THE EFFECT OF INTEREST FREE BANKING SERVICE QUALITY ON CUSTOMER SATISFACTION THE CASE OF COMMERCIAL BANK OF ETHIOPIA

Abstract

The success and endurance of banking industry nowadays depend on the quality services to customers and Interest free bank are not exception to this. Although the banking industry is starting and offering various types of IFB financial services to the public, their existence does not do any good unless they deliver a quality service. The purpose of this study is to determine the effect of service quality of noninterest bank on customers’ satisfaction using CBE as a case study. The study adopted modified SERVQUAL measurement dimensions comprising of six dimensions such as: assurance, reliability, tangibles, empathy, and responsiveness and compliance dimension signifies the ability of the organization to comply with Islamic law and principles in their operation. The research design used was casual(explanatory) study that shows the effect of independent variables on dependent variables (in this case assurance, reliability, Compliance Islamic Law, tangibles, empathy and responsiveness on CBE IFB customers). Among the sample size 204 IFB customers of CBE only 170 respondents were returned the questionnaire. The data collected from the questionnaire were analyzed using descriptive, correlation, and regression analysis VIA SPSS Version 21. The results of this study indicate that, all the service quality dimensions (compliance, tangibility, reliability, responsiveness, empathy and assurance) have positive and significant relationship with customer satisfaction. Based on regression result it is observed tangibility, compliance with Islamic law, responsiveness, empathy and reliability dimensions have positive and significant impact on customer satisfaction. The other dimension that is assurance has no significant effect on satisfaction. Furthermore, 84.8% of the variations in customer satisfaction on IFB service is explained by service quality dimensions of IFB. The finding of the analysis showed that, the performance of CBE in providing quality service in interest free banking is not in a position to meet the expectation of the customer. Low service quality leads low customer satisfaction. Based on this, in order to improve performance of the IFB service, the researcher suggested that, the bank should work to improve all service quality dimensions in order to sustain IFB customer satisfaction and provide relevant training for its front line employees.