The Impact of Financial Inclusion on the Performance of Islamic Banks in Kenya

Abstract

Theoretically, Islamic banking should be founded with three positive goals in mind: removing interest (Riba) and all other Sharia-compliant transactions; implementing Islamic profit-loss sharing models; and using Islamic investment standards when distributing financial resources to support social progress. Along with promoting economic development in the long run, these goals will guarantee adherence to Sharia and its principles and will undoubtedly result in macroeconomic monetary stability in the near term. Because Islamic finance adheres to Shariah rules, it has gained increased recognition in recent years. Islamic finance has adopted fintech to improve its products and give its clients more efficient and convenient financial solutions as a result of the financial technology industry's rapid improvements. Proponents of financial inclusion have shown that Islamic banking can handle the problem through risk-sharing arrangements and wealth transfer processes. Its importance in fostering social engagement and economic justice has also been highlighted, enabling a more equal allocation of prosperity. This study aims to determine the effects of financial inclusion on the financial performance of Islamic banks in Kenya. A descriptive study approach was required for this research project. Since the goal of the study is to gather detailed information through descriptions and is useful for identifying relationships in variables, a descriptive design is thought to be appropriate for this investigation. All Kenyan commercial banks that provide Islamic banking products made up the study's population. They consist of four conventional banks with Islamic windows and two fully operational Islamic banks. From the findings which regressed bank size, number of transactions, electronic payments, and savings accounts against financial performance as determined by ROA from the observations, the R square is 0.522, meaning that the independent variables are responsible for 52.20 percent of the deviations in financial performance. With a significance of 0.000, those factors not covered account for 47.8% of the variances in financial performance. A number of economic and personal factors affect financial inclusion, despite the fact that it is essential to an economy. Therefore, determining how these factors impact Kenya's degree of financial inclusion and the causes of their fluctuations is essential.