Macro-Economic Variables and Financial Performance of Islamic Banks in Kenya
DOI:
https://doi.org/10.53819/81018102t5291Abstract
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
References
Adebola et al. (2011). Are Macroeconomic Factors Substantially Influential For Islamic bank financing, IOSR Journal of Business and Management, 18(6). 20-27
Akobeng, A. K. (2007). Understanding diagnostic tests 3: receiver operating characteristic curves. Acta paediatrica, 96(5), 644-647. https://doi.org/10.1111/j.1651-2227.2006.00178.x
Athukoral and Tsai (2003). Savings Determinants of Moroccan banks, International Journal of Innovation and Applied Studies 9(2):968-973. morocco, November 2014
Bourke (1989). The Determinants of European Bank Profitability, Journal of Applied Finance & Banking, vol. 4, no. 1, 2014, Evidence from Syria.
Harris (2012). Effect of Islamic Banking Financing Strategies on Customer Satisfaction in Kenya IIIE (International Institute of Islamic Economics) (1999), IIIE’s Blueprint of Islamic Financial System, Islamabad: IIIE.
Holgersson, H. E. T. (2004). Testing for multivariate autocorrelation. Journal of Applied Statistics, 31(4), 379-395. https://doi.org/10.1080/02664760410001681693
John R. Presley & John G. (1994). Sessions, Islamic Economics: The Emergence of New Paradigm, Loughborough University of Technology, Department of Economics. https://doi.org/10.2307/2234633
Keynes, M. (1936). Theory of Income, Employment, Interest & Money. New York. Polygraphic Company of America.
Kibe (2003). Relationship between interest rate spread and financial performance of commercial banks in Kenya, Research Paper 1, University of Nairobi
Kipng’etich (2011. The relationship between interest rate and financial performance of commercial banks in Kenya, International Journal of Advanced Research (2016), Volume 4, Issue 5, 17-26
Mansur and Elyasiani (1995). Impact of interest rate and exchange rate volatility on banks' stock returns and volatility, Economic Modelling, Volume 28, Issue 3, May 2011, Pages 1328-1334. https://doi.org/10.1016/j.econmod.2011.01.015
Midi, H., Sarkar, S. K., & Rana, S. (2010). Collinearity diagnostics of binary logistic regression model. Journal of interdisciplinary mathematics, 13(3), 253-267. https://doi.org/10.1080/09720502.2010.10700699
Mugenda & Mugenda, (2003). Research Methods: 1st Edition, Published by ACTS, Nairobi, Kenya.
Mugenda & Mugenda, (1999). Research Methods: 1st Edition, Published by ACTS, Nairobi, Kenya
Nienhaus, V. (1983). Profitability of Islamic PLS banks competing with interest banks: problems and prospects, Journal of Research in Islamic Economics, 1, 31-39
Siddiqui, N. (2002). The Wisdom of Prohibition of Interest: LaRiba Annual Conference. Los Angeles, C.A. March 30, 2002.
Syed and Shafique (2011). Determinants of profitability of Islamic banks in Pakistan, interdisciplinary journal of contemporary research in business VOL3, NO:11, MARCH 2012
Tariq, A. & Masih, M. (2016). Risk-sharing deposits in islamic banks:do interest rates have any influence On them? Future Business Journal3 (2017)1–8
Usmani, M. T. (1999). The Historic Judgment on Interest Delivered in the Supreme Court of Pakistan . Karachi, Pakistan: albalagh.net
