Adoption of Islamic Banking on Financial Performance of Commercial Banks in Kenya

Abstract

Islamic banking has continued to gain ground in the Kenya banking sector with 2 banks operating as fully fledged shariah compliant commercial banks and 7 being prototype opening a window for Islamic banking products. The uptake of Islamic banking products is expected to grow to US$ 1.6 trillion by 2018. The study premeditated at determining the consequence of embracing of Islamic banking on financial performance of commercial banks in Kenya. The study was conducted through descriptive survey design. It employed the use of secondary data in which financial information from 9 commercial banks was analyzed. Results of the study were presented in a regression equation. The study found that Islamic banking ratio contributed most to the financial performance of commercial banks followed by liquidity ratio, efficiency ratio, capital ratio, and finally bank size. The study revealed that adoption of Islamic banking by commercial banks had a positive consequence on the financial performance of commercial banks in Kenya. The study recommends similar studies be undertaken in Eastern part of Africa for comparison purpose because most studies on Islamic banking has concentrated in West Africa and Asian countries.