers reduces their trust in Islamic banks' products and services. The absence of a supportive legal framework seems to be more pronounced in Tunisia relative to Saudi Arabia, Indeed, the three components of the trust construct are not statistically significant in Saudi Arabia. This means that the Saudi customers/businesses are not worried by the legal framework. Indeed, the Saudi Islamic banking industry is more anchored in the local financial system relative to Tunisia. Islamic banks in the Tunisian context are still trying to compete with conventional banks, both in number and size. According to Vizcaino (2013, 2014), the Islamic banking industry in Tunisia is currently tiny but is expected to grow with government and private initiatives. According to the survey study of the author, around 54% of ordinary Tunisian respondents are in favor of a switch to Islamic banking. In addition, around 40% claim that they approve the switching even if their money is not guaranteed. Hypothesis 2 is therefore partially accepted because the legal framework in Saudi Arabia is more comprehensive than in Tunisia.

The costs of Islamic banks' products and services turn out to have negative impact on trust for all three antecedents in both countries. This is clear because all estimates are negative and statistically significant. However, the trust of Tunisian customers and businesses in Islamic banks is more sensitive to the costs. This indicates that, when the costs of products and services are lower than those of conventional banks, the trust in Islamic banks can improve. This result is similar to Mansour et al. (2010) who show that, irrespective of the demographic locations and the religion of the respondents, the criterion Tow services charges' is at the customers' top criteria. The Islamic nature of the bank is, however, placed second, pointing to the importance of religious orientation. The trust of Saudi customers/businesses to the cost seems to be less sensitive when compared to the trust in the Tunisian context.

The last factor, namely the fear of Islamic connotation activities, is shown to be very low and statistically not significant in Saudi Arabia. This means that the fear of Islamic connotation activities cannot impair the trust of Saudi customers/businesses and thus for the three components. For the Tunisian context, all estimates are positive but statistically significant. This means that the halal (i.e., admissible from the shari'ah perspective) industry is not associated with the fear of Islamic connotation. In contrast, it is clear that this factor improves the trust in Islamic banks. Indeed, the fact that Islamic banks design and pioneer halal products and services according to shari'ah increases the trust. This fact is more pronounced in Saudi Arabia. Hypothesis 4 is therefore rejected for both countries.


This article has explored the issue of Islamic banking trust in Saudi Arabia and Tunisia. There are various reasons behind the relevance of this study. Indeed, it does not only address the issue of trust but also sheds some light on the importance of cross-cultural differences driving trust. From a theoretical perspective, this article is a continuation of Ajili and Gara (2013). From an empirical perspective, this paper is among the rare contributions that study trust in Islamic banking in different cultural and economic settings. The research methodology is based on structural equations modeling. A survey is conducted in Saudi Arabia and Tunisia to investigate the extent to which customers/businesses exhibit trust towards Islamic banks in both countries. The concept of trust is operationalized through three antecedents, namely credibility, integrity, and benevolence.

The empirical results have a number of implications to Islamic banks and governmental authorities in both countries. First, the lack of specialists/experts seems to be negatively correlated with trust. It is not surprising that the poorly-performing contribution of Islamic financial engineers and shari 'ah scholars over the last 40-plus years still have an impact on the customers' consciousness about the Islamic financial products. We can argue that they are skeptical about the pivotal differences between Islamic financial products and services and their corresponding conventional counterparts. The awareness of customers is still very low. In a similar context, Vizcaino (2013) finds that 64 % of Tunisian respondents said they were unclear about how Islamic finance worked. This can be interpreted by the fact that the customers cannot distinguish properly why the Islamic and conventional products are different and why the prior are halal. Islamic banks need to give a higher attention to Islamic financial innovations not only to improve the trust of customers, but also to sustain their market shares and increase competitiveness.

The legal framework and fear of Islamic connotation do not show much difference between Saudi Arabia and Tunisia. However, the governmental authorities in Tunisia are expected to provide a more favorable regulatory setting to maintain and promote the competitiveness of local Islamic banks. A supplementary empirical result of this paper shows that the Tunisian customers' trust is more sensitive to the costs relative to the Saudi customers.

A number of recommendations can be inferred to help Islamic banks build stronger trust with their customers/businesses. The top of priorities of Islamic banks in both countries seems to be related to Islamic products development. Islamic financial products and services must simultaneously be compliant to shari'ah and profitable. This dual challenge is vital for their competitiveness and sustainable growth. The governmental authorities in both countries have a sizeable role to spur the trust of customers/businesses owing their sovereign role in terms of favorable regulatory measures.


1. It is noticeable that the Islamic financial products and services are gaining popularity in Muslim countries where the religiosity has an impact of their investment choices (see Mansour and Jlassi (2014) for an exploration of how religiosity can drive finance and investment decisions).

2. The legal systems in Muslim economies do not have commercial laws that consider riba as a criminal offence) but only as a moral sin (Schoon and Nuri, 2012).

3. The report is available at:

4. See Mansour et al. (2015-a) for a deep investigation of the ethical dimension of Islamic banks.

5. Iqbal (2012) reports that the 5 most known scholars in the world are Abdusattar Abu Ghudda, Nizam Yaqubi, Mohamed Ali El-Gari, Daud Bakar, and Abdallah al-Manea. They respectively had 101, 95, 86, 43, and 42 positions in different boards.

6. Trust is considered as a multifaceted construct because it is determined by several factors. Our empirical deigns uses three factors that influence trust in Islamic banking, namely credibility, integrity, benevolence.


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Walid Mansour (a), Leila Lefi Hajlaoui (b) Fadul Abdulkarim (c), Mohammad Nassief (d)

(a) Islamic Economics Institute, King Abdulaziz University, Jeddah, Kingdom of Saudi Arabia; Dar Al-Hekma University, Jeddah, Kingdom of Saudi Arabia; ECSTRA Research Lab, Institut des Hautes Etudes Commerciales, Universite de Carthage, and Universite de Sousse, Tunisia


(b) Qassim University, Kingdom of Saudi Arabia; URISO Research lab, Faculte des Sciences Economiques et de Gestion, Universite Tunis El Manar, Tunisia

lefileila@gmail, com

(c) Islamic Economics Institute, King Abdulaziz University, Kingdom of Saudi Arabia

falbashir@kau. edu. sa

(d) Islamic Economics Institute, King Abdulaziz University, Kingdom of Saudi Arabia


(*) This project was funded by the Deanship of Scientific Research (DSR), King Abdulaziz University, Jeddah, under grant N. (G-1436-121-161). The authors, therefore, acknowledge with thanks DSR technical and financial support.
Table 1-a
A comparison between Islamic and conventional banks
(Source: Adapted from Majdoub et a). (2016))

Type of       Foundation          Objectives

Islamic       Operations are      The objectives
              based on the        should stem from
              axioms and          maqasid al-shari 'ah
              principles          (i.e., objectives of
              stemming from       Islamic law). Ibn
              the two sources of  Ashour (1945) notes
              shari'ah: Qur'an    two general aspects
              (Muslims' Holy      of maqasid al-
              Book) and           shari 'ah: promoting
              Sunnah (Prophet     welfare (jalb al-
              Muhammad's          masalih) and
              practice).          avoiding evils (dar 'a

Conventional  Operations are      The objectives of the
              based on            financial
              manmade             intermediation stem
              microeconomic       from shareholder
              principles of       profit maximization.
              utility             Trading complex
              maximization.       financial instruments
              The products,       can be harmful to the
              instruments, and    economy as a whole
              services are        in terms of value and
              derived from        job destruction.

Type of       Interest Payments      Incentive-driven
Bank                                 Problems

Islamic       Interest is the heart  Islamic banks
              of conflict between    suffer from
              Islamic and            incentive
              conventional banks.    problems.
              Money cannot be        Islamic financial
              rented out to          engineering with
              generate a return. It  its foremost PLS
              is only a commodity    principle
              for exchange           endeavors to
              purposes. A bank       alleviate these
              cannot charge pre-     problems.
              determined financial
              fees on loanable
Conventional  Conventional banks     Information
              charge interest        asymmetry
              irrespective of the    impairs the
              future cash flow       contracting
              streams the project    relationship and
              will generate. In the  affects the
              extreme case of        bank's ability to
              default, a bank has    generate profits
              the right of           and raise funds.
              foreclose, as a non-   Banks must pay
              residual claimant.     a premium to
                                     obtain external
                                     funds, which

Type of       Risk sharing and      Socially-oriented
Bank          Profit Distribution   Vision

Islamic       The return of         The primary aim is to
              Islamic banks must    serve the general
              be generated from     interest in equitably
              risk sharing among    growing the economy.
              the contracting       The best-known tool
              parties. Equity-like  is Zakah, which
              Islamic financial     contributes to poverty
              contracts (i.e.,      alleviation and social
              musharakah,           equity. People with
              mudharbah)            excess savings pay
              illustrate this       Zakah to poor people
              principle.            and/or entrepreneurs
                                    with innovative ideas
                                    but with no funds.
Conventional  The pivotal function  Conventional banks
              is to lend money      focus on credit
              and get it back with  worthiness in
              pre-determined        managing the debtor-
              conditions in terms   creditor relationship
              of an interest rate,  and place less
              maturity, and         emphasis on project
              coupon payments.      valuation and future
              The firm bears all    outcomes for the
              risk and must repay   society. Goals such as
              the bank              poverty alleviation,
              irrespective of the   ethical investments,
              future cash flow      social equity, and
              streams.              economic welfare are
                                    not paramount.

Table 1-b
Failures and potential challenges

Failures                            Challenges

1. Whilst Islamic finance experts   1. The Islamic finance industry
do not 'like' conventional finance  has to develop new financial
products and institutions, they     innovations and launch new
simultaneously adopt very similar   institutions that simultaneously
financing techniques that are       fit the shah'ah requirements and
close to being based on interest.   contribute to economic growth.
2. Islamic finance experts are      2. Development of risk-hedging
unable to revolutionize the         techniques and instruments that
industry through new financial      are compliant with shah 'ah
innovations.                        requirements.
3. The Islamic finance industry is  3. New strategies must be
a player with around 2 percent of   developed to conquer new markets
the global finance industry.        not only in Muslim countries but
                                    also in the West.
4. The Islamic finance industry     4. IFIs need to foster the
does not contribute efficiently     microfinance environment by
to economic development.            offering interest-free
5. The social-oriented role is      5. Propelling the role of Islamic
marginalized. Islamic financial     financial institutions in
institutions remain inactive in     alleviating poverty and creating
financing projects that contribute  jobs (maqasid al-shah 'ah).
to social objectives.
6. Islamic finance and firm         6. More pronounced role of the
dynamics. The financial products    interaction of Islamic finance with
and innovations offered by Islamic  firm dynamics in terms of growth,
financial institutions did not      survival, age, and profit.
take account of variables that
affect positively firm dynamics.
7. Islamic finance is neither de    7. Islamic financial institutions
facto ethical nor Islamic. The      should be ethical in their business
financial products offered by       transactions and fulfill maqasid
Islamic financial institutions      al-shah'ah, which qualifies Islamic
are criticized because they are     financial institutions to meet the
inconsistent with the claimed       Islamic label.
maqasid al-shari 'ah (objectives
of Islamic law).

Table 2
Definition of trust construct (Adapted from Masrek et al., 2012)

Construct  Sub-constructs

Trust      Credibility: refers to the ability of service provider to
           perform what trustee needs.
           Benevolence: refers to the service providers' care and
           motivation to act in the trustee's best interests.
           Integrity: refers to the service providers' honesty and
           promise keeping.

Table 3
Respondents' profiles

                               Saudi Arabia  Tunisia

Age         20-30 years          14.28%        2.85%
            31-40 years          37.73%       27.71%
            41-50 years          26.57%       58.00%
            51 years and more    21.42%       11.44%
Gender      Male                 93.00%       59%
            Female                7.00%       41%
Profession  Student              19.14%        1.71%
            Jobless               4.28%        0%
            Having a business    16.28%       51.42%
            Employee             60.30%       46.87%
Total (*)                       100%         100%

(*) Sample of 350 respondents for each country.

Table 4
Component analysis results (with varimax rotation)

Constructs   Items (codified)  KSA          TUNISIA

             Cred l            0.890        0.841
             Cred 2            0.730        0.805
Credibility  Cred 3            0.710        0.776
             Cred 4            0.687        0.730
             Cred 5            0.642        0.635
             Cred 6            0.630        0.600
             Integ 1           0.682        0.665
Integrity    Integ 2 Integ 3   0.743 0.795  0.720 0.690
             Integ 4           0.765        0.680
             Benev 1           0.776        0.621
Benevolence  Benev 2 Benev 3   0.846 0.717  0.718 0.625
             Benev 4           0.878        0.775

             Cronbach's Alpha
Constructs   KSA      TUNISIA

Credibility  0.881     0.835

Integrity    0.725     0.739

Benevolence  0.821     0.802

Note to table: The K.M.O = 0.717 and Bartlett's test of sphericity
displays a khi-square =344.865 with p = 0.00.

Table 5
Overall fit with country level data

Model    [chi squre] (ddf)    P     GFI   AGFI   RMR

              362.154       0.001  0.849  0.814  0.109
KSA          (284)
              359.303       0.028  0.787  0.740  0.148
Tunisia      (310)

Model    RMSEA   TLI    CFI

         0.043  0.973  0.977
         0.043  0.974  0.977

Note to table: p< 0.05, GFI > 0.9, AGFI > 0.8, 0< RMR < 0.01, RMSEA
< 0.05, TLI > 0.90, CFI > 0.90

Table 6
Reliability and convergent validity (c.v)

               p Joreskog    Fornell and Lacker index
              KSA   TUNISIA       KSA   TUNISIA

Credibility  0.901   0.879       0.693   0.609
Integrity    0.792   0.780       0.561   0.507
Benevolence  0.870   0.864       0.670   0.650

Table 7
Testing structural relationships

                                                  Saudi Arabia
                                        Estimate   S.E.    C.R.    P

Trust credibility [left arrow] lack of
specialists                              -0.430   0.038   -8.241  (*)
Trust integrity [left arrow] lack of
specialists                              -0.995   0.081  -10.730  (*)
Trust benevolence [left arrow] lack of
specialists                              -0.380   0.112   -3.391  (*)
Trust credibility [left arrow] absc of
legal framework                          -0.021   0.068   -0.311  0.753
Trust integrity [left arrow] absc of
legal framework                          -0.001   0.093    0.006  0.996
Trust benevolence [left arrow] absc of
legal framework                          -0.134   0.079   -1.696  0.092
Trust credibility [left arrow] cost of
products and services                    -0.682   0.069   -5.293  (*)
Trust integrity [left arrow] cost of
products and services                    -0.300   0.070   -4.280  (*)
Trust benevolence [left arrow] cost of
products and services                    -0.312   0.082   -3.549  (*)
Trust credibility [left arrow] fear of
Islamic                                   0.010   0.080    0.120  0.910
Trust integrity [left arrow] fear of
Islamic                                   0.007   0.076    0.080  0.940
Trust benevolence [left arrow] fear of
Islamic                                   0.097   0.079    1.230  0.219

                                        Estimate   S.E.   C.R.    P

Trust credibility [left arrow] lack of
specialists                              -0.423   0.073  -5.930  (*)
Trust integrity [left arrow] lack of
specialists                              -0.378   0.067  -5.620  (*)
Trust benevolence [left arrow] lack of
specialists                              -0.244   0.057   3.638  (*)
Trust credibility [left arrow] absc of
legal framework                          -0.529   0.083  -6.444  (*)
Trust integrity [left arrow] absc of
legal framework                          -0.824   0.067  -9.930  (*)
Trust benevolence [left arrow] absc of
legal framework                          -0.762   0.080  -7.039  (*)
Trust credibility [left arrow] cost of
products and services                    -0.807   0.080  -6.274  (*)
Trust integrity [left arrow] cost of
products and services                    -0.774   0.054  -7.100  (*)
Trust benevolence [left arrow] cost of
products and services                    -0.750   0.046  -3.682  (*)
Trust credibility [left arrow] fear of
Islamic                                  -0.943   0.078   9.934  (*)
Trust integrity [left arrow] fear of
Islamic                                  -1.630   0.087   7.948  (*)
Trust benevolence [left arrow] fear of
Islamic                                  -1.174   0.065   6.147  (*)

(*) statstically significant test; S.E.: standard error; P: p-value
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Author:Mansour, Walid; Hajlaoui, Leila Lefi; Abdulkarim, Fadul; Nassief, Mohammad
Publication:International Journal of Business
Geographic Code:6TUNI
Date:Mar 22, 2016
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