Factor Analysis of Constraints in Financial Feasibility for Results on
Sharia Banks
Nizar Alam Hamdani
1
, Arif Budiraharja
2
, Toto Susanto
2
, and Didit Supriyadi
2
1
Universitas Garut, Garut, Indonesia
2
Universitas Pendidikan Indonesia, Bandung, Indonesia
Keywords: Islamic Banking, public awareness, human resources.
Abstract: The development of Islamic banking has always shown positive trends. This can be seen in the annual increase
in its assets and market shares. However, in national banking scale, this does not seem to affect national
banking assets at all. This is due to the fact that the asset value and market share of Islamic banking are
relatively small. This is very ironic considering the majority of Indonesia's population is Muslim. The small
market share indicates that there are many Muslims who have become customers of Islamic banks. The data
were analyzed using exploratory factor analysis. The number of samples were 76 customers of 8 branches
BJB Syariah, selected using the proportional simple random sampling. The results showed that what affected
Islamic banking market share was the following factors: marketing, government policies, literacy and human
resources. Other research findings that Islamic banks need to raise public awareness about Islamic products
because they are not well-informed about Islamic products. And just as important as marketing is human
resources. Without improvement in literacy, market share will not grow.
1 INTRODUCTION
Banks are profit-oriented business entities. Marketing
activities are indispensable to meet what the
customers need and want. Therefore, banks need to
do their marketing activities in an integrated manner
and continue to carry out market research to figure out
what their customers really want and need. According
to Utama (2016), the emergence of sharia banking is
particularly because the way the society see and do
things in their business activities is influenced by the
Islamic teachings.
The growth of sharia banking makes the
competition among sharia banks tighter than ever,
resulting in a damage in a bank’s competitive
advantage. Therefore, a bank must make unremitting
renewal efforts to become a major player in its
segment. That way, a bank can remain the customers’
main preference. An Islamic bank is demanded to
have a reliable marketing system and not to rely on
emotional mass only. The marketing process of
Islamic banking is essentially the same as that of the
conventional banking in that it begins with the
customers’ need analysis (Ahmad Azrin Adnan,
2013). Some studies have reported that marketing
affects a product, image, and service, which in turn
will shape consumer perception (Doraisamy,
Shanmugam, & Raman, 2011). Awan and Azhar
(2014) explain that internal and external marketing
affects consumer attitude.
The Islamic banking market share has only
reached 4.87% of the total national banking market
share, lower than the minimum target of 5% (OJK,
2016). Nowadays, Islamic banking market in
Indonesia is very potential; however, due to the low
sharia financial inclusion, not many people have used
sharia finance products just yet. This is a serious
challenge for the Islamic banking (Sumut Invest,
2017). Meanwhile, Yuliani’s (2016) study suggests
that the forecasting value of Islamic banking assets in
December 2016 was IDR 341,614 billion or 5.01% of
the national banking forecasting value of IDR
6,816,388 billion in the same period. The
development of sharia banking in Indonesia is far
behind that in Malaysia despite the fact that Indonesia
enjoys its status as a country with the largest Muslim
population in the world. Today’s market share of
sharia banking in Malaysia is around 40-50%, and
that in Indonesia is only 4.86% (Bm & Uddin, 2016).
The society are not well-informed that Islamic
banks are managed differently from the conventional
banks. Islamic banks offer profit sharing and interest-
free partnership system to make it conform to the
Islamic teachings. Syarif (2012) suggests that Islamic
Hamdani, N., Budiraharja, A., Susanto, T. and Supriyadi, D.
Factor Analysis of Constraints in Financial Feasibility for Results on Sharia Banks.
In Proceedings of the 1st International Conference on Islamic Economics, Business, and Philanthropy (ICIEBP 2017) - Transforming Islamic Economy and Societies, pages 261-266
ISBN: 978-989-758-315-5
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
261

banks need to socialize their innovations and
reinforce their human resources and Islamic banking
system.
Promotion in the perspective of Islam is to
honestly inform about a product of service to the
potential customers. In this regard, Islam strongly
forbids us to provide false information to deceive the
potential customers. A hadith mentions: “Ibnu Umar
said: “I’ve been deceived in the buying of this,”
complained a man to the Prophet. The Prophet said,
“Tell them not to deceive! (Narrated by Bukhari).
2 LITERATURE REVIEW
Marketing is an organization and a process of
creating, communicating, and providing value to the
customers and establishing a long-term and
sustainable relationship with the customers (Kotler,
Philip dan Keller, 2012). Every function of
management contribute in its own way to the
drafting of strategy at different levels. Marketing is
a function with the largest contacts with the external
environments over which the corporation has only
little control. Thus, marketing plays an important
role in the strategic planning (Fejza & Asllani,
2013). In penetrating and seizing a market, a
businessman should also take into account internal
and external factors. The marketing mix has been
defined as the set of marketing tools that a company
uses to pursue its marketing objectives in the target
(Kotler, Philip, & Keller, 2012).The company's
profile depends entirely on the ability of the
management to understand the marketing mix in
question. Shuhaimi’s (2012) study suggests that the
marketing mix through 5 Ps model plays an
important role in the development of Islamic
banking. Mohammad’s (2015) study investigated the
application of 7 PS; i.e., promotion, price, people,
product, place, process and physical evidence, in
banking system. The result revealed that process was
the most important factor, and price was the least
influential factor. This goes to say that the customers
prefer a simple, understandable and quick process in
conducting banking transactions. Meanwhile,
Phillips and Peterson (2004) put forward the
importance of making differentiation in order for the
product/service to be acceptable by the customers
and to have competitive advantage.
Ismal’s (2010) survey on Islamic banking
depositors in Java, Sumatera, and Kalimantan
revealed that 77.7% of the total respondents show
respects towards Islamic banking instruments, 58.8%
understood Islamic financial instruments, and only
27.7% participated in the Islamic financial
instruments. It was also revealed that there were three
types of depositors: sharia-driven, profit-driven, and
transaction-driven depositors. The sharia-driven
depositors refer to the customers who choose Islamic
banks for their Islamic principles and will never
choose conventional banks. The profit-driven
depositors are indifferent between sharia and
conventional banks; they only take profit into their
account. The transaction-driven depositors are those
who use sharia banking service for transactional
purposes. The sharia-driven depositors were 56.8% of
the total respondents, 27% were profit-driven
depositors, and the last 16.2% were transaction-
driven depositors.
It was then concluded that the majority of
depositors were sharia-driven. They chose Islamic
banks because of their product conformity to the
Islamic teachings and fatwa of Indonesian Ulema
Council (MUI) (Shuhaimi, 2012). This confirms
other studies that customers chose Islamic banks due
to religious reasons. Their preference was also
influenced by Islamic financial literacy (Haque,
Osman, & Ismail, 2009; Tara, Irshad, Khan, &
Rizwan, 2014).
A survey conducted by the Financial Services
Authority (OJK, 2016) revealed that in Indonesia the
Islamic financial literacy was only 11.06 % and
Islamic banking literacy was 66.3%. This low level of
Islamic financial literacy greatly affected the
preference for Islamic banks. According to Azmi and
Chong (2014), financial literacy is necessary to
understand Islamic banking products and services.
Abdullah and Anderson (2015) suggest that financial
literacy is shaped by the following factors: views on
banking product, views on Islamic banking product,
parents’ influence on Islamic financial product and
services, factors determining investment in securities,
views on conventional banking product, attitude on
personal financial management, influence of personal
financial management, knowledge on wealth
planning and management, and attitude on Islamic
financial product and services.
Like in Malaysia, the Iranian government fully
supports Islamic banking by ratifying the Law for
Usury-Free Banking in August 1983. This law
requires banks in Iran within three years to adjust
thoroughly their business activities to the principles
of sharia and turn the outstanding interest-based
deposits into interest-free deposits within a year
(Parveen, Zadeh, & Muzakkirsyed). Islamic banking
in Iran and Malaysia enjoys a rapid growth due to
their government full support; not only can it compete
with conventional banking, but also becomes the
global first and second greatest sharia banking
respectively. While in Turkey and Sudan whose
government only gives lukewarm support, the
progress of sharia banking is not so significant.
Indonesian government must learn from other
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
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successful countries in developing sharia banking
networks. State-owned enterprises (BUMN) also
encouraged to invest in the sharia banking. Based on
Roadmap of Indonesian Islamic Banking 2015-2019,
there are 41 programs to boost the development of
Islamic banks in Indonesia (OJK, 2016). In this
regard, Sari, Bahari and Hamat (2016) explain in their
report the influence of government and political
issues on the evolution of Islamic banking in
Indonesia.
3 RESEARCH METHODOLOGY
This study was conducted using an exploratory
approach; i.e., by exploring dominant factors that
shaped market share of Islamic banking. The primary
data were qualitative statements of Islamic bank
customers in Indonesia, but then quantified using five
point Likert scale.
This report discusses factors affecting Islamic
banking market share including promotion, product,
service, price, process, external environment, human
resources, and fatwa of Indonesian Ulema Council
(MUI).
The data were collected through observation,
interview, and questionnaire. The samples were 76
customers of BJB Syariah. The collected data were
analyzed using confirmatory factor analysis by means
of SPSS.
4 RESULTS AND DISCUSSION
The results of the survey data analysis are as follows:
The result of KMO and Bartlett's test revealed that
the sampling adequacy was 0.706. Since it was higher
than 0.5, further test can be proceeded.
The result of correlation test between independent
variables in the output of KMO and Bartlett’s test is:
Table 1: KMO and Bartlett’s Test.
It could then be said that further test could be
proceeded. The correlation between independent
variables can be seen in the table of Anti-Image
Matrices. What should be paid attention to is MSA
(Measure of Sampling Adequacy) score. The MSA
score range is 0 to 1 with the following conditions:
1. MSA = 1, variables can be correctly predicted
by other variables.
2. MSA > 0.5, variables can still be predicted and
further analysis can be proceeded.
3. MSA < 0.5, variables cannot be predicted and
further analysis is not possible.
The results of MSA using SPSS are as follows:
1. Promotion 0.507 > 0.5
2. Government Commitment 0.631 > 0.5
3. Technology 0.821 > 0.5
4. Literacy 0.595 > 0.5
5. Human Resources 0.833 > 0.5
6. Religion 0.834 > 0.5
7. Residency 0.619 > 0.5
8. Fatwa of Indonesian Ulema Council (MUI)
0.869 > 0.5
9. Administration Cost 0.546 > 0.5
It could be then concluded that all variables could
further be analyzed since their scores were higher
than 0.5.
The next step is grouping these independent
variables into one or more factors. This is to describe
how these factors can explain the independent
variables. Therefore, it should be referred to the table
of Communalities below:
Table 2: Communalities.
The results show that the factors can explain the
promotion variable by 0.877 or 87.5%, the
government variable by 56.1%, the technology
variable by 85%, the literacy variable by 78.9%, the
human resources variable by 77%, the religion
variable by 65.6%, the residency variable by 75.1%,
the variable of fatwa of MUI by 45.4%, and the
administration cost variable by 89.9%. Since the
average explanation is above 50%, the factors were
determined.
Table of Total Variance Explained shows
how may factors that can be established.
Factor Analysis of Constraints in Financial Feasibility for Results on Sharia Banks
263

Table 3: Total Variance Explained.
Based on the above calculation, the Component
ranging from 1 to 9 represents all independent
variables. In the Initial Eigenvalues column, the score
was set to 1. The variance can be explained by Factor
1 by 4.319/9 x 100% = 47.988, by Factor 2 by 1.275/9
x 100% = 14.166, and by Factor 3 by 1.013/9* x
100% = 11.255. The three factors combined can
explain the independent variables by 47.988% +
14.166% + 11.255% = 73.409%. Since the
Eigenvalues was set to 1, the total score taken was
that above 1; i.e., Components 1, 2, and 3.
Afterward, which variable that would go
into which factor was determined by referring to the
table of Component Matrix below:
Table 4: ComponenMatrix.
Table of Component Matrix
a
Component
1
2
3
Promotion
.711
.606
-.061
Government
Commitment
.655
-.144
-.334
Technology
.919
-.069
.017
Literacy
.604
.639
.127
Human Resources
.867
.128
-.047
Religion
.688
-.268
-.333
Residency
.679
-.497
.208
Fatwa of Indonesian
Ulema Council (MUI)
-.567
.353
.086
Administration
Cost
.409
-.120
.847
Extraction Method: Principal Component Analysis.
a. 3 components extracted.
Based on the above table, the correlations
between independent variables with the factors to be
formed are:
1. Promotion: Factor 1 correlation 0.11; Factor 2
correlation 0.606; Factor 3 correlation -0.061
2. Government Commitment: Factor 1 correlation
0.655; Factor 2 correlation -1.44; Factor 3
correlation -0.334
3. Technology: Factor 1 correlation 0.919; Factor
2 correlation 0.069; Factor 3 correlation 0.017
4. Literacy: Factor 1 correlation 0.604; Factor 2
correlation 0.639; Factor 3 correlation 0.127
5. Human Resources: Factor 1 correlation 0.867;
Factor 2 correlation 0.128; Factor 3 correlation
-0.047
6. Religion: Factor 1 correlation 0.688; Factor 2
correlation -0.268; Factor 3 correlation -0.333
7. Residency: Factor 1 correlation 0.679; Factor 2
correlation -0.497; Factor 3 correlation 0.208
8. Fatwa of MUI: Factor 1 correlation -0.561;
Factor 2 correlation 0.353; Factor 3 correlation
0.086
9. Administration cost: Factor 1 correlation 0.409;
Factor 2 correlation -0.120; Factor 3 correlation
0.847
Table of Rotated Component Matrix below shows
which variable goes to which factors.
ICIEBP 2017 - 1st International Conference on Islamic Economics, Business and Philanthropy
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Table 5: Rotated Component Matrix.
The input of a variable into a particular factor was
determined by the correlation coefficient between the
variable and factor in question. And it was obtained
the following:
1. Factor 1: Government Commitment,
Technology, Religion, Residency, Fatwa of
MUI
2. Factor 2: Promotion, Literacy, Human
Resources, and
3. Factor 3: Administration Cost
Refer to the table of Component Transformation
Matrix below to conduct a test at the final step and to
determine the factor.
Table 6: Component Transformation Matrix.
Based on the above calculation, it could be
concluded that the correlation coefficients of Factor
1, Factor 2, and Factor 3 were 0.758, 0.810, and 0.929
respectively. Each of these scores implies a strong
correlation because they are higher than 0.5.
Thus, Factor 1, Factor 2, and Factor 3 can be said to
summarize the nine independent variables.
Factor 1 comprised the variables of government
commitment, technology, religion, residency, and
fatwa of MUI that could be characterized as the
external driving factors. Factor 2 represented the
variables of promotion, literacy, and human resources
that could be characterized as the corporate capability
factors. And Factor 3 represented the administration
cost variable that could be characterized as the
operational technical factor.
Thus, these factors can be summarized as follows:
1. Factor 1 is called the external driving factor
2. Factor 2 is called the corporate capability factor
3. Factor 3 is called operational technical factor
5 CONCLUSION
The following factors affected BJB Syariah market
share: promotion, government commitment,
technology, human resources, religion, residency,
fatwa of Indonesian Ulema Council (MUI). Having
been rotated, these factors were categorized into
three: Factor 1: government commitment,
technology, religion, residency, fatwa of MUI, Factor
2: promotion, literacy, human resources, and Factor
3: administration cost. Factor 1 is then called the
external driving factor (that affects the market share),
Factor 2 is called the corporate capability factor, and
Factor 3 is called the operational technical factor.
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