The Role of Customer Service and Customer Trust in Enhancing

Satisfaction and Loyalty: Case in Islamic Microﬁnances

Fany Nelvana Arse

Post Graduate Program of Islamic Finance and Banking, Bandung State Polytechnic, Bandung, Indonesia

Keywords:

Islamic Microﬁnances, Service Quality, Customer Trust, Satisfaction, Loyalty.

Abstract:

The purpose of this study is to measure the relationship between variables of Service Quality, Customer Trust,

Satisfaction, and Loyalty among costumers of Islamic cooperatives/Baitul Maal Wa Tamwil (BMTs) in In-

donesia. This study uses a ﬁeld survey which is based on self-administered questionnaires. The data were

taken from 300 respondents in West Java Province with several major cities as the representatives. The sample

data were analyzed statistically through path analysis by using Partial Least Square Structural Equation Model

(PLS-SEM) to determine the perception of Service Quality, Customer Trust, Satisfaction, and Customer Loy-

alty. This study found that Service Quality has a positive effect on Satisfaction (measured through Reliability,

Empathy, and Responsiveness). It, then, becomes an important determinant of Satisfaction. Satisfaction later

also has a signiﬁcant positive effect on Loyalty. Therefore, from the managerial perspective, this study pro-

vides guidance for Islamic cooperatives/BMTs managers to build Customer Trust in addition to providing high

Service Quality. It must be considered because the emergence of trust in an institution can create customer sat-

isfaction and loyalty toward that institution, in this case Islamic cooperatives/BMTs. This research is expected

to have practical implication for Islamic cooperatives/BMTs policy makers to better understand the behavioral

intentions of cooperatives/BMTs customers.

1 INTRODUCTION

In order to create an industrial development that is

able to compete and has a strong structure, Indonesian

government needs to increase the distribution of pro-

cessing industry development in the country. This dis-

tribution results on a strong synergy between small,

medium and large industries that acts as a supply

chain (bps, 2018). The increase on this industrial dis-

tribution can drive the can drive the economy which

triggers the country’s growth (Hachicha and Amar,

2015).

Inherently, the ﬁnancial industry has characteris-

tics that can support positively to participatory eco-

nomic growth. It will naturally direct the ﬁnancial

resources to the real economic and ﬁnancial sectors

that need them the most (Majid and Kassim, 2015).

When the ﬁnancial sectors ﬁnally develop better, there

will be more ﬁnancial resources that can be allocated

to productive use, so that more physical capital is

formed which will lead to economic growth (Tabash

and Dhankar, 2014).

Islamic line is also one of the sectors which forms

Indonesia’s economic growth (Lebdaoui and Wild,

2016), in accordance with the its obligation to imple-

ment the function of compiling and distributing pub-

lic funds (RI, 2008). The Islamic bank market seg-

ment is dominated by private entrepreneurs as well as

micro, small and medium enterprises (MSMEs) if it

seen from the side of depositors and debtors (clients)

(Wahyudi et al., 2013). MSMEs dominate 97.22% of

the total businesses and absorb 90.98% of the total

workforce (Keuangan, 2012).

prolongation of the government in credit pro-

grams aimed at MSMEs, such as small business

loans (KUK), farm business loans (KUT), and com-

munity credit businesses (KUR), so that the poten-

tial of micro, small and medium enterprises can be

spread evenly (Indonesia, 2009). Through its policy,

Bank Indonesia decides that Islamic bank ﬁnancing

for MSMEs can be carried out directly or through

partners (or with relationship programs) with other

ﬁnancial institutions such as Islamic cooperatives or

Baitul Maal wa Tamwil (BMTs) (Indonesia, 2009).

This becomes an opportunity for Islamic cooperatives

or BMTs to grow.

Since the time the legal entity was established, the

growth of Islamic cooperatives or BMTs ﬂuctuated

192

Arse, F.

The Role of Customer Service and Customer Trust in Enhancing Satisfaction and Loyalty: Case in Islamic Microﬁnances.

DOI: 10.5220/0009867101920197

In Proceedings of the International Conference on Creative Economics, Tourism and Information Management (ICCETIM 2019) - Creativity and Innovation Developments for Global

Competitiveness and Sustainability, pages 192-197

ISBN: 978-989-758-451-0

every year. It can be seen from the signiﬁcant increase

occurred in 1997 as 71 units, in 1998 as 115 units, and

in 1999 as 162 units. However, in 2000 this number

decreased to 31 units and kept going down gradually

until 2005. The number increased again dramatically

in 2006 as 61 units, followed by 2007 as 71 units, in

2008-2009 as 72 units, and returned to decline in 2010

to 2013. Until 2018, the growth of Islamic coopera-

tives or BMTs based on legal entity years was not as

good as in previous years which were only 11 units

(dep, 2019).

The above data raises question of the reasons be-

hind this decreasing. In addition to ﬁnancial man-

agement, a ﬁnancial industry, including Islamic co-

operatives or BMTs, must also consider the sources

of funding from other parties called as customers for

the sake of their growth. As the main source of,

each business depend on customers income (Khattak,

2010). Service quality and customer trust are the keys

to customer satisfaction in choosing Islamic coopera-

tives or BMTs. Customer satisfaction itself is one of

the important strategic elements in any organization

(Khamis and AbRashid, 2018).

Satisﬁed customers are the ones who are commit-

ted and are ready to contribute. It means that if cus-

tomers feel dissatisﬁed, they will look for other in-

dustries that can fulﬁl their satisfaction (Mosavi and

Ghaedi, 2012).

Service quality and customer trust are also able

to increase customer loyalty, so the better the quality

of service obtained, the better the level of satisfac-

tion. Customer loyalty is very important in conduct-

ing business in competitive market, including Islamic

banks and Islamic cooperatives or BMTs (Ehigie,

2006). Thus, the main factor of achieving market-

ing theory is identifying customer loyalty (Hennig-

Thurau et al., 2002).

1.1 Service Quality and Customer

Satisfaction

To increase proﬁtability, a ﬁnancial industry, includ-

ing Islamic cooperatives and BMTs, needs to pay at-

tention to the quality to the customers related the ser-

vice besides maintaining the ﬁnancial trafﬁc. Service

quality is the result of comparisons between the prod-

uct or service expected and service performance re-

ceived by the customers (Parasuraman et al., 1988).

Modern marketing believes that the continuity of any

business depends on its ability to meet customer needs

and satisfaction (Khamis and AbRashid, 2018). Cus-

tomers feel satisﬁed because of the good quality of

service. Based on this understanding, Service Qual-

ity uses ﬁve dimensions (Assurance, Reliability, Tan-

gible, Empathy, and Responsiveness) in accordance

with the opinion of Parasuraman (Parasuraman et al.,

1988) and one dimension of Compliance (Fauzi and

Suryani, 2019).

Customer satisfaction is generally deﬁned as the

customer’s feelings or ratings of a product or service

after they use it. If the customer is satisﬁed with

the service, then the customer’s feelings towards the

industry will increase, and this feelings will result

in customer satisfaction toward the industry. Based

on this understanding, this study uses four dimen-

sions (Service, Price, Image, and Overall satisfaction)

(Hennig-Thurau et al., 2002).

The relation between service qualities is im-

portant and can be examined speciﬁcally through

SERVQUAL model of customer satisfaction (Ali and

Raza, 2017). This is supported by the previous re-

search which claims that service quality has a signiﬁ-

cant positive impact on customer satisfaction (Ali and

Raza, 2017) (Fauzi and Suryani, 2019) (Pereira et al.,

2016) (Suhartanto et al., 2018). Based on this, the

hypothesis that can be proposed in this study is:

H1: Service quality has a signiﬁcant with positive

value relationship to customer satisfaction

1.2 Customer Trust and Customer

Satisfaction

Trust is a fundamentally accepted variable for each

individual transaction. It is a psychological condition

that can only occur in certain relationship. Trust is

important in the relationship between customers and

industry in general. With a high level of trust, cus-

tomers feel conﬁdent that their needs are well served

by the industry. Service providers can also intro-

duce other actions that lead to trust, such as clear

communication, safeguarding and fulﬁlling promises

given to the customers.. Based on this understand-

ing, Customer Trust uses two dimensions (Trusty and

Keep promises) (Butt and Aftab, 2013) (Mosavi and

Ghaedi, 2012).

Customer trust has a positive and signiﬁcant re-

lationship to customer satisfaction (Suhartanto et al.,

2011). When referring to the relationship between

customer satisfaction, trust, and loyalty, it shows that

loyalty will increase signiﬁcantly if the bank can in-

crease trust. Based on this, the hypothesis that can be

proposed in this study is:

H2: Customer trust has signiﬁcant with positive

value relationship to customer satisfaction.

The Role of Customer Service and Customer Trust in Enhancing Satisfaction and Loyalty: Case in Islamic Microﬁnances

193

1.3 Service Quality and Loyalty

When a customer trusts a service provider, he be-

lieves in the quality of service and product offered

by the provider. In this case, the customer tends

to be loyal to the industry (Garbarino and Johnson,

1999). From this understanding, loyalty uses two di-

mensions (Word of mouth communication and Strong

relationship) (Hennig-Thurau et al., 2002) (Juga et al.,

2018)(Pereira et al., 2016).

In addition to affecting customer satisfaction, ser-

vice quality also has a direct and/or indirect inﬂuence

on loyalty (Ehigie, 2006)(Pereira et al., 2016). Other

study reveals that customer satisfaction is more im-

portant than the perception of service quality in gain-

ing loyalty (Fisher, 2001). Therefore, service quality

has a positive and signiﬁcant relationship to customer

loyalty (Ehigie, 2006). Based on this, the hypothe-

sis that can be proposed in this study is: H3: Service

quality has a signiﬁcant with positive value relation-

ship to customer loyalty.

1.4 Customer Trust and Loyalty

A high level of trust can be very important in each

industry. If the level of trust is high, customers tend

to forgive and rule out industry mistakes because they

consider it normal. However, if the level of trust is

low, the independent errors experienced can be seen

as evidence that the industry cannot be trusted (van

Esterik-Plasmeijer and van Raaij, 2017). Trust can

lead to long-term loyalty and strengthen relations be-

tween the two parties (Singh and Sirdeshmukh, 2000).

It rises the sigma that customers who have deep trust

tend to continue the relationship so that they generate

loyal attitudes (Mosavi and Ghaedi, 2012).

Some studies show a positive and signiﬁcant re-

lationship between customer trust and loyalty (Fauzi

and Suryani, 2019) (Mosavi and Ghaedi, 2012)

(Suhartanto, 2014). Based on this, the hypothesis that

can be proposed in this study is:

H4: Customer trust has a signiﬁcant with positive

value relationship to customer loyalty.

1.5 Satisfaction and Loyalty

Satisfaction is the main factor in determining loy-

alty (Hennig-Thurau et al., 2002). Customer satis-

faction is the biggest contributor to customer loyalty

(Ehigie, 2006). The more satisﬁed customers with

bank services are, the more likely them to be loyal.

It also makes them possible to recommend the in-

stitution to others. Customer satisfaction has a pos-

itive and signiﬁcant relationship to customer loyalty

(Fauzi and Suryani, 2019) (Suhartanto, 2014). How-

ever, some other studies also claim that customer sat-

isfaction has a positively insigniﬁcant relationship to

customer loyalty (Famiyeh et al., 2018)(Pereira et al.,

2016). Based on this, the hypothesis that can be pro-

posed in this study is:

H5: Customer satisfaction has a signiﬁcant with

positive value relationship to customer loyalty.

2 METHODS AND EQUIPMENT

This study aims to determine the relationship between

service quality and customer trust variables on cus-

tomer satisfaction, service quality and customer trust

on loyalty, and customer satisfaction on loyalty to Is-

lamic Cooperatives or BMTs in Indonesia, West Java

Province. The data used in this study is primary data

which were obtained by giving questionnaires related

to the variables used in this study. The data were col-

lected within a month. The samples were 300 respon-

dents who were able to represent participants (Suhar-

tanto, 2014). This study obtained by using conve-

nience sampling techniques . Figure 1 below illus-

trates the description of the respondent’s character.

Figure 1: Respondent demographic characters.

To test the hypothesis, this study uses Path Anal-

ysis using PLS-SEM (Partial Least Square-Structural

Equation Modeling) because it cannot be solved using

multiple linear regression. This study uses WarpPLS

6.0 in processing the collected data.

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194

3 RESULT

The standard loading factor illustrates the magnitude

of the correlation between each indicator and its con-

struct. The value of the loading factor is said to be

ideal if it is >0.70, but in the empirical experience of

the study, the value of the loading factor >0.50 is still

acceptable (Haryono, 2017). The other fulﬁllment of

the condition to be considered next is the Cronbach’s

alpha value >0.70, the Composite Reliability value

must be >0.70, and the AVE value >0.50 (Widarjono,

2015).

Figure 2: Respondent demographic characters.

Based on the results of Figure 3, it can be seen that

Service Quality, Customer Trust, Satisfaction,

and Loyalty have met the requirements and it can

be said that the indicators are valid and have good re-

liability.

Figure 3: Reliability and Validity Check.

4 DISCUSSION AND

CONCLUSION

The validity and reliability tests above were carried

out to meet the assessment of structural models and

prove the results of this research hypotheses. The re-

sults show that the Average R-squared (ARS) value is

0.567 with P <0.001. Average block VIF (AVIF) has

a value of 2.158 which means accepted because it has

a value <5 (ideally <3.3). Next, the value of Aver-

age full collinearity VIF (AFVIF) is 2.455, accepted

if <5 (ideally <3.3). The value of Goodness of Fit

(GoF) is 0.616 which means that the compatibility of

the model is large. Likewise, the Sympson’s para-

dox ratio (SPR) value, R-squared contribution ratio

The Role of Customer Service and Customer Trust in Enhancing Satisfaction and Loyalty: Case in Islamic Microﬁnances

195

(RSCR), statistical suppression ratio (SSR), and non-

linear bivariate causality direction ratio (NLBCDR)

are 1.000 each and meet the model ﬁt test compli-

ance requirement. In accordance with the indicators

which must be fulﬁlled in WarpPls, Service Quality

and Trust variables can predict 65% (R2=0.65) of Sat-

isfaction variable while Satisfaction can explain 49%

(R2=0.49) of Loyalty.

Based on the condition that must be met in PLS-

SEM analysis using the WarpPLS analysis tool, it can

be concluded:

Figure 4: Result of Testing Model

As the hypotheses, based on the results that Ser-

vice Quality has a signiﬁcant with positive value in-

ﬂuence on direct Satisfaction with a coefﬁcient of

0.74 with signiﬁcance <0.01. From several indicators

on Service Quality, there are three most inﬂuential in-

dicators to increase Satisfaction and Loyalty, which

are Reliability, Empathy, and Responsiveness. The

indicators are stated to be the most inﬂuential based

on the value of the Loading Factor >0.80.

The results of this study are in line with previous

research result on Islamic banks (Ali and Raza, 2017)

(Ehigie, 2006) (Fauzi and Suryani, 2019) (Khamis

and AbRashid, 2018) (Pereira et al., 2016).

This study shows that Islamic cooperatives/BMTs

customers are satisﬁed if the employees can show a

reliable, empathetic, and responsive attitude toward

customers’ needs. Meanwhile, for Service Qual-

ity on Loyalty, the coefﬁcient is 0.08 with signiﬁ-

cance=0.08, which means that it has no signiﬁcant ef-

fect. Furthermore, the Trust variable has a signiﬁcant

with positive value effect on Satisfaction of 0.10 with

a signiﬁcant=0.04 and Loyalty of 0.47 with a signiﬁ-

cance=0.01. It means thats customer trust will lead to

satisfaction and loyalty so that trust from customers

must be maintained and improved. Moreover, Sat-

isfaction to Loyalty has a coefﬁcient of 0.24 with a

signiﬁcant value ¡0.01. It means that customers are

already satisﬁed and they will certainly be loyal to

Islamic cooperatives/BMTs. It is potential to create

a desire for customers to remain as Islamic coopera-

tives/BMTs customers.

In general, the results of this study indicate that

Trust and Satisfaction increase Loyalty, but Service

Quality does not affect Loyalty. These ﬁndings show

that even though the services provided by employees

are considered good, it does not guarantee the cus-

tomers to be loyal to the Islamic cooperatives/BMTs.

Customers will be more loyal if the employees of Is-

lamic cooperatives/BMTs can provide a good sense

of trust to generate customers satisfaction. However,

Service Quality inﬂuences Satisfaction, so it is also

important to improve Service Quality in order to make

customers satisﬁed and indirectly increase their Loy-

alty. Therefore, Islamic cooperatives/BMTs must be

able to improve their quality, especially in terms of

Reliability, Empathy, and Responsiveness. Employ-

ees must also be able to increase customers trust to-

ward the industry. It will create a good impression

and increase customer conﬁdence to remain a cus-

tomer because the main competitors of Islamic co-

operatives/BMTs are not only from the conventional

side but also from fellow Islamic banking industries.

The result of indirect relationships, Service Qual-

ity affects Loyalty through Customer Satisfaction.

This is indicated by the indirect effects value =0.174

and the p value of indirect effect for path with 2 seg-

ments ¡0.001. Whereas the Customer Trust does not

affect Loyalty through Customer Satisfaction with in-

direct effects =0.024 and p value of indirect effect for

path with 2 segments <0.275.

Figure 5: Hypotheses Testing Results.

5 LIMITATION AND FUTURE

RESEARCH

The results of the study are not enough to repre-

sent Indonesia in general because all samples were

from West Java Province, which were taken from

some representative cities, such as Bandung, West

Bandung Regency, Bandung Regency, Cimahi, Sub-

ang Regency, Bekasi, Bekasi Regency, Depok, Bo-

gor, and Bogor Regency. In fact, there are previous

studies which also take Islamic banks as the object

of the researches that result differently. Therefore,

in the future, it is very recommended to conduct re-

search using quota sampling techniques to obtain ade-

quate samples that represent customer perceptions of

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196

Islamic cooperatives/BMTs in several regions in In-

donesia to obtain more comprehensive results.

ACKNOWLEDGEMENTS

The author would like to thank the family, Bandung

State Polytechnic lecturers, classmates of MTKPS

2017 and Muhammad Aziz Al-Hakim for their contri-

butions and support for this research. More gratitude

is also sent to previous researchers who have provided

good input for further research.

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