The Effect of Islamic Banking Products on the Financial Performance of Commercial Banks in Kenya

Abstract

Islamic financial services industry has experienced a remarkable growth over the last four decades. Islamic banks are struggling against conventional banking and non-banking financial institutions, existing pool of Islamic commercial banks and insurance companies. To survive in this strategic rivalry, Islamic banks must understand and use the customer satisfaction issues under existing privileges given by Islamic Shari'ah. The overall objective of the study was to establish the effect of Islamic banking products on the financial performance of commercial banks in Kenya. The study was anchored on agency theory, stakeholder’s theory, and the modern portfolio theory. The study assumed a descriptive research design that targeted at exploring the effect of Islamic banking products on the financial performance commercial banks in Kenya. The Target population of this study was all the commercial banks offering Islamic products in Kenya. Secondary data on Islamic banking products for the financial years 2012-2016 was obtained from the financial statements of conventional banks that offer Islamic banking products. Descriptive analysis was employed. The study revealed that both Murabaha and Musharakah have a positive influence on the financial performance of Commercial banks offering islamic products in Kenya. This research‘s findings also established that there is a positive relationship between Commercial banks offering islamic products financial performance and asset quality. This research also concludes that Commercial banks offering islamic products financial performance rises with increase in proper management of expenditures and also that a positive relationship between Commercial banks offering islamic products financial performance and capital adequacy exists.