Macro-Economic Variables and Financial Performance of Islamic Banks in Kenya


  • Toel Ombaso Denis Kenyatta University
  • Dr. Joseph Theuri Kenyatta University



Islamic banks are financial institutions that adhere to the principles and guidelines of Islamic law, also known as sharia law. Based on economic theories and other practical considerations, Interest rates and inflation rates complement one another on the effects of the financial results posted by banks. Exchange rates have been found to have negative effects on performance outcomes posted by Islamic banks in Kenya. The study focused on the effect of interest rate, inflation and exchange rates fluctuations on financial performance of Islamic banks in Kenya. Four theories served as the study's foundation; demand pull theory, Purchasing power parity theory, Productivity Theory and Irving Fisher’s theory. The study shall focus on three licensed Islamic banks. A descriptive design was adopted. Secondary data template was used to collect data for the study. The study utilized a data collection schedule as its research instrument, gathering information over a period of 13 years (2009-2021). The descriptive data statistics such as mean; standard deviation were used to analyse quantitative data. Inferential statistics were used to draw conclusions on the link between macroeconomic variables and performance. There result was presented using tables, graphs and charts. The study found that interest rate, inflation rate and exchange rate fluctuation all had statistically significant effect the financial performance. It was concluded that macro-economic variables are significant predictors of financial performance of Islamic banks in Kenya. The study recommends that policy makers working at the Central Bank of Kenya should leverage the existing monetary policies in order to manage inflationary pressure in the country. It is necessary for CBK's policymakers to review the existing monetary policies to counter interest rates which have been found to have significant implication on financial performance. The senior managers working among Islamic banks in Kenya should leverage the macroeconomic variables in order to enhance the financial positions of their banks. The Islamic banks in Kenya should develop adaptive strategies to manage the impact of macroeconomic variables on their financial performance.

Keywords: Islamic Banking, Financial Performance, Macro-Economic Variables, Kenyan Economy, Sharia-Compliant Finance

Author Biographies

Toel Ombaso Denis , Kenyatta University

Postgraduate student, School of Business, Economics and Tourism, Kenyatta University

Dr. Joseph Theuri, Kenyatta University

Lecturer, Department of Accounting and Finance, Kenyatta University


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How to Cite

Toel, O. D., & Theuri, J. (2023). Macro-Economic Variables and Financial Performance of Islamic Banks in Kenya. Journal of Finance and Accounting, 7(11), 77–92.




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