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Abdihakim Hassan Aress - Masters Student, Kenyatta University, Kenya

Dr. Farida Abdul (PhD) - Lecturer, Department of Accounting and Finance, Kenyatta University, Kenya


The economic growth of a nation is largely determined by its financial institutions, particularly its banking industry. Kenya has a diversified financial system that includes both Islamic (interest free) and conventional banks. Three fully fledged Islamic banks have emerged and numerous institutions have opened branches that provide Islamic banking solutions to its customers. Islamic banking has sprouted and had a favorable bearing on the economy in spite of client misinformation, regulatory hurdles and excessive liquidity. Consequently, it is necessary to consider the magnitude of this influence in Kenya. Given the limited literature in this field, existence of contextual, conceptual, methodological and information gaps, this task sought to scrutinize the effects of Islamic banking products on Kenyan banks’ financial performance with specific focus of how profit and loss sharing products, asset backed financing products and contract and safety products affect financial performance of banks in Nairobi County Kenya. The project was guided by theory of intermediation, stakeholders’ theory and theory of Islamic banking. The study employed a descriptive research approach. The study target population was 853 respondents forming unit of observation from the 8 banks that provide Islamic banking products that formed unit of analysis. The sampling design was stratified sampling that gave a sample of 240 respondents. Both Primary and secondary data were used with primary data being gathered via questionnaire and secondary data drawn from financial statements of the banks from a period of 2017 to 2021. The raw data was scrutinized using descriptive and inferential statistics. Descriptive statistics focused on standard deviation and means whereas inferential statistics focused on establishing the relationship between Islamic banking products and financial performance of banks using a multiple regression model. The analyzed data was presented using tables, diagrams and graphs. Ethical considerations were fully adhered to. The study found that product and loss sharing products and asset backed financing products all individually had a statistically significant effect on financial performance and therefore rejected. On the other hand, contract and safety products was statistically insignificant and therefore not rejected. This study recommends the utilization of Mudarabah product, Musharakah product, Murahaba, istisna, Salam and Ijara and pooling resources together to help improve the performance of banks in Nairobi County Kenya.

Full Length Research (PDF Format)