The Effect of Islamic Banking Products on the Perfromance of Small and Meduim Enterprises in Nairobi County

Abstract

Small and Medium Enterprises (SMEs) essential in various nations, predominantly in emerging economies This investigation adds to the growing number of literatures and figures out the situation in Kenya by examining the effect of Islamic banking products on the performance of SMEs. This study examined the relationship between Islamic banking products and financial performance of SMEs in Nairobi County between 2013 and 2017. The main goal of the investigation is to verify the influence of Islamic banking products on performance of SMEs in Nairobi County. Data on Islamic financial products and financial performance were obtained from 39 companies using a secondary data. By way of the Ordinary Least Squares (OLS) regression, the outcomes pointed out that there is a positive link between Islamic banking products and financial performance. Regression model was performed in the analysis of data to estimate the quantitative effect of Islamic banking products on the financial performance of SMEs in Nairobi County. The investigation established a Pearson correlation value R of 0.651 which depicts that there is a linear dependence of Islamic banking products on return on assets (ROA). R square revealed that Islamic banking products attributes influenced about 42.4% of variation in return on asset. The value of adjusted R square was established to be of 33.1% which clearly brought out that the link between Islamic banking products and ROA of SMEs. Generally, the study ascertained that there significant link between Islamic banking products and financial performance of SMEs in Nairobi County. Overall, the results indicate a statistically significant effect of Islamic banking products on financial performance the results partially concur with the theory of Islamic banking.