Measurement Constructs for Personal Financial Capability in Islamic Finance: Evidence on Zanzibar

Abstract

This study conceptualises the constructs and indicators to assess the individual's financial capability in Islamic finance. This study applied an exploratory approach by reviewing the literature about financial capability and literacy. Besides, this study used convenient sampling to obtain questionnaire respondents across the Zanzibar region. This study performed exploratory and confirmatory factor analysis to determine the validity and reliability of the conceptualised measurement constructs and indicators. The factor analysis confirmed three constructs of personal financial capabilities in Islamic finance: attitudes towards Islamic finance, Islamic financial literacy, and Shari’ah compliance financial behaviour. Besides, this study proposed eleven indicators to measure the three proposed constructs of individual's financial capability in Islamic finance. The original contribution of this study is to conceptualize and validate the measurement constructs and indicators for personal financial capability from an Islamic finance perspective. This study extends to the Islamic financial capability model by incorporating attitudes towards Islamic finance, Islamic financial literacy and Shari’ah-compliant financial behaviour. The proposed measurement constructs are useful for researchers and service providers in Islamic finance and banking to evaluate the ability of a person to make viable financial decisions based on Islamic principles.