Factors influencing Islamic banking in Kenya: A case study of Nairobi County

A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters of Business AdministrationThe purpose of this study was to establish what factors influence utilization of Islamic banking and financial services in Kenya. The study sought to answer the following research questions, “What is the level of knowledge and attitude among Kenyans about the existence of Islamic banks and the various products and services they offer?”, “What socio-cultural factors influence the choice of Islamic banking or financial services in Kenya?”, How does political or government regulations affect Islamic banks in Kenya?”. Through this study, an attempt was made to know whether customers from different age brackets, gender, educational qualification, professional background acted differently while selecting Islamic or Conventional banks. The research furthered examined how government policies and regulations including infrastructural development influenced Islamic banking. A descriptive survey design was used. One hundred and twenty five respondents were randomly sampled from four Islamic and Conventional Banks operating in Nairobi-Kenya. Quantitative data was analyzed using SPSS version 22.0 while the qualitative data will be analyzed by consolidating emerging themes. The sample size was selected using Fisher’s sampling technique and reduced to one hundred and twenty five respondents for quality and accuracy purposes. Data collected from the respondents suggests that there are a number of factors that influence Islamic banking in Kenya. The study found that majority of those surveyed had heard of Islamic banking and financial products with some of them being very knowledgeable about them. Religious affiliation was the number one cited reason for choice of Islamic banking and financial services for Islamic users. Other reasons given were that: it offers cheap products, banks are conveniently located and other ethical reasons. The convenience of banking with an institution followed by the level of interest it offers ranked highest among respondents in terms of differentiating services offered by different banks. The consumers also preferred banking institutions with; high levels of confidentiality, that could provide financial advice, that offered fast and efficient transactions and they were least concerned with whether the institution provided Islamic banking or financial services. The research also found that most people are aware of government regulation on banking services in Kenya. Some of the areas regulated by the government are: consumer protection, administration, branching and in agency banking. In Kenya, those surveyed were mostly aware of consumer protection than the other forms of government regulations. Despite all these regulations, respondents were still divided on whether these regulations affect the choice of banking preferred by a consumer. The study concluded that, both Islamic and conventional banks create competition among banks to satisfied customers and fulfill their expectations and long-term benefits for the economy. The conventional banks and the Islamic banks are different commonly based on their goals, Riba and risk sharing practices. The foregoing discussion has identified a number of factors that influence the choice of Islamic banking services over conventional banks. It is encouraging to note that there are more new users opting to have Islamic banking and financial services. The study further recommends the need for Islamic institutions to market their products and services extensively in order to reach more Kenyans and create awareness. It also suggests that Islamic banks should tone down religious affiliation in order to appeal to non-Muslims. Moreover, government regulations should be applied on banking services in Kenya and be customized for the different institutions that have different services