Effect Of Islamic Micro Finance On Financial Performance In Kenya

Abstract

The objective of the study was to evaluate the effect of Islamic micro finance on financial performance. This study employed a descriptive research. The study utilized secondary data. Annual data on Islamic finance was sourced from the financial statements of the fully-fledged Islamic banks. The gathered covered a period of 10 years that is, 2009 – 2018. Data analysis was done using Statistical Package for Social Sciences (SPSS) to generate quantitative reports which were presented in the form of tabulations, percentages, mean and standard deviation in presenting a clear picture of the effects of Islamic finance on financial performance. To test the statistical significance the F test was used to test the overall importance of the whole model whiles the t – test was used to test the importance of the coefficients at 5% level of significance level. To ascertain this chi-square test and a comparative analysis of the trends in financial performance for the seven-year average of the financial performance using. There was a weak positive correlation between Islamic finance and financial performance. This is an indication of a strong correlation an indication that Islamic finance lead to improved financial performance. A regression model was applied to determine the relationship between Islamic finance and financial performance. From the regression model, the study found out that adoption of Islamic finance enhances financial performance. The independent variables that were studied explain a substantial 21.55% of the changes in financial performance. This therefore means that the independent variables contribute 25.5% of the financial performance while other factors and random variations not studied in this research contribute 74.5% of the financial performance. The study therefore, recommends that a legislative framework should be put in place to enhance the regulation of the industry as well as amendment of the Banking Act to incorporate Islamic Banking concepts.