International Journal of Business and Social Science Vol. 4 No. 7; July 2013 264 Factors Affecting Customer Loyalty in Islamic Banking: Evidence from Malaysian Banks Zeyad M. EM. Kishada Doctoral Research Student Faculty of Economics and Muamalat University Sains Islam Malaysia Norailis Ab. Wahab Senior Lecturer Faculty of Economics and Muamalat University Sains Islam Malaysia Malaysia Abstract This study attempted to determine the factors that affecting loyalty among the Islamic banking customers. Data for the research were collected through a survey of customers of 2 full fledge Islamic banks in Malaysia. The study was carried out by taking a sample of 250 respondents. Principle component analysis (PCA) was used to estimate the effect of the factors on customer loyalty. Descriptive statistics showed that in general, respondents displayed positive level of loyalty. The results of the PCA show that nine factors have significant positive influence on customer loyalty. Results of reliability test for each of the factors shown, the Cronbach alphas of the measures were all comfortably above the lower limit of acceptability that is α >.50. Hence, all the measures were highly reliable. The finding highlights the importance of the factors on customer loyalty. Managers of Islamic banks have to place prime the importance of customers by building these factors to enhance customer loyalty. By contributing to the body of knowledge in this area, this research adds significant value. Moreover, the study presents valuable information on the market behaviour of Islamic banking customers in Malaysia, which may be unfamiliar to many readers. Keywords: Customer loyalty, Islamic banking. 1. Introduction Islamic banking is a financial concept which complies fully with Islamic 'Shari'ah' Law and has creative and progressive financial engineering that offers efficient and competitive banking, investment, trade finance, commercial and real estate financing services (Abdul Qawi and Lynn, 2001). According to Henry et. al, (2004) there are now over 300 Islamic banks and financial institutions worldwide with an estimated asset of between US$200 – US$300 billion. According to the writers, Islamic banking is increasingly gaining popularity and large international conventional banks are turning their interest towards Islamic banking system. However, Islamic banks are experiencing strong competition not only among Islamic banks but also from their non-Islamic counterparts (Naser and Moutinho, 1997). This aspect brings about the concern that only ‘customer loyalty’ can ensure competitiveness and their continuous survival (Ahasanul Haque et. al, 2009). Therefore it is important to assess the degree of customer loyalty towards these growing financial institutions. This paper attempts to find out the degree to which customers are loyal towards their Islamic banks in the Malaysian context. The concept of Islamic banking is not only of interest to Muslim customers but able to attract non-Muslims customers due to the advantages from the system (Naser and Moutinho, 1997). Muslim customers have the opportunity to place their investment in a bank that complies with their religious beliefs. According to the writers, Non-Muslim customers have equal opportunity to either place their investment in Islamic banks or conventional banks. Under this circumstance, Islamic banks compete in the same market segment with conventional and foreign banks. Despite the difference, Islamic banks are still competing in the same market in terms of complementary products and services offered (Naser and Moutinho, 1997).