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Finance, Accounting and Business Analysis 
Volume 4 Issue 2, 2022 

http://faba.bg 

Applying a Binary Logistic Regression Analysis to Evaluate the 

Distinction between Conventional and Islamic Banks: A Case Study of 

Djiboutian Banks 

Sadik Aden Dirir  

Faculty of Law, Economics, and Management, University of Djibouti, Djibouti 

Info Articles  
 

Abstract 

Keywords:  
Conventional bank, Islamic bank, 
Logistic regression, size. Customer 
trust, interest rate framework, 
accessibility and Djibouti. 

 

 The banking sector has developed dramatically during the past decades. Many 
banks were established and prospered. However, the experience in each banking 
sector can be non-identical based on many factors. Therefore, it will be ideal to 
investigate every aspect of conventional and Islamic banks prior to deciding which 
bank is favorable. The actual paper compares the conventional and Islamic banks in 
Djibouti to identify which types of banks customers would find advantageous. In 
that context, variables such as the size of the banks, accessibility, financial 
instruments, and customer interest rate were explored. Moreover, a binary logistic 
regression analysis was utilized in order to analyze the responses of 200 individuals 
who use Djiboutian Islamic and conventional banks. Generally, the findings 
revealed that individuals have the likelihood to prefer CAC international bank 
which is a conventional bank over Salam Africa bank. Moreover, the predictors (the 
bank’s size, and accessibility) displayed a none significant p-value that is over 0.05. 
Whereas customer trust and the interest rate exhibited a significant p-value. The 
current research is significant to better comprehend the main factors that drive 
Djiboutian individuals to select a specific bank for their deposits. The findings will 
also contribute to the wide discipline of literature that always discussed the gap that 
exists between Islamic and conventional banks. 

 

  

   

*Address Correspondence:   
E-mail: sadikaden1999@gmail.com 

 

 



Finance, Accounting and Business Analysis 4 (2) 2022 

100 

 

INTRODUCTION 

 

Djibouti is a small country located in the east of Africa. In recent years, it has known an impressive 

increase in the number of Islamic banks. The financial crisis in 2007 was the main reason for the banking 

sector to evolve. In the course of that period, Islamic banks were stable, which as result increased their 

popularity among depositors and financial investors (Imam P, 2010). Since it was a better alternative for 

the conventional bank’s failure. Few analysts even contended that Islamic banks are the most suitable 

choice to advance economic growth, and overcome full-scall of macro-financial failure over conventional 

banks. 

Nonetheless, will all of these features Islamic banks are still inferior compared to other conventional 

banks. For the reason that investors and depositors prefer a traditional framework (Dridi, J, & Hasan, M, 

2010) Islamic banks are mainly administered by shariah. Also, the guidelines are set up by the domestic 

countries. Whereas some Islamic banks are converted from conventional banks such as the banks in Iran 

and Sudan (Sundararajan, 2002). 

Religion is a fundamental factor to inspect market behavior, especially in the banking sector. Which is 

the case with Islamic banks that provides products\services based on Islamic principles (Junaidi, & 

Anwar, 2022) Consequently, Islamic and conventional banks are widely different in many dimensions. 

The main differences are that conventional banks use the commodity as money and employ it to lend and 

use the interest rate differential as compensation. While Islamic banks offer services such as profit & loss 

sharing and renting assets. 

In this paper, two banks from Djibouti were contrasted and evaluated. The first bank is a conventional 

bank (CAC international bank) a well-known bank among the Djiboutians because it achieved three 

consecutive years as the best bank according to global finance. The other bank is an Islamic bank (Salam 

Africa bank). This later offers a service that is in line with Islamic regulations. We highlight that a binary 

logistic regression analysis will be applied so that the Djiboutian citizen’s preferences and Salam Africa 

and CAC international bank can be assessed and compared. The approach selected for this is important 

since we will be evaluating dichotomous variables. 

In general, this research aims to evaluate the Djiboutian banking sector from both the Islamic and 

Conventional sides. Additionally, it has a goal to inspect customers’ tendency to drift to a specific bank.  

The findings revealed that individuals have the likelihood to prefer CAC international bank which is a 

conventional bank over Salam Africa bank. Moreover, the predictors (bank’s size, and accessibility) 

displayed a none significant p-value that is over 0.05. On the other hand, customer trust and the interest 

rate exhibited a significant p-value. 

The rest of the paper is classified as the following. Section 2 will offer a brief review of the previous 

articles. It will also present the methodology and the statistical approach that will be employed. Then in 

section 3 we will observe and interpret the findings. After that section 4 will comprise the discussion and 

finally, setion5 will provide a general conclusion. 

 

LITERATURE REVIEW 

 

A systematic review of the performance of Islamic banks and conventional banks 

The last subprime emergency uncovered the delicacy of the banking area and the customary financial 

framework was faulted for being the beginning of this emergency. (Smolo, E, & Mirakhor, A, 2010) allude 

to the contentions of the delicacy of the financial framework was overwhelmed by the high rate of interest 

rate obligation contracts. Simultaneously, various academicians and specialists express that Islamic banks 

did not experience the worldwide monetary crisis as conventional banks did (Yılmaz, 5 October 2009). 

This conviction has expanded the consideration of researchers in the examination of the Islamic 

financial framework in ongoing years. Notwithstanding the rising discussion on this issue furthermore, the 

fast development of Islamic banks mostly in Muslim nations, there are somewhat scarcely any 

observational investigations that dissect the exhibition of Islamic banks against conventional banks, 

particularly during the last worldwide financial emergency. (Ahmad & Luo, R, 2010) examined Islamic 

banks against Conventional banks including at the time of the financial crisis. At that time, they only 

examined just 9 Islamic banks and 33 conventional banks. The aftereffects of the review showed that 

Islamic banks are somewhat much more efficient and productive than conventional yet less allocative 

proficient, and both financial streams showed a most significant level of proficiency in 2007 and 2008. 

Notwithstanding the cross-country examination of productivity in Islamic and conventional banks, 

there are a few investigations that concentrate on the nature and development of banks. Hence, the authors 

characterized banks by their size and age in view of the size of resources furthermore, on the idea of new 

and old banks, separately (Hassan, Mohamad, S & Bade, M, 2009) Their discoveries show that proficiency 

scores of Islamic and conventional banks are not altogether shifted as well as the size and time of the banks 



Finance, Accounting and Business Analysis 4 (2) 2022 

101 

 

don't altogether impact their effectiveness score. A related examination was observed by (Isik & Hassan, 

K, 2002). 

Islamic banks have gotten significant interest from different financial backers, directors, and 

depositors, especially after the 2008-2009 GFC. In comparison to our study, previous papers mostly 

focused on the link between Islamic and conventional stock markets. See (Hussein & M. Omram, 2005) 

and (Ajmi, Hammoudeh, & Nguyen, 2014). Discovered that as the Islamic nations give better 

diversification gain contrasted with the East nations, with solid strategy suggestions for the homegrown 

and worldwide financial backers as far as their portfolio diversification through supporting against 

unanticipated risks (Saiti, B, Bacha, & M. Masih, 2014). Additionally, Authors such as (Dewandaru, & 

Masih, R, 2015) track down the distinctions in betas among those Islamic and conventional banks in the 

vast majority of the time span that are not statistically important. A couple of exemptions reveal an 

equivalent return with lower risks in the term of Islamic banks. 

 

The role of the bank’s size 

(Bikker, J. A, & K. Haaf, 2002) Illustrated the connection between rivalry circumstances and the 

market structure in the financial business. They revealed that rivalry is becoming more vulnerable in local 

business sectors and more grounded in global business sectors, inferring that the more the size of the bank 

is bigger the more competitive it will be. Additionally, (Berger, A, & W. S. Frame, 2007) track down that a 

more prominent market presence of huge banks essentially brings down the advance rate expenses of 

private venture credits. In any case, loan rate premiums expenses are not impacted by the loaning bank's 

size when the market presence of huge banks is thought of.  

(Hannan, T. H, & R. A. Prager, 2009). they contend that little and single market banks' benefit is 

profoundly connected with the existence of huge market banks in-country banking sector. They 

emphasized that an expanded presence of huge market banks adversely influences the benefits of little 

single market banks. What's more, huge banks' extreme market power is almost certain to prompt their 

imposing business model of prime credits, as their strength speeds up their pattern to borrowers with prime 

FICO assessments. Little banks have gigantic motivations to put resources into unsafe sub-or non-prime 

credits, which can adversely influence their monetary solidness. (Demsetz, & P. E. Strahan, 1997) and 

(Hughes, 1999) further exhibit that huge banks' monetary dependability has not improved as they have a 

motivating force to further develop productivity by putting resources into hazardous resources, in spite of 

the fact that they are preferred to broadened over little banks.       

(Kang, 2006) insist that monetary administrative specialists are less inclined to direct an exhaustive 

examination concerning enormous banks on the grounds that they are more perplexing than little banks 

and enormous banks can confront moral risk issues due to too big-to-fizzle. Likewise, enormous banks for 

the most part have higher credit rating scores than little banks and huge banks' financing costs are by and 

large lower than those of little banks. Accordingly, it might bring down huge banks' motivating forces to 

plan against pressing financing and to keep up with high fluid resource proportions. Generally, past 

writing shows that exorbitant banks leveling up unfavorably affects their monetary steadiness. 

 

Customer trust in Islamic and conventional banks 

Client trust and loyalty are considered the essence of client relationship management It is a huge 

component in firm endurance, given its critical relationship with productivity. The literature reports a 

positive connection between client loyalty and firm productivity. Tasks of Islamic banks depend on client 

direction to keep up with existing clients and draw in new are the essential client relationship goals that 

assist with supporting an association as per Shariah targets Seeking devotion of clients in this manner can 

be viewed as an element of relationship with the management in Islam (Firdaus, & Yusuf, 2014). 

(Reuters, 2018), disclose that out of 69 nations in the 2017 Global Islamic Banks' Execution Report 

82% announced benefits. Also, Islamic banks depend intensely on client trust to be productive. 

Development has begun to draw in non-Muslims to Islamic banks equal to Muslims. Non-Muslim clients 

by and large keep up with the relationship with regular banks that strategically pitch Islamic financial 

items. Notwithstanding, whether the client is Muslim or Non-Muslim, winning client trust stays the main 

concern of banks however with various (Kartika, T, Firdaus, & Najib, M, 2019). 

Islamic financial clients have exceptional motivation to interface due to their strict convictions. This is 

rather than customary banks that are just benefit situated. Islamic banking depends on Shariah consistent 

benefit and misfortune sharing (PLS) is the idea that infers that the client and the bank share benefits 

utilizing pre-decided proportions (Hati, & Wibowo, 2020). It was described that client commitment results 

from consumer loyalty to bank administration quality. The higher assistance quality compared with cost 

influences apparent worth. Consequently, an expansion in the perceived value of Islamic bank 

administration quality prompts more grounded client commitment (Moliner, 2018). 
 



Finance, Accounting and Business Analysis 4 (2) 2022 

102 

 

The interest rate differential between Islamic and conventional banks  

Conventional banks gain cash by charging revenue and expenses for administrations, though Islamic 

banks gain cash by benefit and misfortune sharing, exchanging, renting, charging expenses for 

administrations delivered, and utilizing other sharia agreements of trade. Several Islamic banks consider 

utilizing commercial rates of interest as nothing more than Riba and there have been a large number of 

discussions and endeavors to examine this issue. Some Islamic banks use loan cost as a kind of perspective 

to highlight and compute the necessary benefit return by giving some administrations as long as the sum is 

sure, the return is fixed, the task is exchange related and the bank has a veritable stake in the result. Be that 

as it may, since, Islamic bank exercises must be exchange-based, include real exchange, keep away from 

disallowed practices, and should be conveyed out with the greatest possible level of uprightness and great 

confidence as shariah imply it becomes complex. A few other Islamic Banks use Musharakah, to legitimize 

bank revenue.     

It implies that Islamic bank works based on benefit also, misfortune sharing. In the event that the 

financial specialist has endured misfortunes, the bank will share these misfortunes based on the method of 

money utilized (Mudarabah, Musharakah). In a conventional financial framework, interest is charged 

even in the event that the association endures misfortunes by utilizing the bank's assets. Accordingly, it did 

not depend on benefit and misfortune sharing as the Islamic banks do.     

Another distinction we have is the fixed deposit. The people who deposit their money in conventional 

banks get benefit from their interests as foreordained financing costs are independent of the bank's 

execution. Contrary to Islamic banking, bank depositors accept their profits, depending exclusively on the 

bank's achievement. Not at all like regular banks, an Islamic bank goes about as a delegate between the 

investor and the business visionary. Islamic banking will in general make an interface with the real areas of 

the financial framework by utilizing exchange-related exercises. 
 

The feature of accessibility in Islamic and conventional banks  

Along with the improvement of methods of reasoning relating loaning exercises to profound 

standards, Islamic banks started to pervade the market in both the Muslim and non-Muslim nations 

(Akhtar, 2007). This cycle reflected the developing acknowledgment that Islam's monetary and social 

messages were firmly adjusted (Hassan, A., Chachi, A, & Latiff, S.A, 2008). According to an essential 

perspective, the special elements of Islamic money have demonstrated the same time usefulness and 

uselessness. However, huge in its bid is the value-based exchanges and appropriations of hazards that 

ought to, in principle, lead to social government assistance gains (Kuran, 2004).  

Islamic banking has as a principal goal, the establishment of an adjusted and fair society, empowering 

the equivalent dissemination of abundance while disallowing exercises that might hurt people (Kamla, 

2006). Such aims and obligations expect banks to embrace moral speculations and keep away from 

syndications while treating their representatives and clients decently. The cultural and societal duty of 

Islamic monetary frameworks shouldn't be restricted to drawing nearer, teaching, and serving Muslims. 

All things being equal, the authors contend that everybody ought to reserve the privilege to consume 

Shariah-agreeable items, to secure business. And hold partakes in the organizations concerned (Badawi, 

1996). In terms of loans and financing accessibility, both banks differ. According to (Demirgüç-Kunt, A, 

2012) conventional Banks, a wide range of ventures are funded, just organizations considered illicit by the 

law are not supported. Whereas Islamic Banks don't allow funding to businesses that hurt the general 

public like liquor and tobacco. 

 

METHODOLOGY 

 

The sample and the data collection 

For this study to be conducted a sample size of 200 individuals from Djibouti was collected. The 

structure involves sending a questionnaire to a different category of people who use Islamic banks (Salam 

Africa bank) and Conventional banks (CAC international bank). At least 50 participants for every 

indicator are suggested (Field, 2013) which is why the sample size is over 50 in this study, Moreover, 

Leblanc and Fitzgerald (2000) recommend at least 30 perceptions for each autonomous variable. After the 

responses from the survey were gathered a binary logistic regression analysis was applied so that the two 

dependent variables will be inspected. See the conceptual model below. 

 

 

 

 

 

 



Finance, Accounting and Business Analysis 4 (2) 2022 

103 

 

 

 

 

 

 

 

 

Figure 1. Conceptual framework. 

 

 

Measurement and statistical analysis 

To investigate the various independent variables that are influencing the two probable outcomes in a 

study a logistic regression analysis is utilized so that the model will estimate the logit of the predicting 

factors on the dependent variables. The most agreed formula is written (Peng, 2002) and (James,2013). 

 

𝑙𝑜𝑔(𝑜𝑑𝑑𝑠) = 𝑙𝑜𝑔𝑖𝑡(𝑃) = I𝑛 (
𝑃

1 − 𝑃
) 

 

(

1) 

 

𝑙𝑜𝑔𝑖𝑡(𝑃) = α + 𝑏1𝑥1 + 𝑏2𝑥2 + 𝑏3𝑥3 +⋯  

(

2) 

 

𝑃 = (
exp⁡(𝑎 + 𝑏1𝑥1 + 𝑏2𝑥2 + 𝑏3𝑥3 +⋯)

1 + exp⁡(𝑎 + 𝑏1𝑥1 + 𝑏2𝑥2 + 𝑏3𝑥3 +⋯)
) 

 

(

3) 

 

The above formula can be described as the following where: 

P stands for the probability of a particular category. 

Exp signifies the exponential function. 

a is the intercept of the equation used and, 

b is considered the sloped of the independent variables. 

 

RESULT  

 

In table 1, we have the processing summary that highlights the total number of participants in the 

study 200 respondents composed of 68% males and 32% females. 

 

Table 1. Case Processing Summary 

  N Percent 

Included in Analysis  200 100% 

Males 136   68% 

Females  64   32% 

Missing Cases  0    0 

 

The coding in terms of the predicted variables consists of 1 for CAC international bank (conventional 

bank) and 2 for Salam Africa bank (Islamic bank). 

 

Table 2. Variable encoding 

 

Original Value  Internal Value 

CAC International bank  1 

Salam Africa Bank  2 

 

The model summary of table 4 illustrates a pseudo-R square of 65.4% change in the criterion variable 

that can be computed to the predictor variables in the model. 

 

  



Finance, Accounting and Business Analysis 4 (2) 2022 

104 

 

Table 3. Model Summary 

Step  -2 Log likelihood Cox & Snell R Square Nagelkerke R Square 

1     104.200a .434 .654 

a. Estimation terminated at iteration number 6 because parameter estimates changed by less than .001. 

 

According to (Lemeshow, S, & Hosmer, 2020) if the significance value is lower than 0,05 it means a 

poor fit. However, in our model, the significance is above 5% so it adequately fits the data see table 5. 

 

Table 4. Hosmer and Lemeshow Test 

Step  Chi-square df Sig. 

1   4.276 8 .831 

 

With the correspondence of the observed and predicted membership based on the model. We have a 

total of 153 cases were in the data to have selected CAC international bank as the first choice of 

preference. And 145 of those 153 were correctly predicted by the model to fully prefer CAC international 

bank. With an accuracy rate of 94.8% when it comes to predicting those who support conventional banks. 

On the other hand, 47 individuals expressed their preferences for Salam Africa bank. But, only 35 were 

correctly predicted by the model. Revealing a correct percentage of 74.5%. In general, the classification 

table exhibits 90% of our sample correctly being predicted to fall into their respective groups.  

 

Table 5. Classification Table 

  

First of all, we attributed 1= CAC international bank and 2= Salam Africa bank. The fact that some 

variables’ coefficients (bank size, trust, and accessibility) are below 1 indicates that CAC international 

bank is considered the most likely to be an advantageous bank for Djiboutian depositors compared to 

Salam Africa bank. Whereas in terms of interest rate framework Salam Africa bank is considered 

convenient to Djiboutians because of their Islamic belief. Nevertheless, the differences were not 

statistically significant in the bank’s size and accessibility predictor. While factors such as trust and interest 

rate framework displayed a significant p-value of 0.037 and 0.048 respectively which means that people 

select banks based on the trust they attribute to them and the different interest frameworks they offer. 

Moreover, since most of the predicting factors are reflecting coefficient values of less than 1, it means 

we have a decrease in the likelihood of falling into target groups as we increase our predictor variable. 

Therefore, CAC international bank would predominantly be preferred in terms of bank size (0.220), trust 

(0.382), and accessibility (0.132) in relevance to Salam Africa bank. And given the values are less than 1 

thus, it is going to be compatible with our coefficients. 

Additionally, the confidence interval (CI) for the odds ratio reveals that some of the predicting factors 

of 1 fall between the lower and the upper intervals which imply that there is no relationship between 

depositors selecting a bank based on (the trust, and interest rate framework).   

For instance, the bank’s size is equivalent to (0.802<1<1.933). While accessibility is (0.397<1<3.278). 

Inversely, the customer trust (1<1.023<2.101) and the interest rate framework (1<1.010<9.059) do not fall 

in the confidence intervals which confirms that the interest rate and customer trust are important 

predictors factor for people to select a bank. 

 

  

                                        Bank type    Percentage Correct 

                 

 

  CAC (Conventional)   Salam (Islamic)  

Step 

1 

  CAC  145 8 94.8 

  Salam  12 35 74.5 

 Overall Percentage 90.0 

 a. The cut value is 0.500 



Finance, Accounting and Business Analysis 4 (2) 2022 

105 

 

Table 6. Variables in the Equation 

   

The acceptable level of reliability for Cronbach's alpha is varied between 0.6 and 0.7. And in this 

study, the results displayed a high inner consistency and good reliability of 0.79. 

 

Table 7. Reliability Statistics 

Cronbach's Alpha N of Items 

0.796  6 

 

DISCUSSION 

 

Recently, the financial framework of the banking sector became complicated due to subprime crises, 

globalization, and the never-ending depositors’ and investors’ needs. In Djibouti, there are four Islamic 

banks and the people are drifting toward the services offered by those banks because it is convenient for 

their religious beliefs. However, with the increasing number of Islamic banks, Djiboutian depositors and 

investors still prefer a conventional framework as a means of financing. For instance, the findings 

demonstrated that the conventional banking framework (CAC international bank) is more advantageous to 

Djiboutian depositors and investors. Nearly 94,8% of the study participants displayed the likelihood to 

prefer it over Salam Africa bank. Furthermore, table 5 uncovered those factors such as (customer trust, and 

interest rate framework) unveiled a significant value of 0.037 and 0.048 sequentially when it comes to 

selection between conventional and Islamic bank. This indicates that interest rate is an indisputable tool to 

affect when choosing a conventional or Islamic financing service. Whereas (bank size, and accessibility) 

displayed insignificant value which implies that depositors and investors do not select a bank based on 

these previous factors. Additionally, the odds of individuals choosing Salam Africa bank offering an 

Islamic interest rate framework is 3,024 times higher than conventional banks with 95% of CI of 0.267 to 

0.842. Conversely, people selecting a conventional bank over an Islamic bank based on trust, size, and 

accessibility are 1.245, 1.466, and 1.141 higher.  

 

CONCLUSION AND IMPLICATION 

 

This paper evaluates the financial framework differences between two banks in Djibouti. Salam Africa 

bank, which is an Islamic bank, and CAC international bank a conventional bank. In order to conduct the 

analysis, a binary logistic regression analysis was applied. Additionally, to carry on with comparison 

several factors such as the bank’s size, customer trust, interest rate, and accessibility were investigated. The 

results presented that the conventional financial framework is preferred over the Islamic system among 

Djiboutian citizens. Moreover, the variables (bank size, and accessibility) revealed no significant value. 

Thus, rejecting these factors as essential factors to determine the reason why individuals select a specific 

bank. However, the interest rate and customer trust generated a significant value which implies depositors 

and investors choose a bank based on these variables as mean financing. The paper contributes to the wide 

literature that always contrasted the financial system of Islamic and Conventional banks. It also 

contributes to comprehending the behavior of individuals when choosing a specific bank. Additionally, to 

the theoretical contribution, the actual paper offers information about two banks located in Djibouti and 

the way their activities differ. For that reason, the availability of these data will provide Djiboutian banks, 

analysts, and the government to understand of the depositor’s and investors’ behavior. Even though this 

research compares two different financial frameworks in terms of (size, loyalty, interest rate, and 

accessibility) many other factors are still not investigated and the Djiboutian market is not fully assessed 

and analyzed in terms of the banking sector. Therefore, future studies need to be conducted to uncover all 

the discrepancies in the Djiboutian banking framework. For instance, inspecting the Djiboutian 

government’s role in promoting the Islamic and conventional banks. 

          B 

                         

S.E.        Wald            df          Sig  Exp (B) 

95% C.I.for EXP(B) 

     Lower       Upper 

Size .220 .224 .957 1 .328 1.245 .802 1.933 

Customer trust .382 .184 4.340 1 .037 1.466 1.023 2.101 

Interest rate Framework 1.107 .560 3.909 1 .048 3.024 1.010 9.059 

Accessibility .132 .538 .060 1 .806 1.141 .397 3.278 

Constant -5.794 .774 56.028 1 .000 .003   

a. Variable(s) entered in step 1: size, customer trust, Interest rate framework, Accessibility. 



Finance, Accounting and Business Analysis 4 (2) 2022 

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