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Consumer acceptance toward takaful in Pakistan: An application of diffusion

of innovation theory

Article  in  International Journal of Emerging Markets · July 2019

DOI: 10.1108/IJOEM-08-2017-0275

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IJOEM
14,4 Consumer acceptance toward
takaful in Pakistan
An application of diffusion of innovation theory
620 Muhammad Ali
Department of Business Administration, Iqra University, Karachi, Pakistan
Received 4 August 2017
Revised 4 June 2018 Syed Ali Raza
28 September 2018 Department of Management Sciences, Iqra University, Karachi, Pakistan
9 February 2019
18 February 2019
Accepted 22 February 2019
Chin Hong Puah
Universiti Malaysia Sarawak, Kota Samarahan, Malaysia, and
Hanudin Amin
Labuan Faculty of International Finance,
Universiti Malaysia Sabah, Labuan, Malaysia

Abstract
Purpose – The purpose of this paper is to determine the factors influencing customer adoption toward
takaful products in Pakistan.
Design/methodology/approach – The study used five attributes of diffusion innovation theory (DOI),
namely, relative advantage, compatibility, trialability, observability and complexity. Furthermore, the authors
introduced two additional constructs, namely, consumer awareness and religiosity to analyze the adoption
behavior of customers. A total of 365 questionnaires were distributed among the participants of the study. The
survey was conducted in the Karachi city where the respondents were the existing and potential users of takaful
products. The theoretical model of DOI theory was tested using structural equation modeling.
Findings – The findings report that complexity has a negative impact on the adoption of takaful, whereas
relative advantage, compatibility, trialability, observability, religiosity and consumer awareness shows a
positive and significant influence.
Originality/value – It is a noteworthy point that past literature is quite limited to investigate the
determinants of consumer intentions to adopt takaful products. Based on this argument, the authors build
the study to provide a scope and coverage in the field of Islamic insurance. The authors also expect that the
research will encourage and provide a venue for forthcoming studies to help policy makers and academicians
in this emerging business.
Keywords Pakistan, Takaful, Sharia compliance, Diffusion of innovation (DOI)
Paper type Research paper

International Journal of Emerging
Markets
Vol. 14 No. 4, 2019
pp. 620-638
© Emerald Publishing Limited
1746-8809
DOI 10.1108/IJOEM-08-2017-0275
1. Introduction
Insurance is a financial product that provides security to the policy holder against any
casualty or any unexpected incident. There are several insurance products: mortgage, auto,
asset protection home, dental, health and life. Among all these products, life insurance is the
most common product. The insurance company also provides several benefits such as
hospitalization facility, general health check-up and medicines, risk coverage on assets,
protection against fire and flood to the beneficiary in exchange for a specified premium
amount. The main components of an insurance product include death benefits, cash value
account and premium payment. The death benefit is associated with the amount of money
received by the beneficiaries upon the death of an insured person. The cash value component
of insurance product serves two purposes. First, it provides a savings account to an insured
person where the premium amount is accumulated and offers a living benefit. Second, the
capital from savings account accumulates with the tax-deferred basis that ultimately provides
the benefit of cash withdrawal while the person is alive. The amount of premium payment is
determined using actuarial valuations and mortality cost computed by the insurer.
 Globally, the insurance market in industrialized countries is well established and more Consumer
developed (Souiden and Jabeur, 2015). For instance, Re (2011) report indicates that Japanese acceptance
citizens invest approximately 8.6 percent ($3,472) of their annual income to the insurance toward takaful
sector. Additionally, the report further highlights a 79.1 percent market share of the
Japanese insurance market, 43 percent in the USA and 69 percent in France and UK. On the
other side, the developing or emerging countries insurance sector is still in its infancy stage.
Countries such as Algeria, Turkey and Tunisia represent 7.5 percent, 15.6 percent and 13.2 621
percent of the insurance market share of the total insurance market, respectively. On the
same token, past empirical studies suggest that the demand for insurance among the
Muslims has increased due to its several benefits (see Outreville, 1996; Khalid et al., 2010;
Browne and Kim, 1993; Chui and Kwok, 2008; Beck and Webb, 2003). This has gained the
attention of academicians to understand the issues related to insurance products in Muslim
economies. In this debate, Karich (2004) work argues that insurance is associated with some
negative and misfortune aspects of life. The possible reason could be the lack of consumer
awareness and their religious belief about the product.
In the takaful industry, the Islamic Insurance Company Ltd of Sudan is the world’s oldest
takaful company which was established in 1979. Since then, the demand for Islamic
insurance has attained significant growth by adding more than 100 takaful operators
around the globe (Md Husin et al., 2016). These Islamic insurance service providers have a
major contribution in Bahrain, Kingdom of Saudi Arabia, Malaysia, Pakistan and Turkey.
Maysami and Kwon (1999) state that Islamic insurance is similarly popular in non-Muslim
countries such as Muslim-dominated countries. They further add that Singapore and
Australia have a sufficient market share of Islamic insurance. The high growth in takaful
has attributed to several indicators, such as a consumer level of education, consumer’s
income, awareness, religious behavior and the development of Islamic financial products
(Sherif and Shaairi, 2013). Additionally, insurance products are associated with several
problems which ultimately decline their client behavior to adopt insurance products
(Mathew and Sivaraman, 2017; AL-Alhassan et al., 2015). However, Islamic insurance still
far behind the conventional insurance scheme, particularly in family insurance
(Ahmad et al., 2012, 2013). Additionally, there is still need to determine Muslim intentions
to adopt takaful, particularly in developing countries (Mohd et al., 2010; Zuriah et al., 2008;
Ahmad et al., 2012; Souiden and Jabeur, 2015; Akhter and Hussain, 2012). This will benefit
takaful operators in making strategies and widen the demand for takaful products
(Souiden and Jabeur, 2015).
According to Souiden and Jabeur (2015), the daily life of Muslims is deeply influenced by
religion. Their religious practices are directly associated with businesses, namely hotels,
banking and insurance companies. However, some countries such as Turkey, United Arab
Emirates (UAE), Malaysia and Turkey are more liberal in their religious beliefs. In these
countries, civil law and Islamic laws work together; consequently, the business environment
is not much influenced by the Islamic ideologies. This means that citizens of conservative
countries are less liberal than those of liberal states. Alserhan (2011) states that some
Muslims behave against the Islamic laws. They consume alcohol, take interest on bank
deposits and dine at non-halal food restaurants. This means that the religious belief of
Muslims vary; therefore, the impact of Islamic laws on their lifestyle and selection of Islamic
products could be different, too.
To determine the customer adoption toward takaful products, we select Pakistani
context due to several reasons. First, takaful products mainly target Muslim consumers, and
the majority of the population in Pakistan belongs to the Muslim community. Hence, our
research is more relevant and the findings are useful for takaful operators. Second, the
Pakistan takaful market has attained a significant growth during the past few years, but an
untapped takaful market raises some questions related to customer adoption. According to
IJOEM the Ismail et al. (2017), a country such as Pakistan is a small contributor to the world takaful
14,4 market. The argument further signifies that the Gulf Cooperation Council (GCC) region
contains a greater market share of 77 percent, whereas 15 percent global market share
remains with Southeast Asia. The remaining 8 percent share is occupied by Pakistan
Bangladesh and some Western countries. This indicates that there exists a need to analyze
the adoption behavior of takaful products among Pakistani consumers. Third, takaful
622 industry inside Pakistan has faced numerous challenges related to greater market share,
effective market strategies, and policy issues. These challenges are related to lack of
consumer awareness, poor risk management, inefficient management practices and
inadequate benefits of takaful products to consumers and others. Additionally, this has also
created an intense competition between conventional insurance and takaful industry.
Therefore, the present research is an attempt to provide support for the above-highlighted
issues and challenges.

What is takaful?
The insurance is a need of an individual which is associated with insurance products.
Particularly, in the context of Muslims, Islamic insurance (takaful) fulfills the insurance
needs of Muslims. Takaful is an alternative to conventional insurance that follows Islamic
laws (Sharia compliance). The literal meaning of takaful is “responsibility or guarantee” and
is derived from an Arabic verb “Kafalah” (Billah, 2003). Therefore, Islamic life insurance
distinguishes itself from conventional life insurance on the basis of Sharia rules. Karich
(2004) explains that takaful is an agreement between participants to pool their monetary
resources and protect themselves against unpredictable future events. Another study of
Farooq et al. (2010) argue that Islamic insurance provides protection against damages and
loss that may occur due to unforeseeable incidents. The participants of the insurance pool
mutually guarantee that if any member of the pool suffers from a calamity or a tragedy, the
affected member will receive financial assistance to settle the damage and losses incurred.
Moreover, the takaful scheme also provides a profit-sharing mechanism among the
participant that emerge from takaful operations. This implies that the pool money of takaful
participants is used for two basic purposes, namely startup administrative expenses, and
capital investment, and the profit generated by the investment is deposited into the pooled
fund, whereas the management fee and administrative expenses are deducted from the
received profit. Additionally, the surplus is only paid after the obligation of needy
participants is completed.

How is takaful different from conventional insurance?

A number of key features distinguished the takaful system from conventional insurance:
(1) Contract – the conventional insurance offer sale and purchase contract in which a
person buys the insurance product and the company is liable to pay compensation in
the event of misfortune. On the other side, a takaful contract follows strict sharia
rules and is based on the Tabarru contract (donation).
(2) Participant’s rights and obligations – in conventional insurance, the insured person
must avoid any deliberate or unnecessary risk. The premium amount should be paid
on or before the due date while an insurance company is responsible to compensate
the policy holder when an unforeseen event occurs. Moreover, the takaful concept
follows the underlying concept of investment and cooperation. Also, the role of
takaful company is to manage the funds (Mudarib) and act as a trustee while the
participant takes precautions to safeguard himself and pay regular contribution
during the insurance period.
 (3) Ownership of risk – in conventional insurance, the insurer has to bear the risk while Consumer
takaful scheme participants take the collective ownership of risk (bear equally risk). acceptance
(4) Mutual/cooperative insurance – the non-Islamic cooperative insurance company is toward takaful
solely owned by its policyholders and retained their profits or rebated in the form of
dividends to the policyholders. In contrast, Islamic cooperative insurance gives
priority to social values, Islamic religious and moral concerns. In modern time, it is
characterized by three main aspects of mutuality, namely mutual protection from 623
losses, mutual help and mutual responsibility.
(5) Operation mechanism – conventional insurance operations do not follow Islamic
laws. Their operations are based on the shifting and transferring of risk to a group
from an individual. Additionally, the sharing of loss is equally divided on the
members of the group. In takaful, their operations are based on different Islamic
modes, namely profit-sharing (Mudharabah), donations (Tabarru), agent-based
model (Wakala) and Al-Waqaf-based model.
(6) Status of the nominee – the conventional insurance provides insurance benefits to
the nominee while the takaful scheme offers benefit to the nominee in accordance
with the procedure of Islamic inheritance (Faraidh).

Sharia context of takaful

In view of the Islamic perspective, insurance must not contradict the requirements and
practices of Sharia laws. Although it is a source of help to the needy person by pooling the
resources, the Sharia guidelines restrict the Islamic insurance (takaful) mechanism from
unlawful elements, namely interest (riba), uncertainty (gharar) and gambling (maisir).
In essence, takaful operations strictly comply with the guidelines provided by Sharia
(Md Husin et al., 2016). According to Muslim jurists, conventional insurance is forbidden
due to its inconsistency with Islamic principles (Engku-Ali et al., 2008). In conventional
insurance operations and contract, the loaned or invested money generates interest
amount which reflects the element of riba. The uncertainty and ambiguity refer to the
gharar concerning the transactions that are involved in conventional insurance.
Additionally, the element of maisir increases when an insured person draws money more
than the premium amount paid (Mahmood, 1991). Concerned with these challenges,
Islamic scholars have proposed takaful (mutual or cooperative insurance) concept as an
alternative to conventional insurance. Under the takaful scheme, the concept of takaful
system is purely based on mutual cooperation and assistance between the takaful
members, protection and assurance.

Overview of takaful industry in Pakistan

In Pakistan, the concept of takaful is quite old; however, its proper implications are
relatively new. In 1983, the government of Pakistan assigned a role to Islamic Ideology
Council of Pakistan to propose a framework of Islamic insurance. Since then, Islamic
insurance faced numerous transformational challenges and experiences due to its
complexity and Islamic in nature. In 2005, the Islamic Ideology Council established the
rules for the Islamic way of insurance in the country. The first takaful company, namely
Pak-Kuwait takaful company limited started their operation in 2006 and followed the
Wakal-Waqf model. Additionally, the insurance sector of Pakistan is regulated by
the Securities and Exchange Commission of Pakistan (SECP). At present, there are one
state-owned and three general takaful operators working in the industry. According
to the CEO of Pak-Qatar family takaful company, the total market share of insurance
sector contributes 0.9 percent to the gross domestic product of Pakistan whereas takaful
IJOEM sector has a market share of 13 percent in the overall insurance sector. The SECP has
14,4 recently issued a license to five non-life insurance companies to enhance the takaful
market. The regulators also expect a total of 20–25 new takaful entrants by the end of the
year 2018.

2. Literature review
624 Theoretical foundation
The adoption of a new concept is well explained by Rogers Everett’s (1995) DOI theory,
which is built on two levels: the initiation and the implementation. The DOI theory is a
concept to analyze the phenomenon of new technology adoption. Roger further indicated
that the initiation stage would be finished as soon as a new idea is recognized. He further
explained the implementation stage as a decision taken by an individual to accept or reject
the innovation. Moreover, the DOI framework is a seminal work of diffusion models.
Jamshidi et al. (2015) considered DOI theory as the most prominent work which
comprehensively built our understanding in psychology and sociology for explaining the
process involved in the adoption of innovation among the population.
Based on the above arguments, this research considers the DOI framework as an ideal
approach to use in the context of takaful adoption. Using DOI theory, our investigation
considers takaful as a new idea in the presence of conventional insurance that would
determine the adoption behavior of people takaful in Pakistan. Eastin (2002) suggests that
the concept of innovation should be analyzed on the basis of their characteristics. Therefore,
our investigation used DOI factors to establish the concept of takaful (as new idea) in the
Sharia-based literature. Additionally, we believe that takaful benefits (relative advantage),
the lower level of understanding (complexity), the fulfillment of current need and values
(compatibility), the customer ability to use takaful product or services in a given time
(trialability) and, finally, visibility of takaful profits (observability) will influence the
customer adoption to use takaful.

Diffusion innovation theory (DOI)

The diffusion innovation theory (DOI)) was first proposed by Rogers (1962) followed by
later editions of this framework (Rogers, 1999, 2003). In the past literature, the DOI concept
has been widely used in the area of innovation acceptance behavior (Owolabi Yusuf and
Mat Derus, 2013; Ali and Puah, 2017; Echchabi et al., 2014, 2015; Ayinde and Echchabi,
2012; Jamshidi and Hussin, 2013; Amin et al., 2013). It can be applied to both organization
and individual levels (Rogers, 2003). The theory defines innovation as an idea, object or
practice which is perceived by an individual while the diffusion is a process where
innovation is communicated to the social system. Through this way, the member’s adopt
or reject the innovation (Rogers Everett’s, 1995). In our study context, we connect the
social system with the takaful industry, its services, products and so on. As discussed
previously, the Islamic insurance has recently emerged in Pakistan; therefore, we
associate takaful as a new idea (innovation) while its diffusion is related to the process of
takaful. This approach is also adopted by Ali and Puah (2017) who consider the Islamic
bank as an innovation in Pakistan. Furthermore, the DOI theory involves four key aspects:
the innovation, the social system, the time factor and the communication channels to
spread knowledge about the innovation. Additionally, the decision-making process of
potential adopter follows five stages: knowledge, persuasion, decision, implementation
and confirmation stages. Moreover, Rogers Everett (1995) suggests that the rate adoption
have further five attributes: relative advantage (RA), complexity (COMPX), compatibility
(COMP), trialability (TRI) and observability (OBS). The further explanation of these
attributes is discussed in the following section.
Some empirical literature on DOI Consumer
This study conceptualized takaful as a new idea due to its Islamic nature which conventional acceptance
insurance does not possess. We used Roger’s (2003) DOI theory to construct our concept of toward takaful
takaful as innovation in Pakistan. Ezeh and Nkamnebe (2018) stated that the DOI theory has
viability to implement in the process of innovation adoption. In Country such as Pakistan, we
found limited literature on the DOI concept, particularly in takaful adoption.
Yahaya et al. (2014) used DOI theory and considered only four factors, namely compatibility, 625
perceived risk, complexity and relative advantage. Due to specific research objectives, the study
replaced uncertainty factor by perceived risk and add customer involvement as an additional
variable. Moreover, Ezeh and Nkamnebe (2018) argued that some innovations may not be
adopted and required long-time to adopt, while some new ideas may be accepted easily and
required less time to spread among the adopters. The possible reason could be the desirability of
innovation (Erol et al., 1990; Gerrard and Cunningham, 2003; Erol and El-Bdour, 1989).
Moreover, the key determinants of DOI theory produced significant results on customer
adoption toward a new idea (Ezeh and Nkamnebe, 2018; Jamshidi et al., 2015; Ali and Puah, 2017).
Similarly, past studies introduced various factors in the DOI framework such as Thambiah et al.
(2010) used uncertainty and consumer awareness; Jamshidi and Hussin (2013) introduced attitude
and trust; Thambiah (2015) employed promotional and information quality; Owolabi Yusuf and
Mat Derus (2013) added voluntariness, visibility and image; Amin et al. (2013) combined theory of
planned behavior and DOI framework; Ali and Puah (2017) used consumer awareness; Ezeh and
Nkamnebe (2018) presented religiosity, profit and loss sharing, consumer awareness, uncertainty
and information quality in the DOI framework. Hence, it is concluded that DOI had been a choice
of researchers, particularly in adoption of innovation studies.

Hypotheses development
Figure 1 shows the proposed theoretical framework for customer adoption toward takaful
products in Pakistan. The hypotheses development is discussed in the following sections.

Relative advantage
Rogers (1999) explain relative advantage as a perception of an individual that considers
innovation or new idea is better than the existing system. In the same year, Yusof (1999)
argued that relative advantage is useful in determining the perception of a person toward a
new idea or innovation. Additionally, the relative advantage also indicates the benefits
received from an innovation in the social system (Rogers, 2003). In our research, we associate
relative advantage with takaful product (financial solutions, secure and reliable services, staff
competency) and the economic benefits (incentives, profit earnings, service charges) for the
customers. In previous empirical studies, the relative advantage has a positive impact on
adoption behavior (Arts et al., 2011; Frambach and Schillewaert, 2002; Abbas et al., 2017; Sanni
et al., 2013; Kaabachi et al., 2016). On the other side, Gerrard and Cunnigham (2003) state that a
new idea or innovation may have sub-categories namely, social prestige of a person, time, cost
and discomfort and economic profitability. Therefore, an individual may assume that takaful
product to be more beneficial (relatively) in the presence of other insurance products. Based on
the past study results, we formulate the following hypothesis:
H1. Relative advantage will have a positive significant effect on the adoption of
takaful products.

Complexity
Complexity is defined as a level of perception that reflects the risk attached or difficulty level
to use an innovation (Rogers, 2003). Yusof (1999) stated that a new idea or innovation is a
IJOEM Relative
14,4 Advantage

Complexity

626

Compatibility

Adoption of
Trialability
Takaful

Observability

Consumer
Awareness

Figure 1.
Theoretical framework Religiosity

combination of complexity and simplicity. This highlights the different level of complexity
whether an innovation is easy or difficult to use. We associate complexity with an individual’s
perception whether he would consider that takaful products are Sharia compliance or not. Past
studies supported a negative relationship between complexity and the customer adoption
toward an innovation (Rogers Everett, 1995; Gerrard et al., 2006; Ram and Sheth, 1989;
Gerrard and Cunningham, 2003; Abbas et al., 2017; Sanni et al., 2013; Kaabachi et al., 2016).
Following past studies recommendations, we report the following hypothesis:
H2. Complexity will have a negative significant effect on the adoption of takaful products.

Compatibility
Compatibility has been defined as a level to which an innovation or new idea is consistent
with the needs of consumer past experiences, existing sociocultural beliefs and values
(Rogers, 2003). Similarly, Gerrard and Cunningham (2003) state that customer
expectations, values and beliefs about an innovation are mainly associated with their
adoption behavior. In Pakistan, the insurance sector is dominant by the conventional
insurance system while the takaful concept is perceived as new and compatible for them.
Additionally, this allows customers to experience their religious beliefs of Sharia
compliance insurance products. Moreover, the consistency (conventional insurance
concept felt the need) should be tested for interest-free products and services (Thambiah
et al., 2010). Following Nørskov et al. (2015), Sanni et al. (2013) and Kim and Galliers (2004)
findings, we expect a positive relationship between compatibility and takaful adoption. Consumer
Hence, following hypothesis is proposed: acceptance
H3. Compatibility will have a positive significant effect on the adoption of takaful products. toward takaful

Trialability
Rogers (2003) refers trialability as customer experience of an innovation under a limited time 627
period. Earlier studies report that customers prior experience (trialability) of a new idea has
a positive impact on the rate of future adoption (Ali and Chin-Hong, 2015; Sanni et al., 2013;
Gardner and Amoroso, 2004; Hausman and Stock, 2003). Moreover, the uncertainty about an
innovation decrease over trialable services (Rogers, 2003). In this study context, takaful
services and products are intangible which required careful attention to respond the need of
takaful adopter; hence, greater acceptance of takaful system is expected. Based on these
arguments, we suggest the following hypothesis:
H4. Trialability will have a positive significant effect on the adoption of
takaful products.

Observability
The observability explains the visibility of innovation outcome to the population (Rogers,
2003). Thambiah et al. (2010) argued that an innovation some time required a communication
channel to provide its explanation while some new ideas are easy to understand and do not
require any communication mode. Similarly, Yusof (1999) and Gerrard and Cunningham
(2003) suggest that the visibility of intangible services are difficult to understand. This means
that the takaful products need a clear medium of communication for customers to show their
better visibility. In this research, we consider takaful services are intangible in nature and
required extra efforts to highlight their product features. In past empirical studies, Yusof
(1999) and Nørskov et al. (2015) found a positive and significant impact of observability on
innovation. Therefore, we proposed the following hypothesis:
H5. Observability will have a positive significant effect on the adoption of takaful products.

Consumer awareness
The consumer adoption or acceptance of an innovation may refer to their level of awareness.
Consumer awareness is a pre-contemplation stage before an individual starts knowledge,
persuasion, decision and confirmation phase to accept a new idea (Rogers, 2003). Previous
studies have greatly analyzed the consumer awareness (see Haron et al., 1994; Bashir, 2013;
Sathye, 1999; Sanni et al., 2013; Kaakeh et al., 2019; Gerrard and Cunningham, 2003; Khattak,
2010; Yusof, 1999). However, past studies paid less attention to consumer awareness in
Sharia compliance studies (Thambiah et al., 2010). Therefore, it is expected that the rate of
consumer adoption toward takaful will increase if they are more informative about the
takaful system. Following hypothesis is reported:
H6. Consumer awareness will have a positive significant effect on the adoption of
takaful products.

Religiosity
Religiosity can be explained as the specific religious belief and practices held by an
individual (Delener, 1993). Religiosity has a direct influence on human attitudes, behaviors
and lifestyles (Weaver and Agle, 2002; Cyril De Run et al., 2010; Gill et al., 2018).
IJOEM In particular, religiosity plays a significant role in our daily life. Fam et al. (2004) report that
14,4 religiosity is a part of the societal culture and its long-term phenomenon cannot be ignored
by marketers. Moreover, the Pakistani society has a greater portion of Muslims where
Sharia guidelines are still not established among the individuals. This is because Islamic
products are in its infancy stage and require more time to establish in the market. Islamic
culture strictly follows Sharia rules which further promotes insurance companies to offer
628 takaful products. In the past literature, Noland and Pack (2007) state that religiosity is
harmful to the economy at both macro and micro levels. He further added that greater is the
religious behavior of the consumers, the more they tend to be anti-market. Since Islamic
rules prohibit interest-based activities, most of the Muslims do not follow this principle due
to the lack of understanding to perceive the Islamic way of doing business (Alserhan, 2011).
However, earlier studies have built a consensus that religiosity, particularly in an Islamic
context, plays a positive role to determine customer’s adoption behavior. Thus, following
hypothesis is suggested:
H7. Religiosity will have a positive significant effect on the adoption of takaful products.
The rest of the study is organized into following sections: second section discusses
methodology, third section presents result estimations and fourth section concludes the
research and suggests policy implications.

3. Methodology
Sample
To assess the adoption behavior of customers toward Islamic insurance, we collected our
sample data from the respondents who reside in the biggest city of Pakistan (Karachi). The
reason to select the Karachi city is that it is a metropolitan city and all the major business
head offices, including insurance companies, are located in Karachi. This study uses a
convenience sampling (non-probability) approach by using a survey-based questionnaire.
This sampling technique has been widely used under primary data sets and found
cost-effective (Zikmund, 2003). A total of 430 questionnaires were distributed among the
respondents of which 365 were usable. This shows that the response rate of our study is
84.88 percent. In addition, we ensure the adequacy of our sample size by following the
Comrey and Lee (1992) approach.
The demographic characteristics of the respondents were analyzed using descriptive
statistics. According to Table I, 74 percent were the male respondents and 26 percent were
female. The 83 percent of the respondents were married, whereas 17 percent were single.
Similarly, most of the participants were aged between 31 and 40 and represent 32 percent of
all respondents. The education level of respondents indicates that the most of them are
graduate and make 42 percent of participation. Our sample data have a greater involvement
of private employees with 45 percent while the majority of the respondents’ income level
was in between PKR16000-25000 (39 percent) in the overall sample.

Instrument
This study used a survey-based questionnaire and employed a quantitative method of
research to collect the sample data. A total of 34 questionnaire items were adapted from the
past literature (Thambiah et al., 2010; Sanni et al., 2013; Ali and Puah, 2017; Ali and Raza,
2017; Bashir, 2013). All the items were measured on five points Likert scaling (1 ¼ strongly
disagree to 5 ¼ strongly agree). These items were carefully designed to measure customer
adoption behavior toward takaful. Additionally, our instrument is divided into two sections.
The first section contains demographic variables, namely gender, marital status, age,
education level, occupation and income level. The second section focused on eight variables,
which include one dependent and seven independent variables.
Demographic items Frequency Percentile
Consumer
acceptance
Gender toward takaful
Male 269 74
Female 96 26
Marital status
Single 61 17 629
Married 304 83
Age
Less than 20 13 4
20–30 73 20
31–40 118 32
41–50 94 26
50 and above 67 18
Education level
Primary school 34 9
Secondary school 126 35
Graduate 155 42
Postgraduate 39 11
Diploma 11 3
Occupation
Business man 129 35
Private employee 166 45
Government employee 70 19
Level of income
5,000–15,000 71 19
16,000–25,000 142 39
26,000–35,000 103 28
36,000 or above 49 13 Table I.
Source: Author estimations Profile of respondents

A pilot test was applied on a representative sample of 40 University graduate level students
to analyze the initial problems in the questionnaire. We also ensure the content and
construct validity of our questionnaire items by the market and academic experts. All
questionnaire items were stated in the English language while the pilot test results indicate
that our research instrument is understandable and can be useful to collect the sample data.

Data analysis
To analyze the sample data, we used AMOS 21 statistical package and applied structural
equation modeling with the maximum likelihood method. The measurement and structural
models were assessed in two-stages (Anderson and Gerbing, 1988). First, the measurement
and structural model are tested to determine the model fitness and psychometric properties
of constructs. Second, the structural model is evaluated to identify the direction and
strength of the relationships among the variables.

4. Results estimation
Model fitness
To assess the measurement and structural models, we first employed exploratory factor
analysis. The SPSS 22 package was used to identify the factor structure under varimax
rotation. We retained only those variables with factor loading greater than 0.50 with
IJOEM eigenvalues greater than 1 (Hair et al., 2009). Additionally, we attain eight factors, which
14,4 formed 34 items for further analysis.
To examine the psychometric properties and the dimensionality of the scale, we applied a
confirmatory factor analysis using the AMOS 21 package. The fitness of our both
measurement and structural models were evaluated by several goodness-of-fit indicators
namely, comparative fit index, Tucker–Lewis index, goodness-of-fit index, adjusted
630 goodness-of-fit index, normative fit index and root mean square error of approximation
(Hair et al., 2009; Anderson and Gerbing, 1988). As reported in Table II, all goodness-of-fit
indicators of measurement and structural model satisfy the minimum criteria; hence, our
both models are the best fit.
The other psychometric properties of the measurement models were also established
through reliability (internal consistency), convergent and discriminant validity. The
reliability of the constructs was calculated by Cronbach’s α-value. As shown in Table III, the
α-value for all measures meets the minimum criteria of 0.60 and showed adequate internal
consistency (Nunnally, 1978; Hair et al., 1995). Table III further reports that the average
variance extracted (AVE) of our constructs exceeds the minimum criteria of 0.50 and
established the convergent validity for all constructs (Hair et al., 1995; Fornell and Larcker,
1981). Finally, we computed the square root of average variance extracted (AVE) value to
ensure the discriminant validity of the model. Hair et al. (1995) suggest that the square root
of AVE should be greater than it’s inter construct correlation value. As shown in Table IV,
the square root of AVE values of the constructs satisfy the desirable criteria, hence
confirming the discriminant validity.
Based on the above discussion, it is, therefore, concluded that our measurement model
represents valid and reliable factor. The next step is to assess the research hypotheses using
the structural model of the study.

Hypotheses testing
The results of the hypothesis testing and their path coefficients are reported in Table V. The
standardized regression weights (SRW) and p-values indicate that our all seven hypotheses
are accepted. In particular, RA (SRW ¼ 0.039, p o 0.10), COMPT (SRW ¼ 0.075, p o
0.05), TRIL (SRW ¼ 0.155, p o 0.001), OBS (SRW ¼ 0.113, p o 0.10), CA (SRW ¼ 0.435,
p o 0.001) and RELG (SRW ¼ 0.021, p o 0.10) have a positive significant influence while
COMPX (SRW ¼ −0.265, p o 0.001) shows a negative significant effect on the adoption of
takaful. These findings suggest that H1–H7 are supported. The implications of our
hypotheses testing are discussed in the following section. Thus, it is confirmed that our
hypothesized model for takaful is acceptable.

Discussion on results
As expected, the level of complexity negatively impacts the customer adoption toward
takaful products. Our finding is in accordance with Abbas et al. (2017), Thambiah et al.
(2011), Rogers Everett (1995), Ram and Sheth (1989) Gerrard et al. (2006) and Kaabachi et al.
(2016). However, our results contradict the argument of Echchabi and Aziz (2012a, b) who
argued that consumer perception toward Islamic products has no relationship. On the other

Goodness-of-fit measures CFI TLI GFI AGFI NFI RMSEA (PCLOSE)

Threshold values ⩾0.90 Close to 1 ⩾0.85 ⩾0.80 Close to 1 ⩽0.05 (W0.05)

Measurement model 0.964 0.958 0.898 0.886 0.878 0.037 (0.989)
Table II. Structural model 0.943 0.937 0.880 0.879 0.868 0.032 (0.978)
Model fit table Notes: Measurement model – 34 items; Structural model – 34 items
Constructs Items Loading Cronbach’s CR AVE
Consumer
acceptance
Religiosity (RELG) RELG1 0.817 0.909 0.910 0.669 toward takaful
RELG2 0.861
RELG3 0.811
RELG4 0.792
RELG5 0.806
Relative advantage (RA) RA1 0.769 0.812 0.813 0.601 631
RA2 0.763
RA3 0.777
Complexity (COMPX) COMPX1 0.681 0.820 0.814 0.523
COMPX2 0.694
COMPX3 0.784
COMPX4 0.761
Compatibility (COMPT) COMP1 0.601 0.795 0.809 0.559
COMP2 0.684
COMP3 0.675
COMP4 0.723
COMP5 0.739
Trialability (TRI) TRI1 0.598 0.749 0.740 0.517
TRI2 0.756
TRI3 0.692
TRI4 0.618
Observability (OBS) OBS1 0.804 0.786 0.804 0.583
OBS2 0.860
OBS3 0.722
Consumer awareness (CA) CA1 0.668 0.809 0.811 0.562
CA2 0.703
CA3 0.704
CA4 0.637
CA5 0.682
Adoption of takaful (AOT) AOT1 0.742 0.846 0.848 0.527
AOT2 0.779
AOT3 0.689 Table III.
AOT4 0.757 Psychometric
AOT5 0.657 properties of the
Source: Author’s estimation constructs

Construct RA RELG AOT OBS CA COMPT COMPX TRIL

RA 0.770
RELG −0.120 0.818
AOT 0.354 0.024 0.726
OBS 0.159 0.043 0.146 0.763
CA −0.067 0.669 0.064 0.084 0.749
COMPT 0.365 0.004 0.487 0.099 0.015 0.747
COMPX 0.435 0.024 0.474 0.040 0.022 0.204 0.723 Table IV.
TRIL 0.398 −0.039 0.638 0.097 0.032 0.623 0.402 0.719 Discriminants validity
Note: Diagonal values (in italic) are the square root of the AVE of construct

side, Rogers (2003) work highlights the importance of how-to knowledge in the innovation-
decision process when the situation is more complex related to the new product. Kaabachi
et al. (2016) opined that the adoption behavior for innovation required a sufficient and prior
level of how-to knowledge in the decision-making process. Based on these arguments, our
IJOEM Hypothesis Path SRW p-value Remarks
14,4
H1 RA→AOT 0.039 0.062* Accepted
H2 COMPX→AOT −0.265 0.000*** Accepted
H3 COMPT→AOT 0.075 0.048** Accepted
H4 TRIL→AOT 0.155 0.000*** Accepted
H5 OBS→AOT 0.113 0.082* Accepted
632 H6 CA→AOT 0.435 0.000*** Accepted
H7 RELG→AOT 0.021 0.097* Accepted
Table V. Notes: RA, relative advantage; COMPX, complexity; COMPT, compatibility; TRIL, trialability; OBS,
Structural model observability; CA, consumer awareness; RELG, religiosity. Dependent variable ¼ adoption of takaful.
assessment *p o0.10; **p o0.05; ***p o0.001

results imply that more complex is the Sharia compliance knowledge of takaful products the
lesser is the chances to adopt them by the consumers.
Moreover, compatibility shows a significant positive influence on the customer adoption
toward takaful products. This finding provides agreement with earlier studies of Ayinde
and Echchabi (2012), Nørskov et al. (2015), Kaabachi et al. (2016), Kim and Galliers (2004),
Sanni et al. (2013), Doraisamy et al. (2011) and Thambiah et al. (2011). The result implies that
our respondents have faith in the takaful product and its compatibility. They further
assume that takaful products are consistent with their ethical values, religious belief and
fulfill their expectations in terms of financial needs.
This study established a significant positive relationship between compatibility and
customer adoption toward takaful. This result shows consistency with the findings of
previous studies (Sanni et al., 2013; Hausman and Stock, 2003; Martins et al., 2004; Hsbollah
and Idris, 2009; Gardner and Amoroso, 2004). This means that as soon as the customer
perceives that takaful products are trialable according to Sharia laws, there are likely
chances to increase the rate of adoption. The possible argument could be that takaful
operators provide opportunities to understand and use their product before implementation,
which results in greater adoption.
The study determined a significant positive relationship between observability on
customer adoption toward takaful products. The finding is similar to prior studies who also
found this relationship as positive and significant (Nørskov et al., 2015; Yusof, 1999; Martins
et al., 2004; Hsbollah and Idris, 2009). The result signifies that takaful companies use
effective communication channels to provide a better image of takaful products among the
adopters. This increases the ease of customers to visualize the financial benefits of takaful
products under the Sharia compliance structure.
Similarly, awareness of takaful service has a positive significant effect on customer
adoption of takaful products. This result provides support to the findings of previous studies
(see Rammal and Zurbrugg, 2007; Echchabi, 2012; Abdullah and Abdul Rahman, 2007; Bizri,
2014; Ayinde and Echchabi, 2012; Thambiah et al., 2010; Sanni et al., 2013). This shows that
the increase in customer awareness leads to the increase in the adoption behavior toward the
takaful product. The possible implication of this results could be that takaful companies in
Pakistan are successful in generating consumer awareness to use takaful services.
Finally, our findings report that religiosity has a positive significant impact on the
adoption behavior of customer toward takaful products. The result is in line with the
findings of other studies (see Cyril De Run et al., 2010; Weaver and Agle, 2002; Vitell et al.,
2005; Souiden and Rani, 2015; Ali and Raza, 2017; Alam et al., 2012). This indicates that the
customer is more likely to adopt takaful products under the influence of high religious belief.
The reasonable argument could be that customer perceive takaful products as Sharia
compliance which meets their financing requirements according to the Islamic principles.
 Based on DOI assumptions, our hypotheses testing results conclude that consumers are Consumer
ready to adopt takaful. Since we included consumer awareness and religiosity constructs in acceptance
the DOI model, results also indicate the importance of these constructs. In other words, the toward takaful
adoption of takaful required consumer awareness and more sharia compliance. Both factors
(CA and RELG) will support adoption behavior when consumers are aware of takaful and
its sharia compliance nature. This will also help consumers to satisfy their financial need
and gain confidence on takaful. 633
5. Conclusion
The aim of this research is to investigate consumer adoption toward takaful products in
Pakistan. It appears that the relative advantage has a positive significant impact on customer
adoption toward takaful. The result is consistent with those of Aziz et al. (2011) Arts et al.
(2011), Kaabachi et al. (2016), Abbas et al. (2017), Frambach and Schillewaert (2002) Thambiah
et al. (2012) and Echchabi and Aziz (2012b). This concludes that our research has successfully
implemented the theoretical assumptions of DOI theory in the context of Islamic insurance.
Additionally, our results from hypotheses testing also indicate that Islamic insurance provides
better economic benefits, competent staff, secure and reliable financial solutions.

Theoretical and policy implications

The findings of our research provide significant contributions to the literature. From a
theoretical viewpoint, our study results contribute to the existing body of knowledge in
several ways. First, to our knowledge, this is the first attempt to determine the customer
adoption toward takaful in Pakistan. Second, the results provide support to the Islamic
literature by testing and extending a well-known Roger’s diffusion of innovation theory
(DOI). There are many studies which have used the DOI framework, but the takaful context
is not significantly explored under this theoretical approach. Third, since Islamic finance is
new in Pakistan, our study has filled the gap provided by previous studies, as it is necessary
to conduct researches on Sharia compliance products where Islamic finance is observing its
nascent stage (Ajili and Ben Garra, 2013; Ltifi et al., 2016; Slimene et al., 2014; Bougatef et al.,
2012; Souiden and Jabeur, 2015; Boulila Taktak and Ben Slama Zouari, 2014; Belaid, 2013;
Kaabachi et al., 2016).
Apart from contributing to the existing literature, the findings of this study provide some
useful policy implications for takaful managers and advertisers to develop effective marketing
strategies. Our findings indicate that relative advantage, complexity, compatibility, trialability,
observability, consumer awareness and religiosity are the significant determinants of customer
adoption. The study findings also confirm that consumer awareness is the most influential
factor that determines adoption behavior. In past, several studies have used DOI theory
highlighting that marketing communication plays an important role in the success of
innovation (Schiffman and Kanuk, 2004; Rogers, 2003). The argument implies that takaful
companies should create some awareness programs and use electronic and social media to
generate information for the adopters. Similarly, the knowledge-based activities of takaful
products will also provide support in building customer awareness. This can also be done
through public relations, personal selling, sponsorships, leaflets and brochures. Additionally,
the interpersonal communication with satisfied and happy customers may reduce their
uncertainty related to takaful products. Not only this, takaful companies should also focus on
the quality of communication and information provided to the adopters as it is customer’s right
to get beneficial, accurate and reliable knowledge concerning takaful products. This can also be
done by explaining the takaful objectives, Islamicity of the product, benefits relative to
the conventional insurance program and others. The takaful operators should also highlight
the contributions of takaful sector in country’s socio-economic development and provide the
ease of use in order to fulfill customer’s insurance need.
IJOEM Limitations and future studies
14,4 This study has some limitations which set the direction for future researchers. First, the
study collected data solely from takaful users. Future studies should consider a comparative
analysis between conventional and Islamic insurance to extend the existing literature.
Second, the study is conducted in the Karachi City and has geographical limitations.
Forthcoming studies should be conducted to target other cities and rural areas to gain more
634 insights related to takaful products. Third, the variables we used in this study are limited to
the DOI framework with the inclusion of consumer awareness and religiosity. Therefore,
future studies may introduce some new and relevant factors (attitude, demographic
elements, trust, service quality, corporate image, promotional tools and subjective norm) to
extend the theoretical concept of DOI. Fourth, we believe that our research will provide a
foundation for forthcoming studies particularly in other parts of the world where takaful
can be considered as a new idea. Despite these limitations, this study presented some
meaningful understanding of customer adoption toward takaful products in Pakistan.

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Further reading
Rogers, E.M. (1983), Diffusion of Innovations, 3rd ed., Collier Macmillan Publishers, New York, NY.

Corresponding author
Muhammad Ali can be contacted at: alisaleem_01@yahoo.com

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