Growth Related Challenges Facing Islamic Banking Windows In Kenyan Conventional Banks

Abstract

Kenya’s Islamic finance business is rapidly developing, getting well incorporated and mainstreamed into the worldwide financial architecture, nonetheless, not well comprehended by the majority of Kenyans. Islamic banking provides for financing instruments where profits and losses are equally shared by the bank and the customers in equitable proportion. They provide better opportunities for the business to share the actual proceeds received by the investments to the depositors. Islamic windows have become the stepping stones by providing opportunities to build capacity at the minimal overheads while the conventional banks are re-structuring for conversion. However, the Islamic windows are faced with growth challenges that need to be addressed. This study looked at regulatory and Institutional frameworks; availability of Islamic market and tradable financial instruments; competition from fully-fledged Islamic banks; and socio-cultural factors and how they affect the growth of the Islamic windows. Descriptive and Cross-section Survey Design was used for the study where questionnaire and interviews was the instrument for data collection. A target population of 32respondentswasused comprising of (18) bank management officials and (14) Sharia’h board members drawn from all the conventional banks with Islamic windows in Nairobi. Descriptive statistics including arithmetic mean, standard deviation, percentages and frequencies was used to analyze responses to the questionnaires. Inferential statistics including multi-collinearity, regression, correlation analysis, ANOVA model, and T-test will be used as significance test and specification tests. The results were tabulated or presented in charts. The study showed that only regulatory framework was significant in explaining the growth of Islamic windows. However the availability of Islamic tradable instruments affected growth positively while competition from fully fledged bank and socio-cultural factors affected growth negatively even though not significantly. The study recommended for clear regulatory framework that will help conventional banks realize there objectives of making profit as they embrace Islamic windows. There was a need to have variation of products in the market so that customers’ expectations are met. Finally further studies need be conducted to identify the other determinants of growth of Islamic windows.