A comparative study on corporate governance practices of Sharia compliant banks and conventional banks in Kenya

Abstract

This study made a comparison of the corporate governance practices between Shariah Complaint Banks (SCB) and conventional banks in Kenya. Islamic banking was introduced in Kenya in early 2008, and hence only two SCB exist. Islamic banking is facing some great challenges worldwide as the financial system favors conventional banking practices more. SCB deal in Islamic principles and practices as Shariah law prohibits interest dealing activities. Therefore, they engage in profit and loss element. To date, no study has attempted to investigate corporate governance practices in SCB in Kenya, as this is a relatively new type of financial institution worldwide. Objectives of the study were to carry out a comparative study on the corporate governance structure in SCB and conventional banks and to highlight basic principles involved in SCB transactions. To accomplish this, primary and secondary data were collected from the population of 43 banks, 2 SCB, and 41 conventional banks. Questionnaires were sent to 43 banks in Nairobi to collect primary information; and a 75% respondency rate was achieved, as some did not manage to complete the questionnaires. The questionnaires were then coded in the Statistical Package for Social Sciences (SPSS) computer software for analysis of the responses and later a narrative report was written. Quantitative data for the study for the study was extracted from the following annual financial reports: profit and loss accounts, balance sheets and cash flow statements, and a period of 4 years was considered (2008 to 2011). Chi-square and anova tests were used to analyse the data, and a number of findings were noted and recorded. The study concluded that corporate governance practices carried out by SCB versus conventional banks were not much different, as anticipated earlier and further research may have to be carried out in the future to state another opinion.