Abstract:
This study examines the effect of Islamic finance on the Eastleigh Business Community,
Nairobi, Kenya, by analyzing the financial performance of the businesses that accesses the
Islamic Financing overall period of 3years (2011-2013). The study particularly examines the
effect of short term financing, long term financing and equity financing on the financial
performance of Muslim owned businesses. The study employs the use of information on the
type of financing accessed and more specifically return on Asset to measure the performance
of the sampled firms that had access to Islamic financing. The 155 firms in textile industry
was undertaken for this study however, the businesses also needed to have been in operation
for at least 3 years as at December 2013. Out of the 155 firms the study was able to find 95
firms out of which only 55 firms had been in existence for over three years as at December
2013. Therefore our target population was these 55 firms. Primary data was collected using
questionnaires. Stratified Sampling was used to come up with 43 firms that fully responded to
questionnaires and formed the study. Descriptive statistics, regression and correlation
analysis was used to analyze the variables. The relationship between short term financing and
firm’s performance was positive and more specifically, cost plus sales was the most
significant of all the types of short term. Long term and Equity financing was insignificant to
the study. The findings are important to policy or law makers and Authorities such as capital
markets authorities to construct and enact policies that would foster business growth without
disregarding the Islamic Religion. The study may also be used for further research on related
topic. The study recommended review and development of legal framework to fully
incorporate Islamic financing to mainstream finance options in Kenya, need for promotion
and awareness of the services and also recommended further research on Manufacturing and
Construction industries to understand effect on long term financing.
