Islamic banking and investment financing: a case of Islamic banking in Kenya
The purpose of this study is to establish the effect of Islamic banking on investment financing in Islamic banks in Kenya. This study employed descriptive survey design. The population of this research consisted of 8 commercial banks offering shariah compliant products. The study used secondary data. Loans advanced to customers were collected for a period of four years (2009 to 2012). Data was analyzed using Statistical Package for Social Sciences (SPSS) and results were presented in frequency tables and figures. The data was then analyzed in terms of descriptive statistics like frequencies. means and percentages. The study findings indicated the relationship on how Islamic banks use their investments as loans advanced to customers to finance Islamic banks products. Islamic bank products are the independent variables. The investment is the dependent variable. The products included motor vehicle financing, mortgage financing, asset financing, real estate financing, trade financing and SME financing. The study also indicated that there were various modes of financing used by Islamic banking such as profit and loss sharing, Ijara and murahaba. Regression results revealed that motor vehicle financing was statistically significant in explaining loans advanced to customers in Islamic banks. SME financing were not statistically significant in explaining loans advanced to customers in Islamic banks but they were positively correlated. The study concluded that there was a gradual increase of motor vehicle financing in the year 2010 followed by slight decrease in the following year and then stabilized as it remained constant at 10%. The gradual increase in 2010 could be because the country was healing from post election violence and people were ready to start ventures allover again and the decrease in following years was may be due to fears of elections in 2013.The study concluded that mortgage financing as a source of investment had an inconsistent pattern as the percentage decreased in the year 2010 and increased rapidly in 2011 to 12.5% and then decreased again in 2012. The inconsistency can be explained by more investors using other Islamic banking products for financing more than mortgage financing. Overall it was possible to conclude that the Islamic banking products have spread in the banking sector as all the financial products have been used to a high percentage across the years. The study recommends that the more time may be required for the unique characteristics of Islamic financial instruments to be completely accepted and understood by both bank personnel and customers. It is also recommended that the terms and conditions of acquiring a loan be made more appealing and considerate for more investors to approach the banks for assistance as the Shari' ah restricts the type of businesses for which Islamic banks can provide financing. For example, they are not permitted to participate in certain prohibited investments or joint venture projects considered to be detrimental to the individual, society, or the environment.