The Role Of Islamic Banking On Economic Growth In Kenya

Abstract

Islamic Banking has become ever popular in the last three decades, not only in Arab and Islamic world but also in other parts of the World. However, despite over four decades of experience of Islamic banking and finance, the industry has its critics, both Muslim and non-Muslims. Islamic finance products and services are often accused of mimicking those of the conventional financial system, while some criticisms consider the Islamic financial system as window dressing. Thus, this study sought to examine the role of Islamic banking on economic growth in Kenya. The study adopted a quantitative research design. The population of interest comprised of two fully-fledged Islamic banks in Kenya and four other banks that offer Islamic banking services in Kenya. The study utilized secondary data from financial statements of the Islamic for a period of six years from 2008-2014. The data collected was analyzed using the Karl Pearson correlation and multiple linear regression using the statistical package for social studies. The study findings established that the level total savings had a positive relationship with economic growth while total advances have a negative relationship with economic growth. The study conclude that an increase in savings in Islamic banks stirs economic growth while a decrease in lending inversely affects economic growth while increase in lending by Islamic banks stirs economic growth. The study recommended that Islamic banks should develop effective policies on deposit mobilization as this would increase their total deposit hence more funds which they can advance inform of credit.