Factors affecting SMEs’ choice of banks in Oman: an emphasis on Islamic banks

Abstract

Purpose

Commercial banks are the catalysts for meeting the financing needs of small and medium enterprises (SMEs). However, not all commercial banks are equally attractive to SMEs because of differences in banking services’ key attributes. Moreover, customers’ preferences vary between Islamic and conventional banks. This paper aims to identify factors motivating SMEs to establish business ties with banks in Oman.

Design/methodology/approach

The authors collected data from 217 SMEs through a questionnaire survey. The data were analyzed using a t-test and structural equation modeling (SEM). In addition, the research applies the theory of planned behavior as a theoretical framework.

Findings

The t-test results show that SMEs place greater emphasis on electronic banking, convenient locations, religious beliefs and favorable terms and conditions. The results from the SEM analysis show that the SMEs in Oman consider attractive packages, including favorable rates, transaction processing time, fees and the availability of technology-enabled services, when choosing a bank. Moreover, customers who are aware of Islamic banking products are optimistic about the future of Shariah-based banking.

Originality/value

As a Muslim-majority country, Oman lags behind its Gulf Cooperative Council peers in terms of the development of the Islamic banking system. For the success of this mode of financing, it is essential to know which factors SMEs prioritize to establish ties with Islamic banks. Hence, the research is expected to provide new information for bank management to devise financial products attractive to investors.

Citation

Miah, M.D., Kassim, N.M., Zain, M. and Usman, M. (2024), "Factors affecting SMEs’ choice of banks in Oman: an emphasis on Islamic banks", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 17 No. 6, pp. 1320-1341. https://doi.org/10.1108/IMEFM-04-2024-0179