Determinants of Islamic Banking Service Usage in Jimma Town

Abstract

This study was conducted in Jimma, a town in the Oromia regional state of Ethiopia. The objective of this study was to examine the determinants of Islamic banking service usage in the town. Islamic banking is banking system which follows Shariah law, prohibiting interest and promoting ethical financial practices. Understanding the factors influencing its usage is crucial for financial institutions, policymakers, and researchers. For achievement of this objective the study employed a mixed-methods design. Analysis was conducted by using descriptive statistics and multiple regression analysis data from a questionnaire survey in Jimma town. A convenient sample of 514 individuals participated in the survey. The results of the study reveal that relative advantage, religiosity, marital status, age, and awareness are significant factors influencing Islamic bank usage in Jimma Town. However, variables like perceived risk, gender, and educational level of customers haven’t shown any significant relationship with the usage of Islamic banking services. Qualitative results show that customers in Jimma use Islamic banks for saving money, economic participation, and development, but some are unaware of bank services and fear liquidity risk. It is better if Islamic banks in Jimma Town promote their services by demonstrating their perceived advantages over traditional banks. The study thus concluded that Islamic bank usage in Jimma Town is influenced by awareness, age, marital status, religiosity, and relative advantage. Further, creating personalized marketing strategies and improving customer awareness campaigns are worth considering increasing the level of Islamic banking service usage in Jimma Town. The current study didn’t include few relevant variables that may potentially influence Islamic banking usage; therefore, further research on the same topic is encouraged to explore the effects of sociocultural factors, financial literacy, and customer satisfaction and loyalty towards Islamic banks to develop a comprehensive understanding of the factors affecting Islamic banking usage in Jimma Town