The Effect of Liquidity Risk Management on Financial Performance of Sharia Compliant Banks in Kenya

Abstract

The study sought to illustrate the effect of liquidity risk management on financial performance of Sharia Complaint Banks in Kenya. Risk management plays a key role in financial institutions and largely determines the progressive and going concern of most financial enterprises. Shariah compliant banking is growing exponentially in the middle East and has recently gained popularity in Kenya and many parts of the world. Indeed, it is estimated to have a far greater potential (of $4.2 Trillion as at 2014 only) compared to the growth that has been witnessed thus far (of 1.66 trillion as at the same period) hence the interest of this study. Indeed, in estimation with economic hope, that Islamic finance will be in a magnitude accounting for 50% of all banking assets within a decade‟s timeline in Islamic countries. The study conducted descriptive analysis by adopting linear regression using SPSS Statistics to measure the link between the variables (independent and dependent) and to interpret and report the results and therefore explain the direction and degree of the relationships existing through coefficients. The study found out that with more credit facilities to customers, there is an existence of a negative influence on the financial performance of Shariah Compliant banks whereas increased customer numbers and savings has a positive influence on the worth of banks in terms of capital strength and the risk to core ownership. The study therefore, concludes that there is a direct liquidity risk management influence on the financial performance of the Shariah Compliant Banks.