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AN INVESTIGATION OF THE CHALLENGES FACING THE IMPLEMENTATION OF ISLAMIC BANKING IN KENYA A CASE OF ISLAMIC BANKS IN KENYA BY MAHAT MOHAMED AHMED STUDENT ID NO: 605714 UNITED STATES INTERNATIONAL UNIVERSITY
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AN INVESTIGATION OF THE CHALLENGES FACING THE
IMPLEMENTATION OF ISLAMIC BANKING IN KENYA
A CASE OF ISLAMIC BANKS IN KENYA
BY
MAHAT MOHAMED AHMED
STUDENT ID NO: 605714
UNITED STATES INTERNATIONAL UNIVERSITY
SPRING 2013
AN INVESTIGATION OF THE CHALLENGES FACING THE
IMPLEMENTATION OF ISLAMIC BANKING IN KENYA
A CASE OF ISLAMIC BANKS IN KENYA
BY
MAHAT MOHAMED AHMED
STUDENT ID NO: 605714
Project Submitted to the School of Business in Partial Fulfillment of the
Requirement for the Degree of Global Executive Masters of Business
Administration (GeMBA)
UNITED STATES INTERNATIONAL UNIVERSITY
SPRING 2013
DECLARATION
I, the undersigned, declare that this is my original work and has not been submitted to any
other college, institution or university other than the United States International
University in Nairobi for Academic Credit.
Signed …………………………………………………
Date…………………………………
Mahat Mohamed Ahmed (ID 605714)
This proposal has been presented for examination with my approval as the appointed
supervisor.
Signed …………………………………………………
Date…………………………………
Prof. Peter Kiriri
Signed …………………………………………………
Date…………………………………
Director of GeMBA
ii
ABSTRACT
The purpose of the study was to establish the challenges facing the implementation of
Islamic banking in Kenya. The study was therefore guided by the following objectives:
i. Determine the influence of regulatory framework on the implementation
of Islamic banking in Kenya
ii. Determine the effects of attitudes towards Islamic banking on its
implementation in Kenya
iii. Determine the effect of bank competition and efficiency on the
implementation of Islamic banking in Kenya
iv. Establish the effects of selection Criteria of Islamic Banking on the
implementation of Islamic banking in Kenya.
v. Establish the effects of Islamic culture on the implementation of Islamic
banking in Kenya.
The research problem was studied through the use of a descriptive research design. The
population of study consisted of all the 2 fully fledged Islamic commercial banks in
Kenya (First Community Bank and Gulf African Bank) and two convectional banks,
Barclays bank Kenya and Kenya Commercial Bank (KCB), which have provided Islamic
banking services for the longest period as compared to other convectional banks; and
registered with CBK as at 31st December 2012. A stratified random sampling technique
was used to collect the data. A questionnaire was employed as the sole research
instrument. The researcher administered a survey questionnaire to each member of the
sample population. The questionnaire had both open and close-ended questions. The
close-ended questions provided more structured responses to facilitate tangible
recommendations. The closed ended questions were used to test the rating of various
attributes and this helped in reducing the number of related responses in order to obtain
more varied responses. Data collected was both qualitative and quantitative and was
analyzed by descriptive and content analysis techniques. The descriptive analysis was
employed in descriptive statistical tools such as SPSS and MS Excel which helped the
researcher to describe the data and determine the extent used. The findings were iii
presented using tables and charts. The Likert scales were used to analyze the mean score
and standard deviation, this helped in determining the extent to which the banks are
affected by the various innovation strategies. Data analysis used SPSS and Microsoft
Excel, percentages, tabulations, means and other central tendencies. Tables were used to
summarize responses for further analysis and facilitate comparison. The qualitative data
was analyzed using content analysis and presented in prose form. Both quantitative and
qualitative data were compiled to generate the final project report.
The research findings revealed that Regulatory Framework influences the
Implementation of Islamic Banking in Kenya. The research found out that certain
attitudes affect the implementation of Islamic banking. The findings also revealed that
this attitude to a very great extent influences the implementation of Islamic banking.
The findings revealed that majority of the respondents agreed to a great extent that
regulatory framework, attitudes, bank competition and efficiency, selection criteria and
Islamic culture all influence to a great extent the implementation of Islamic banking in
Kenya.
The study recommends that the government should participate in the implementation of
Islamic banks in Kenya. The government should implement the necessary policies and
laws that govern the Islamic banks. This would ensure that the Islamic banks are
recognized and enjoy other benefits like any other banks without discrimination. To
enable the Islamic banks cope with the challenges of globalization the study recommends
that an enabling operational environment should be created. The study further
recommends that CBK to put in place a policy to establish a universal Shariah Boards to
oversee Islamic banking operation in Kenya. The study recommend banks to organize
regular training and workshops by inviting well-versed Islamic scholars to educate bank
personnel about Islamic banking.
iv
ACKNOWLEDGEMENT
I would like to thank the almighty Allah through whom all things are possible.
I wish to thank my supervisor Prof. Peter Kiriri for his guidance, insightful comments,
suggestions and corrections.
Finally my heartfelt appreciation goes to my family for their support, encouragement and
inspiration during my academic pursuit.
v
DEDICATION
This work is dedicated to my wife Aisha Mohamed with love and my lovely son Mohamed-Amin. You are my inspiration and strength.
`
vi
TABLE OF CONTENTS
DECLARATION...............................................................................................................II
ABSTRACT......................................................................................................................III
ACKNOWLEDGEMENT................................................................................................V
DEDICATION..................................................................................................................VI
TABLE OF CONTENTS...............................................................................................VII
LIST OF TABLES.............................................................................................................X
CHAPTER ONE..............................................................................................................11
1.0 INTRODUCTION...................................................................................................11
1.1BACKGROUND OF THE STUDY...................................................................................11
1.2 STATEMENT OF THE PROBLEM.................................................................................13
1.3 GENERAL OBJECTIVE................................................................................................14
1.4 SPECIFIC OBJECTIVES...............................................................................................14
1.5 SIGNIFICANCE OF THE STUDY...................................................................................15
1.6 SCOPE OF THE STUDY...............................................................................................17
1.7 DEFINITION OF TERMS..............................................................................................17
1.8 CHAPTER SUMMARY.................................................................................................18
CHAPTER TWO.............................................................................................................19
2.0 LITERATURE REVIEW........................................................................................19
2.1 INTRODUCTION.........................................................................................................19
2.2 REGULATORY FRAMEWORK AND IMPLEMENTATION OF ISLAMIC BANKING............19
2.3 ATTITUDES TOWARDS ISLAMIC BANKING................................................................24
2.4 BANK COMPETITION AND EFFICIENCY.....................................................................28
2.5 SELECTION CRITERIA OF ISLAMIC BANKING............................................................31
2.6 ISLAMIC CULTURE AND ISLAMIC BANKING..............................................................35
CHAPTER THREE.........................................................................................................40
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3.0 RESEARCH METHODOLOGY.............................................................................40
3.1 INTRODUCTION.........................................................................................................40
3.2 RESEARCH DESIGN...................................................................................................40
3.3 POPULATION AND SAMPLE DESIGN..........................................................................41
3.4 DATA COLLECTION METHODS.................................................................................43
3.5 RESEARCH PROCEDURE............................................................................................44
3.6 DATA ANALYSIS METHODS......................................................................................44
3.7 CHAPTER SUMMARY.................................................................................................45
CHAPTER FOUR...........................................................................................................46
4.0 DATA ANALYSIS AND PRESENTATION.........................................................46
4.1 INTRODUCTION.........................................................................................................46
4.2 RESPONSE RATE.......................................................................................................46
4.3 GENERAL INFORMATION...........................................................................................47
4.4 REGULATORY FRAMEWORK AND IMPLEMENTATION OF ISLAMIC BANKING............50
4.5 ATTITUDES TOWARDS ISLAMIC BANKING................................................................52
4.6 BANK COMPETITION AND EFFICIENCY.....................................................................55
4.7 SELECTION CRITERIA OF ISLAMIC BANKING............................................................57
4.8 ISLAMIC CULTURE....................................................................................................60
4.9 CHAPTER SUMMARY.................................................................................................62
CHAPTER FIVE.............................................................................................................64
5.0 DISCUSSION, CONCLUSION AND RECOMMENDATIONS...........................64
5.1 INTRODUCTION.........................................................................................................64
5.2 SUMMARY.................................................................................................................64
5.3 DISCUSSION..............................................................................................................65
5.4 RECOMMENDATION..................................................................................................70
REFERENCES................................................................................................................73
APPENDIX I: COVER LETTER.......................................................................................82
APPENDIX II: QUESTIONNAIRE....................................................................................83
viii
APPENDIX III: IMPLEMENTATION SCHEDULE.............................................................90
APPENDIX IV: MARKET SHARE...................................................................................91
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LIST OF TABLES
Table 3.1 Target Population..............................................................................................33
Table 3.2 sample size.........................................................................................................36
Table 4.1 Response Rate....................................................................................................39
Table 4.2 Gender of Respondents......................................................................................40
Table 4.3 Age of Respondents...........................................................................................41
Table 4.4 Level of Education.............................................................................................41
Table 4.5 Work Duration of the Respondents...................................................................42
Table 4.7 Banking Institution............................................................................................43
Table 4.8 Regulatory Framework influences on Implementation of Islamic banking......46
Table 4.9 Attitudes towards Islamic Banking....................................................................47
Table 4.10 Attitude and implementation of Islamic banking............................................47
Table 4.11 Effects of attitude on the Implementation of Islamic Banking........................49
Table 4.12 Bank Competition and Efficiency on implementation of Islamic Banking.....50
Table 4.13 Bank Competition and Efficiency and implementation of Islamic Banking...52
Table 4.14 Selection Criteria and Implementation of Islamic Banking............................54
Table 4.15 Influence of Selection Criteria on the Implementation of Islamic Banking....55
Table 4.16 Influence of Islamic Culture on implementation of Islamic Banking.............55
Table 4.17 Islamic Culture effects on the Implementation of Islamic banking.................56
Table 4.18 Influence of Islamic culture on Islamic banking.............................................57
x
CHAPTER ONE
1.0 INTRODUCTION
1.1Background of the Study
The emergence of Islamic banking system has created a new dimension to the current economic
models (Fazlan & Mohammad, 2007). Islamic banking refers to a system of banking or banking
activity that is consistent with the principles of Islamic law (Sharia) and its practical application
through the development of Islamic economics (Iqbal and Abbas, 2007). Sharia prohibits the
payment or acceptance of interest fees for loans of money (Riba, usury), for specific terms, as
well as investing in businesses that provide goods or services considered contrary to its
principles (Haraam, forbidden) (Khan, Hassan and Shahid, 2008). The main principles of Islamic
banking activities comprise of prohibition of interest (riba) in all forms of transactions
undertaking business and trade activities, based on fair and legitimate profit (Iqbal and Mirakhor,
2007). Unlike conventional banking system, the Islamic banking system prohibits usury (riba),
the collection and payment of interest. Instead, it promotes profit and loss sharing in all conduct
of banking businesses. Besides that, it also promotes giving zakat (alms tax), prohibition of
monopoly, and cooperation for the benefit of society, and development of all Halal aspects of
business that are not prohibited by Islam (Iqbal and Mirakhor, 2007).
The main argument against interest is that money is not used as a commodity with which to
make a profit but that it should be earned on goods and services only, not on control of money
itself. While these principles were used as the basis for a flourishing economy in earlier times, it
is only in the late 20th century that a number of Islamic banks were formed to apply these
principles to private or semi-private commercial institutions within the Muslim community
(Pollard and Samers, 2007).
Features of Islamic Banking are based on ethical principles. Islamic Shari’ah allows all economic
activities in the framework of protecting public interest and safeguarding it. Man may make
profit from doing business. However, when this runs against Islamic ethics and morality, it is
outlawed (Ahmad, Rehman and Saif, 2010). In addition, for an investment to be legitimate, one 11
of the most important requirements is that its outcome must fulfill the reality of investment
transactions and that it enables the Islamic Financial Institution (IFI) to state what it expects to
make in profits. However, this cannot be determined as a certainty or can one commit one’s self
to it, or bear any loss sustained.
Main conditions governing Islamic investment maintain that Money does not generate or beget
money in itself, but it becomes productive if it is involving an activity or work; Investment is
subject to the rule of profit and loss sharing; Investment in business activities is lawful, but
prohibitions should be avoided. Contracts must be free of uncertainty, ignorance and the
conditions which lead to disputes (Ahmad, Rehman and Saif, 2010).
The notion of Islamic financing was born during the tumultuous identity politics years of the
mid-20th century (El. Gamal, 2006). The first signs of an Islamic banking system appeared in the
early 1970s. The Dubai Islamic Bank (DIB) in the United Arab Emirates was the first Islamic
bank followed by the establishment of the International Islamic Development Bank (IDB) in
Jeddah, Saudi Arabia. Thereafter, many private and semi-private commercial Islamic banks were
created in Egypt, Sudan, Kuwait, and Bahrain after 2005 (Iqbal & Molyneux, 2005).El. Gamal
argued, Indian, Pakistani, and Arab thinkers contemplated independence from Britain and
independence of Pakistani from India, within the context of “Islamic society” (El Gamal, 2006).
According to this theory “Islam was assumed to inspire political, economic, and financial
systems that are distinctive and independent from the western (Capitalist) and Eastern European
(Socialist) models of epoch (El. Gamal, 2006).
The Banking Sector in Kenya is composed of the Central Bank of Kenya, as the regulatory
authority and the regulated; Commercial Banks, Non-Bank Financial Institutions and Forex
Bureaus (CBK, 2012). As at 31st December 2011 the banking sector comprised 44 institutions,
43 of which were commercial banks and 1 mortgage finance companies, and 118 Foreign
Exchange Bureaus. Commercial banks and mortgage finance companies are licensed and
regulated under the Banking Act, Cap 488 and Prudential Regulations issued there under (Bank
Supervision Report, 2011). Out of the 43 commercial bank institutions, 33 were locally owned
and 12 were foreign owned.
12
Banks offering Shariah Compliant products in Kenya include First Community Bank which was
licensed by the Central Bank of Kenya in May 2007. It competes with GulfAfrican Bank,
another Shari’ah compliant bank and the country’s first. Other existing commercial banks have
also developed Islamic banking products among their existing products to capture the Islamic
market. These include Barclays Bank of Kenya, Chase Bank and Kenya Commercial bank
Limited. These have intensified the level of competition in the Islamic banking market.
Gulf African Bank was the first fully fledged Islamic Bank in East Africa in mid 2008 with a
market share of 52% in Kenya Focusing on HVS and SME. It is ranked 26 th out of 44 banks in
terms of Gross assets while First Community is ranked 37 th.Chase Bank growing at the fastest
rate on the back of strong investment – opened 3 dedicated Islamic branches in 2011 (Chase
Iman) and plan to open 2 in 2012.
1.2 Statement of the Problem
Wilson (1995) states that Islamic banking is no longer regarded as a business entity striving only
to fulfill the religious obligations of the Muslim community, but more significantly, as a business
that is ineluctably in need for winning over customers at the same time retaining the old ones.
Islamic financial services sector is growing at double digit rates across the world especially in
Islamic dominated countries like Egypt and Malaysia.
During the past few years there have been significant developments in the world of Islamic
banking and finance. The strong growth witnessed in the Islamic banking segment across the
globe is testimony of the rapidly increasing customer acceptance and preference for Islamic
banking. Major players have established different divisions and segmented their customer base
between retail, high net worth customers, entrepreneurs and a corporate customer base
One of the emerging fastest growing and progressive Muslim nations, Malaysia has already
gained significant global attraction of investment opportunities. Islamic Banking has become a
substantial and fast growing industry following its special provision for the Islamic transactions
rules and principles (Sharia’h) to carry out their business (Iqbal and Mirakhor, 2007).
13
The Kenyan banking sector is comprised of 44 banks 43 of which were commercial banks and 1
mortgage finance companies, 118 Foreign Exchange Bureaus and 4 representative offices of
foreign bank. Out of the 44 banking institutions, 31 are locally owned, 28 privately owned and
13 are foreign. The competition in the industry has intensified as customers seek to solidify their
market shares.
Several studies have been conducted on Islamic banking. Chapra (2008) analyzed the concept of
Profit & Loss sharing financing in the Islamic banking environment. Lewis (2010) examined the
nature and structure of Islamic investment funds and evaluated their corporate governance.
Lewis (2010) shed a light on the impact of the global financial crisis on Islamic financial systems
and to governance of Islamic investment funds, fewer emphases were directed to the
characteristics of Islamic investments and financial system. Zineldin (1990) investigated the
interest-free banking system. From the above discussions, it is evident that limited studies have
focused on the challenges of implementing Islamic banking in Kenya. Despite its launch in the
year 2007, the Islamic banking concept has yet to be fully accepted and gain ground in Kenya.
This study therefore seeks to fill this research gap by conducting an investigation into the
challenges facing the implementation of Islamic banking in Kenya.
1.3 General Objective
The general objective of this study was to analyze the challenges facing the implementation of
Islamic banking in Kenya.
1.4 Specific Objectives
This study was guided by the following specific objectives:
1.4.1 Determine the influence of regulatory framework on the implementation of Islamic
banking in Kenya
1.4.2 Determine the effects of attitudes towards Islamic banking on its implementation in
Kenya
14
1.4.3 Determine the effect of bank competition and efficiency on the implementation of Islamic
banking in Kenya
1.4.4 Establish the effects of selection Criteria of Islamic Banking on the implementation of
Islamic banking in Kenya.
1.4.5 Establish the effects of Islamic culture on the implementation of Islamic banking in
Kenya.
1.5 Significance of the Study
The findings of this study will be important to several stakeholders including:
1.5.1 Businesses, Investors and Individuals
The study will help them understand the nature of challenges facing the implementation of
Islamic banking in Kenya. This will equip them with the necessary knowledge on the progress
made in the implementation of Islamic banking and how it can be improved. The findings of this
study will help businesses in the planning and financial budgeting to ensure they meet their
objectives.
1.6.2 The Commercial Banking Industry
The managers and key decision makers in the commercial banking industry may find this study
useful as it will examine the challenges many commercial banks are facing in the implementation
of Islamic banking in Kenya. Through the findings of this study, the managers The research may
help to better strategize and better illuminate the future opportunities that Islamic banking can
seize for greater profits and growth in the future. It will also assist banks in better understanding
their customer needs and in designing other products and services, hence expanding their
customer base and thus profitability. Potential commercial banks looking to venture into Islamic
banking could also use this study to better understand the effects and concerns surrounding the
Islamic banking windows.
15
1.6.3 Importance to the Government
Through the Central Bank of Kenya, the Government would benefit from this study. The findings
and recommendations could help the Government to better tap into and fully explore the
opportunities of the Islamic banking model, and assist in the formulation and implementation of
decisions regarding Islamic banking in the country. This project will also help the government to
appreciate the enormous contribution that Islamic financial institutions can bring to the national
economy.
1.6.4 Importance to Academicians, Students and Researchers
For this group, the outcome of this research will inspire further research in the area. It can
constitute a starting point of reference and a source for secondary data for further scrutiny in the
area. More importantly, the study will at least fill a knowledge gap in that the findings and
conclusions will identify some important factors that would affect the implications of Islamic
banking features in Commercial banks. As for students in finance and banking, this study will be
of great help as it will assist them in understanding and clearly differentiating Islamic banking
from the conventional mode of banking. It will be useful for professional bankers and investors
as well.
1.6.5 Importance to other Governments
This study could assist other governments who are in the phase of introducing fully-fledged
Islamic banks and Islamic banking windows in their commercial banks; as it has been noticed
that in many Islamic countries especially in Africa, Islamic banking institutions are non-existent.
These Governments could use this project as a background for understanding the principles and
features underlying Islamic banking as well as for formulating and implementing better policies
surrounding their new endeavor in Islamic banking. This project will also help governments to
appreciate the enormous contribution that Islamic financial institutions can bring to the national
economy.
16
1.6 Scope of the Study
The study seeks to analyze the challenges facing the implementation of Islamic banking in
Kenya. The population of study consisted of all the 2 fully fledged Islamic commercial banks in
Kenya (First Community Bank and Gulf African Bank) and two convectional banks, Barclays
Bank Kenya and Kenya Commercial Bank (KCB), which had provided Islamic banking services
for the longest period as compared to other convectional banks; and registered with CBK as at
31st December 2012. The study planned to collect the sample frame from the two (2) fully-
fledged Islamic banks and the eight (8) Islamic banking windows involved in the study. A sample
size of 119 respondents was used in the study. Some of the limitations of the study were that the
researcher encountered difficulties in accessing some of the employees of the banks as they were
busy. Some of the respondents also withheld vital information as they and were not fully
cooperating in the filling of the questionnaires.
1.7 Definition of Terms
1.7.1Shariah
Shariah is the name given to law derived from Islamic sources. It covers politics, economics,
criminal law, business, contracts, family life, hygiene and social issues. Though there are
similarities with other legal systems in terms of the giving rights and upholding principles and
values, it differs completely in its source and methodology and indeed, in the values it seeks to
build. Shariah Law is based upon the Quran (the revelation from Allah) and the Sunnah
(example of the Prophet Muhammad).In some cases, they give a direct verdict on a specific
human problem and in other cases scholars of Islam are needed to derive a verdict from these
sources using various judicial principles. In recent years, Islamic Scholars have brought forward
explanations of the Islamic stance on modern developments such as stock-holding companies,
corporate bonds, and stem cell research and organ transplants. Such opinions, at their core, must
be derived from the Quran and the example of the Prophet Muhammad.
17
1.7.2 Halal
The word “Halal” Literally means permissible and in translation, it is usually used as lawful.
Opposite to Halal is Haram, which means unlawful or forbidden. With today’s manufacturing
and food production, it is hard to know what goes in the food we eat. Food labeling helps, but not
everything is listed, and what is listed is often a mystery. In reference to food, it is dietary
standard, as prescribed in the Quran the Muslim scripture. General Quranic guidance dictates
that all foods are Halal except those that are specifically mentioned as Haram (unlawful or
prohibited). Islam is the natural way of life. Its economical system is just; its social system is
based on cooperation and brotherhood; its political system is based on consultation and dietary
laws are very simple and beneficial for all the humanity.
1.7.3 Ijara
It is defined by jurists as: "Possessing of a usufruct for a consideration" Malaiki school of Figh
mostly confines the term lease "Ijara" contract to the human usufruct and the moveable objects
other than vessels and animals. They call the contract on usufructs of land, houses, vessels and
animals the term "Kiraa", so they said Ijarah and Kiraa have the same meaning. This is a brief
definition for Ijarah which combines almost intentions of jurists "Fugha" regarding definitions
presented by them which reflect the nature and some features of Ijarah. One of the definitions of
Ijarah according to Hanafi School is that it is a contract which enables possession of a particular
intended usufruct of the leased asset (Ayn) for a consideration. Some jurists stipulated that the
usufruct from the leased asset should be intended while others explained that what is meant by it
is considerable intentions in light of Shariah and reasoning and not mere intentions.
1.7.4 Murabah
Murabah is an Islamic financing structure, where an intermediary buys a property with free and
clear title to it. The intermediary and prospective buyer then agree upon a sale price (including
an agreed upon profit for the intermediary) that can be made through a series of installments, or
as a lump sum payment. Murabaha refers to a contract in which a financial institution purchases
18
good upon the request of a client who makes payment that covers cost and agreed upon profit
margin for the financial institution.
1.8 Chapter Summary
In this Chapter, the study starts by giving background information emergence of Islamic
banking, features of Islamic Banking, the notion of Islamic financing and the main conditions
governing Islamic investment. The background section then narrows down to the Banking Sector
in Kenya with a specific focuses on banks offering Shariah Compliant products in Kenya. The
section further introduces the research problem/ gap that have prompted the researcher to
conduct this study and then introduces the study objectives. The next chapter will review the
existing literature on issues of strategic management and technology. The study further
establishes the various people that this study will be of value to and also defines the scope of the
study. The next chapter reviewed the existing literature from various authors on the challenges
facing the implementation of Islamic banking, section 3 explained the research methodology.
Section 4 presented the findings. Section 5 discussed the implications with suggestions for future
research.
19
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
This chapter presents the literature review on the challenges facing the implementation of
Islamic banking in Kenya. The chapter specifically discusses the literature related to the research
objectives discussed in this study.
2.2 Regulatory Framework and Implementation of Islamic Banking
2.2.1 Regulatory Framework
Islamic banking industry has been trying to extend its outreach to bring it at least to the level of
conventional banking but the absence of Shariah-compliant legal framework needed to make
interest-free banking acceptable (and create sound financial institutions) is the major snag behind
its low penetration in the financial market. It is the time to take stock of challenges faced by the
Islamic banks as they need a number of supporting institutions/arrangements to perform
functions which are being carried out by various financial institutions in the conventional
framework. Attempts should be made to modify the existing structure to provide better products
and quality service within the ambit of Islamic laws (Hassan, 2004).
Some of the most important challenges facing the Islamic banking industry are identified as
Legal Support whereby the Islamic law offers its own framework for execution of commercial
and financial contracts and transactions which is in most cases not consistent with the
conventional banking setting (Muljawan, Dar and Hall, 2004). Nevertheless, commercial
banking and company laws appropriate for implementation of Islamic banking and financial
contracts do not exist thus posing a great challenge to the implementation of Islamic banking.
Islamic banking contracts are treated as buying and selling properties and hence are taxed twice
(Errico and Farahbaksh, 1998).
20
The commercial banking and company laws contain provisions that are narrowly defined and
prohibit the scope of Islamic banking activities within conventional limits. It is necessary that
special laws for the introduction and practice of Islamic banking be put in place to promote its
implementation (Hassan and Chowdhury, 2004). The legal framework of Islamic banking and
finances might include the Islamic banking courts where the disputed cases of the Islamic banks
are subject to the same legal system and are dealt with the same court and judge as the
conventional one while the nature of the legal system of Islam is totally different.
2.2.2 Shariah Supervision
To ensure a proper, speedy and supporting Islamic legal system, amendments in existing laws,
which are repugnant to injunctions of Islam, are required to promulgate Shariah compliant law
for resolution of disputes through special courts (Hassan, 2004).There also needs to be
amendment of existing laws because Islamic banking has some kind of resemblance to universal
banking, therefore, laws and regulations have to be amended accordingly to accommodate this
new concept such as sections and of the Banking Companies Ordinance while Islamic banks are
big or wholesale traders in reality. There is need to establish Islamic banking law because in the
absence of Islamic banking laws, the enforcement of agreements in courts may require extra
efforts and costs. Therefore, banking and companies’ laws in several countries require suitable
modifications to provide a level playing field for Islamic banks (Muljawan, Dar and Hall, 2004).
Furthermore, international acceptance of Islamic financial contracts requires them to be Shariah
compatible as well as acceptable under the major legal regimes such as Common law and Civil
law systems.
Most private banks have their own Shariah supervisory boards. However, for instance in
Malaysia and Sudan the central bank also has a central Shariah board. The banks in Pakistan and
Iran do not have Shariah boards as such. However, the Council of Islamic Ideology in Pakistan
and the Council of Guardians in Iran are available to provide guidelines. The Federal Shariah
Court (Pakistan) is empowered to review all laws in the light of the Shariah. It has declared
interest to be a form of riba and the existing system of mark-up transactions to be interest based,
and hence unlawful.
21
In addition, Islamic banks do not show assets financed through Ijara, Murabah among others on
balance sheet because section 7 of Banking Ordinance 1962 does not allow a bank to own
property or asset which section 9 prohibits to enter into any kind of trade (Chami, Khan and
Sharma, 2003). However, all the assets owned by Islamic banks need to be mentioned in their
balance sheets. The housing finance is executed on the basis of Diminishing Musharaka by the
Islamic banks. Under this mode the house is jointly owned by the bank and the customer. The
bank rents out its share to the customer on Ijara basis (Hassan, 2004). The Islamic bank while
executing Ijara with the partner/customer uses the term ‘Monthly Payment Agreement’ instead of
having the Ijara agreement with the customer. It is so named as to safeguard the bank’s interest
in case of refusal by the customer to pay rentals. No legal cover is provided to the Islamic bank
to overcome this risk. Deposits in Islamic banks are usually based on principle of profit and loss
(Musharaka or Murabaha). If something happens and the bank suffers loss it has to be transferred
to the depositor directly (Muljawan, Dar and Hall, 2004). This fear of loss is the biggest barrier
to deposit mobilization in Islamic banks. In some cases, it leads to withdrawal of funds because
depositors compare it with the conventional banking where the depositors are provided with
some kind of protection through the deposit protection funds (Shabsigh, 2001).
Supervision of Islamic banks is equally important. At present, lack of effective prudential
regulation is one of the weaknesses of the Islamic banking industry. For instance, leasing
prudential regulations are applied to Ijara where the nature of both is different, such as taking
advances (Hassan, 2004). The bank is the owner in Ijara; so taking advances will render the
contract of Ijara for conversion into Musharakah whereas the rules of Ijara are applied to it,
which is illegal. And some of the Islamic banks are using the term of security, hence making the
Ijara contract non-Shariah compliant as using the deposited sum under the heading of Ijara
security (‘Rahn’) is nothing but Riba which is strictly prohibited by Islam. Moreover, Ijara
financing is subject to compulsory insurance which is essentially prohibited (Muljawan, Dar and
Hall, 2004).
2.2.3 Importance of Prudential supervision to Islamic Banking
Prudential supervision is just as necessary in an Islamic banking framework as in conventional
banking toreduce risks to the soundness of the banking system and enhance banks’ role as active
22
players in the development ofthe economy. This is so for a number of reasons. First, it is worth
keeping in mind that, even in a paradigm version of Islamic banking, insolvency risks cannot be
ruled out, notably in cases where bankingoperations are carried out according to a two-tier
mudaraba arrangement, that is, when the assets and liabilities sides of a bank’s balance sheet are
fully integrated (Errico & Farahbaksh, 1999).
Second, risks of economic losses, or losses incurred as a result of poor investment decisions, are
equally possible when banks carry out operations. Poor investment decisions may derive from a
mix of factors, including a volatile operating environment, weak internal governance—notably
mismanagement, and limited market discipline. Economic losses not only would be reflected in
the depreciation of the value of depositors’ wealth, but also in a decline in banks’ profitability. If
not corrected in due course, such an economic downturn could jeopardize banks’ soundness.
This, in turn, would progressively reduce banks’ intermediation role and hamper the mobilization
of private savings toward investment (Khan & Mirakhor, 2006).
Third, weak banks may detract from the achievement of fundamental macroeconomic objectives,
such as the efficiency of the payments system and the effectiveness of monetary policy,
particularly if implemented through the use of indirect instruments. Unsound banks may also
reduce public confidence in the financial system, thus impeding or delaying necessary structural
reforms in this area. Fourth, a weak banking system is likely to prevent the economy from
benefiting from the ongoing globalization process and the liberalization of capital markets,
particularly in developing and emerging market countries—such as the ones where Islamic
banking principles are followed—where banks are the major (or the sole)players in domestic
financial markets (Errico & Farahbaksh, 1999).
Therefore, as in conventional banking, an appropriate regulatory framework for an Islamic
system should aim at reinforcing banks’ operating environment, internal governance, and market
discipline. To help develop such a regulatory framework, standards and best practices established
by the Basle Committee on Banking Supervision are useful and provide a valuable reference.
However, these standards are not always applicable in an Islamic banking framework in the same
way as in conventional banking systems (Dziobek, et al; 2009).
23
Islamic banking implies special issues that need to be recognized and addressed to help make the
conduct of banking supervision more effective. First, it is most important to recognize the impact
of profit- and loss-sharing (PLS) modes of financing on Islamic banks. Specifically the fact that
when Islamic banks provide funds through their PLS facilities, there is no recognizable default
on the part of the agent-entrepreneur until PLS contracts expire, barring proved negligence or
mismanagement on the part of the agent-entrepreneur. In fact, a “default” of PLS contracts
means that the investment project failed to deliver what was expected, that is a lower or no
profit, or a loss. In this case, the lower profit/loss is shared between or among parties according
to the stipulated PLS ratios. For example, in the case of amudaraba contract, the bank is entitled
to receive from the entrepreneur the principal of a loan at the end of the period stipulated in the
contract, if and only if, profits have accrued. If, on the contrary, the enterprise’s books showed a
loss, the bank would not be able to recover its loan (Lindgren et al, 2006).Moreover; such a
situation would not normally constitute default on the part of the entrepreneur, whose liability is
limited to his time and efforts. Additionally, banks have no legal means to control the agent-
entrepreneur who manages the business. This individual has complete freedom to run the
enterprise according to his best judgment. Banks are contractually entitled only to share with the
entrepreneur the profits (or losses) stemming from the enterprise according to the contractually
agreed PLS ratio (Presley & Sessions, 2004).
Therefore, the regulatory framework for banking supervision should be designed to help address
these issues. Second, information disclosure is more important in an Islamic environment than it
is in a conventional banking system. This is the case because the absence of protection for
investment depositors is at the core of Islamic banking (Mirakhor, 2008). Indeed, the more
depositors are left unprotected, the more public disclosure of information about banks’ policy
objectives and operational strategies is necessary to enable creditor and depositors to monitor
banks’ performance. Further, in an Islamic banking framework, depositors have more incentives
to monitor banks’ performance than conventional depositors do. This is due to the fact that
capital value of and returns on investment deposits are not fixed and guaranteed, but, depend on
banks’ performance in investing depositors’ funds. Hence, depositors have incentives to monitor
Islamic banks not only to seek to protect the capital value of their funds, but also to seek to
24
ensure that the rates of return paid to them reflect a fair application of the PLS principle on
banks’ net profit (Khan & Mirakhor, 2006).
Additionally, appropriate information disclosure can provide the supervisory authorities with a
better understanding of banks’ strategies and their relevant risks. This places the supervisors in a
better position to exercise effective prudential supervision, hence reducing systemic risks (Errico
& Farahbaksh, 1999).
2.3 Attitudes towards Islamic Banking
Attitude is an important aspect to understand or predict the behaviors of customers in some
situation (Sethi, 2002). General attitudes are relatively good predictors of general behavioral
likelihoods. Furthermore, customer’s attitude toward a product or service is influenced by a
match of the product or service user image with the customer’s self-concept (Ekinci and Riley,
2003; Wang and Heitmeyer, 2005). Customer attitude toward a product or service is influenced
by a match of the product or service user image with the customer self-concept (Ekinci and
Riley, 2003; Sirgy e, 1992; Wang and Heitmeyer, 2005). Since, generally attitude develops over
time through a learning process which is affected by reference group influences, past experience,
and personality, or it is a general evaluation about something, liking or disliking, and the strength
of the feelings.
2.3.1 Consumer Attitudes
Since, consumers’ make product or service choice based on which combination of product
attributes best meets their needs based on dimensions of value, cost, and prior satisfaction
(Kotler, 1997). Furthermore, Assael (1981) added that consumer’s attitude or behavior should be
studied through demographics, beliefs, and attitudes. It has been widely recognized that
reference group often impacts on consumer behavior (Karjaluoto , 2002). Moreover, both
attitude and non-attitudinal variables also influence behavior (Eagly and Chaiken, 1993). Gender
is a key variable for marketing analysis (Nicovich, 2005; Haque , 2007b). So, the Islamic
banking service providers recognize them, understand them, and use them to design a gender
specific strategy. Since, understanding the motivation, expectations, and desires of both provide
a foundation in how to provide best service to the customers (Haque et al., 2007a). It may even
25
provide information on making improvements in the nature of business (Naylor and Greco,
2002).
Substantial amount of literature on individual’s attitude toward conventional banking is available
most of the part consists of bank selection criteria or customer satisfaction of conventional bank
(Blankson, Cheng, & Spears (2007), and Almossawi (2001). Convenient ATM locations,
Availability of ATM in several locations, Bank’s reputation, 24-hours availability of ATM
service.
Prior research also showed that reference group often impacts on consumer behavior (Fishbein
and Ajzen, 1975; Kotler., 1999; Karjaluoto., 2002). At the same time, Islamic banking came into
existence to satisfy the financial needs of Muslims who have to observe the prohibition of
interest-based transactions (Haq and Smithson, 2003). According to Warde (2000) there is
sufficient flexibility to accommodate the additional changes in conventional banking that is
needed to support Islamic banking. This removes a long standing argument that Islamic banking
is infeasible in a regulatory sense (Warde, 2000). Moreover, all at once Western attitude are also
changing, as it can be seen in the recent growth of ‘ethical’ banking, where non-Islamic
customers refuse to invest in companies engaged in unethical and socially harmful activities
(Warde, 2000).Currently there is a wide religious reinterpretation, spurred on by changes at
national and global levels (Haynes, 1999; Haq and Smithson, 2003). The political, social and
cultural values embedded within the development goals of projects shape the development and
use of technology (Madon, 2000). One concern of Muslims using IT is that they are passive
consumers of a technology created elsewhere, which is not value-free. IT’s close connection and
integration with Western culture is sometimes viewed as a threat to Muslim societies (Ahmad,
2001). A related issue concerns the increasingly common situation where the culture of the
software development environment differs to that of the implementation environment (Zakria ,
2003).
Naser andMoutinho (1997) have recently assessed the marketing effectiveness of the Islamic
banks and indicated that the Islamic banking system needs to do more to activate its marketing
effectiveness. They concluded that the Islamic banks should put more coherent efforts to
improve their long-term competitive position. Another study conducted by Gerrard and
26
Cunningham (1997) investigating the degree of awareness of the Islamic banking system in
Singapore revealed that there was a general lack of awareness of the culture of Islamic banking
in both Islamic and non-Islamic communities.
According to Khan & Bhatti (2008), Islamic banking has made unprecedented progress over
recent years. The Middle East, South Asia and the Indian Subcontinent have emerged as hubs of
Islamic banking. Western conventional regulators and investors and other agents have also
shown a greater interest in and a receptive attitude towards Islamic banking. Despite all this,
Islamic banking has been facing some core problems and challenges that will have deep Impact
on its future growth and development.
2.3.2 Consumer perception
The customer perception is often identified by their level of satisfaction towards particular
products or services. Customer Satisfaction is usually measured in terms of service quality and
service features offered by an institution. Due to increase in demand, various researches are done
for measurement of customer’s satisfaction. Turnbull (1983) was among the first researchers
who studied perception of corporate customers towards their banks. He found that large
corporations prefer foreign banks more as compared to the local banks. He also examined that
size played an important role in maintaining split banking practices. Rosenblatt (1988)
determined the two factors that influenced the decision making of corporate customers. First is
the banks with better branching networks and second is their quality service rather than
innovative products. The findings of Turnbull and Gibs (1989) showed that the corporate
customers perceived that quality of services was an important factor in establishing a
relationship. Among the other factors that can influence selection process were quality of staff,
bank manager attitude’s and price of service .Physical appearance of the bank has no impact on
selection process. Tyler and Stanley (1999) found reliability, assurance, empathy, responsiveness
and pro-activity as key elements of perceived quality by large corporations. Erol and El-Bdour
(1989) discovered that the most important criteria by customers while selecting Islamic Banks
were the provision of fast and efficient services, banks reputation and image, and confidentiality.
27
Haron et al. (1994) found three important criteria perceived by Muslims in Malaysia while
selecting their banks. These were the provision of fast and efficient service, the speed of
transaction, and the friendly bank personnel. Gerrerd and Cunningham (1997) considered
“parking space” and “interior facilities” as important issues related to customer satisfaction.
Metawa and Almossawi (1998) investigated the banking behavior of Islamic banking customers
in Oman by collecting data from 300 customers. They aimed to find out the awareness and
satisfaction level among customers of Islamic banks by considering demographic data. The
findings showed that the most of customers are highly satisfied with the products and services of
Islamic Banks. They suggested that banker should develop professionalism and competency to
maintain profitable relations with customers. Naser ,(1999) found that among the most important
service features used to measure customer satisfaction are convenience, competitiveness and
location of service provider.
Service features used to measure customer satisfaction are convenience, competitiveness and
location of service provider. Othman and Othman (2001) studied the development of service
quality and perception of customers towards Islamic Banking. They tested the famous service
quality model “CARTER” during their survey of customers of Kuwait Finance House (KFH).
Carter model has six quality and perception dimensions explicitly “C” for compliance, “A” for
assurance, “R” for reliability, “T” for tangibles, “E” for empathy and “R” for responsiveness.
The Islamic Banks have to address the importance of knowledge building programs on
customers, training for employees in both generic and specialized format, communicating the
customers regarding new service offerings, cost benefit aspect of services purchased by
customers, and positive word of mouth etc. Ahmed & Haron (2002) Reported that financial
decision making authority in Malaysia corporate sectors believed that the Islamic banking system
had a good potential as an alternative to conventional system. However the providers of Islamic
Banking products & services have not done enough in educating customers and marketing their
products. This study highlights the important factor perceived by corporate customers in
selecting their bank is the cost of service and products. Rexha et al. (2003) proposed a model that
demonstrates the factor impacting on corporate customer’s client commitment towards their
banks. The study has shown the positive relationship between Customer satisfaction, trust and
28
bank commitment. The study further demonstrated that satisfaction of corporate clients with their
banks does not impact directly on the propensity to use electronic banking by the corporate
clients. However as satisfaction has significant impact on both trust and commitment, and both
of these constructs impact on the corporate client’s propensity to use electronic banking. Dusuki
and Abdullah (2007) discovered that competency and courtesy.
2.4 Bank Competition and Efficiency
Since early 1990s, studies that were focused on the efficiency of financial institutions have
become an important part of banking literature (Berger and Humphrey, 1997).Perhaps, one of the
reasons is, and efficiency can be used as an indicator to measure a bank’s success. Specifically,
using the efficiency criterion, the performance of individual banks as well as the industry can be
gauged. Another reason is that the efficiency can also be used to investigate the potential impact
of government policies on a bank’s efficiency. Indeed, it is of regulators interest to know the
impact of their policy decisions on the performance and efficiency of the banks, as they will
enormously affect the economy. A few studies had been conducted to investigate the impact of
bank deregulation on competition, efficiency and performance. The issues addressed were
centered on whether deregulation had increased competition, improved efficiency and
performance. There is a consensus view that deregulation had enhanced competition. But a
mixed result was found on efficiency and performance. In the case of the US banking industry,
for example, there was evidence that deregulation did not change efficiency (Elyasiani and
Mehdian, 1995). A study by Bauer et al. (1993) found little change in average inefficiency, but
productivity over the period had deteriorated, which they attributed to deregulation and increases
in competition. The rapid and dynamic changes in the global financial landscape pose various
risks to banking institutions. Operating side by side with conventional banks, Islamic banks are
not spared but equally vulnerable to risks. The exception is that the nature of risks facing Islamic
banking is unique. This uniqueness arises from the composition of its assets and liabilities.
29
Notwithstanding, a few studies had shown a good impact of deregulation on efficiency and
productivity. Specifically, deregulation has resulted in improvement in productivity in
Norwegian Banks (Berg et al., 1992). Shyu (1998) also reported improved efficiency of the
Taiwanese banking industry after deregulation. The efficiency of the Turkish commercial banks
had also increased as a result of deregulation (Zaim, 1995). A recent study by Isik and Hassan
(2003) on Turkish banks also showed an increase in their efficiency. They attributed the increase
in efficiency to improved resources management practices. In addition, the finding showed that
the efficiency gaps between private banks and public banks have also been narrowed. Perhaps,
the successful story of banking deregulation in Turkey, which triggered better efficiency, could
be due to the support of small and medium industry, and commercial businesses to the Turkish
banking industry
On the asset side, investments, whose funds are Shari’ah based, can be undertaken in the form of
profit sharing modes of financing (Mudarabah and Musharakah), fixed-income modes of
financing such as Murabahah (cost-plus or mark-up sale), installment sale (medium/long term
murabahah), Istisna /salam (object deferred sale or prepaid sale) and Ijarah (leasing). In contrast,
on the liability side, its deposits can either be kept in the form of current accounts or in
investment accounts. Current account depositors get their deposits on demand whilst investment
depositors in Islamic bank are rewarded with the opportunity to share with the bank the profit
and business risks (or losses) of the investment activity. The different nature of its asset and
liability composition and the profit and loss sharing basis change the nature of risks that Islamic
banks face (Khan and Ahmed, 2001). The rapid and dynamic changes in the global financial
landscape pose various risks to banking institutions. Operating side by side with conventional
banks, Islamic banks are not spared but equally vulnerable to risks. The exception is that the
nature of risks facing Islamic banking is unique. This uniqueness arises from the composition of
its assets and liabilities.
Despite the rapid growth and vast expansion of Islamic banking industry around the world, the
fact remains that ‘The provision and use of financial services and products that conform to
Islamic religious principles pose special challenges for the identification, measurement,
monitoring, and control of underlying risks. Effective and efficient risk management in Islamic
30
financial institutions has assumed particular importance as they endeavour to cope with the
challenges of globalization. This requires the development of not only a more suitable regulatory
framework, but also new financial instruments and institutional arrangements to provide an
enabling operational environment for Islamic finance’ (Sundararajan & Errico, 2002).
Competition in banking has intensified over the past decades and is putting increasing pressure
on bank returns. Major financial institutions are strategically entering new markets and/or
offering a diverse spectrum of products and services to consolidate their presence and boost their
profitability. Among such developments is the expansion of Islamic banking since 1975 and its
growing recognition as a viable mode of financing.
Islamic banks have proliferated in the Far East and the Arabian Gulf and a large number of
banking firms have diverted some of their operations away from conventional practices by
setting up Islamic windows or establishing full-fledged Islamic banks. Countries like Malaysia
and Bahrain are striving to be regional hubs for Islamic financial services. There are now about
270 Islamic financial institutions worldwide, including banks, mutual funds, mortgage
companies, and Takaful or insurance firms. However, Islamic finance is not limited to
stakeholders with common religious backgrounds. Britain has announced plans to turn London
into the world centre of Islamic finance (Kerr, 2007); and international banks such as Citigroup,
BNP Paribas, HSBC, and others are also expanding into this new segment of the industry.
The concept of competitiveness bank was first applied to conventional banks before being used
to study the competitiveness of Islamic banks in the market. In this context, identification of
factors of competitiveness has been the issue of several studies devoted to the banking sector in
several countries. However, rare are the studies interested to investigate the power of
competitiveness of Islamic banks face to conventional banks.
The size of the bank was largely regarded as a fundamental factor of the competitiveness of
banks. De Bandt and Davis (2000) test the impact of the size of the banks on its main
competitiveness on the market. They identify monopoly behavior for small banks in France and
Germany and monopolistic competition for small banks in Italy. They suggest that small banks
31
require higher market power. Their results contrast those of Molyneux, Lloyd-Williams and
Thornton (1994) who found that the monopolistic competition characterize the market structures
in France, Germany, Spain and the United Kingdom.
The competitive landscape and the basis of competition in Islamic banking are changing.
Originally, Islamic banks derived their competitive advantage not only from being sharia
compliant but also from being the only pure-play Islamic bank in town. For example, AlRajhi
Bank in Saudi Arabia, Kuwait Finance House in Kuwait, and Dubai Islamic Bank in the UAE
long benefited from monopoly-like status in their respective markets. As competition intensifies,
the providers of Islamic financial services need to develop new sources of differentiation
beyond sharia compliance. It is quite possible that these sources will need to be different for full-
fledged Islamic banks and for those banks with Islamic windows.
2.5 Selection Criteria of Islamic Banking
Much has been written since the early 1960s on the theme of the bank selection process. Sudin et
al. (1994), among other things, sought to establish the relative importance of certain bank
selection criteria using a sample of Muslims and non-Muslims, none of whom had to be
patronizing an Islamic bank at the time of the study. Published literature has been sourced which
explains the culture of Islamic banking, the attitude of Muslims to Islamic banking in a country
where Islamic banking has been well developed and the bank selection criteria of people living
in countries which have majorities of Muslims in their population. The first selection criterion is
convenience. Convenience include factors such as convenient working hours of ATMs,
convenient branch locations and wide branch network convenience, location being near home or
work (Haron et al., 1994). Kaynak and Whiteley (1999) observed that the convenience of a bank
was a primary motivation for customers in selecting a specific institution. Riggall (2008) in his
survey on 250 newcomers to a community in the United States of America also found that
convenience of location to both home and work appeared to be the most influential factor for
bank selection by newcomers. It was also found that pricing and convenience were the main
reasons for selecting a new bank or switching banks (Mokhlis., Hazimah., & Salleh, 2008).
32
The second selection criterion is cost and benefit. Khazeh and Decker (1992) identified interest
rates as one of the top five determinants factors that influenced the banking decision among 1198
of business school alumni of Salisbury state university in Maryland. Gerrad and Cunningham
(1997) also found that profit or interest rate served as a reason for people maintaining their
relationship with Islamic banks. Similarly, Islamic banks in Sudan never reward their current
account holders, but a bulk of their funds is supplied through these facilities in light of the
Islamic principles (Haron and Noraffifah, 2000).
The third selection criterion is the influence by friends and relatives. The importance of
recommendations or word-of-mouth in the formation of attitudes in a service purchase decision
making context has been discussed in many studies (Wangenheim and Bayon, 2004; Grace and
O’Cass, 2003), especially in professional services (Razzouk et al., 2004; Ettenson and Turner,
1997). A study reported in unpublished dissertation of Gray (1977) described an investigation of
student attitudes towards banking in the U.K. He reported convenience and parental influence
were the most important factors influencing British students’ bank selection. Zainuddin et al.
(2004) in his study of Malaysian bank customers (to illustrate the different perceptions of users
and non-users of Islamic banking services) found out that that the decision-making processes of
Islamic bank’s users were affected by spouses, friends and relatives as well as their innate
religious motivation.
The fourth selection criterion is mass media advertising. Edwards (1973) and Kohers and
Simpson. (1981) found that a negative but insignificant association between profitability and
advertising intensity. Ors (2003) on the role of advertising in commercial banking found that
advertising played a significant role in banking and positively affected the profitability. It was
evident that there were size advantages for advertising in banking. Sudin et al. (1994) found that
apart from other factors, mass media advertising was considered as an unimportant factor in the
bank selection factor, moreover, although mass media advertising was less important for a
customer as the bank selection factor, commercial banks were still willing to invest a large
amount of money for advertising for greater competitiveness despite the uncertainties of its
return.
33
The next selection criterion is religion. Kirkpatrick (2005) defines religion as psychological
attachment, a powerful emotional relationship to things. Omer (1992) indicates that religious
reason is the primary variable that influences the volume of deposits of Muslims in UK in
Islamic financial institution. He also reports that the higher the religious commitment and the
lower the level of general education, the stronger the preference for Islamic over conventional
finance. Haron (1994) argued that only 38.7 percent of the respondent indicated that religion was
a prime reason for using Islamic banking services. Gerrard and Cunningham (1997) found no
difference between Muslims and non-Muslims on bank selection criteria. However, Othman and
Owen (2001) concluded that cultural and religious factors were identified as the most influential
factors that affect Islamic banking adoption in Kuwait.
In a study of Islamic Banking in Turkey by Naser, (1999) it was found that most of the Muslim
customers chose the Islamic bank from the religious perspective rather than features of the bank
such as location, profit and others. On the contrary, from the study on Islamic banking in
Singapore by Gerrard and Cunningham (1997), it was observed that there is no significant
difference in selection of bank between Muslims and non-Muslims. Rather, the customers had
given more priority to the other features of banking services.
Wakhid and Efrita (2007) stated that religious factor as the key factor that would influence
Islamic banking adoption. The sixth selection criterion is size and reputation. Turnbull (1983)
found that size of the bank was a significant factor in the choosing a conventional bank because
of the need of increasing amount of credit. Tyler and Stanley (1999) found that bank size,
reputation and reliability were the crucial factors to gain customers’ confidence. Javalgi, (1989)
argued that reputation could be one of the main criteria. The result was supported by Kennington
et al. (1996) who also concluded that the bank’s reputation was the most significant factor. Erol
and El-Bdour (1989) revealed that customer perceived bank’s reputation as one of the most
important factors on the selection of the bank whether Islamic or conventional. Sudin et al.
(1994) argued that the reputation and image of the bank was ranked the third among non-
Muslims respondents.
Choi and Valikangas (2001) also argue that the quality is no longer a competitive differentiator.
The last selection criterion is staff factor. Anderson and Cox (1976) found that one of the five
34
most important bank selection criteria was friendliness of staff. Conversely, many customers are
neither able to understand nor confident in using self-service machines (Chaoprasert and Elsey,
2004).
While Kaynak and Whiteley (1999), observed that the convenience of a bank was a primary
motivation for customers in selecting a specific institution, Kennington , (1996) and Almossawi
(2001) concluded that the bank’s reputation was the most significant factor in the use of
conventional banks’ services, while Ta and Har (2000) and Kaynak and Harcar (2005) found that
profitability factors, such as low service charges and high interest rates, were the major reasons
why customers chose a particular bank. Kaynak and Harcar (2005) also concluded that a fast and
efficient service was also an attractive feature valued by current and potential customers, while
Gerard and Cunningham (2001) considered that for most customers the most important criterion
for bank selection was feeling secure. In related work, Devlin (2002) showed that professional
advice was the most significant motivation for the choice of a home loan institution by customers
in the United Kingdom.
At the same time, the increasingly competitive environment in which conventional banks operate
has seen customer satisfaction become the focus of increasing attention. Generally, there is a
consensus among many studies that service quality is the primary factor in customers’
satisfaction with conventional bank services (Taylor and Baker 1994; Levesqueand McDougal
1996; Jamal and Naser 2002). Moutinho and Smith (2000), for instance, considered customer
satisfaction with human and automated banking and found that consistent and efficient service
delivery was most-highly valued. Al-Hawari and Ward (2006) likewise considered the impact of
automated banking on the perception of service quality.
In terms of outcomes, Pont and McQuilken (2005) concluded that a high level of customer
satisfaction impacted positively on the continued loyalty of a customer towards a particular bank.
Hamid andNordin (2001) focused on the awareness of Malaysian customers towards Islamic
banking within the context of the wider promotion of Islamic education. They found that most
Malaysians did not differentiate between Islamic and conventional bank products and services,
though the majority had sufficient knowledge of the existence and services offered by Islamic
35
banks in Malaysia. Moreover, even though half of respondents of this study dealt with Islamic
banks, they were in need of extra understanding of Islamic banks’ products.
In Bahrain, Metawa and Almossawi (1998) concluded that the most important factor in
determining the attitudes of Islamic bank customers was religion then profitability. In addition,
most Bahraini bank customers were satisfied with the quality of Islamic bank services, especially
investment accounts. On other hand, the lowest satisfaction was with more complex Islamic
financing schemes because of the relatively high costs. In Jordan, Naser et al. (1999) extended
the early work by Erol and El-Bdour (1989) and Erol et al.(1990), but concluded that the bank
reputation and the religious beliefs were the two most important factors motivating the use of
Islamic banks services. And in Kuwait, Al-Sultan (1999) considered the attitudes of several
hundred customers towards the products and services offered by the interest-free Kuwait Finance
House. Similarly to Metwally (1996), Al- Sultan (1999) confirmed that adherence to Islam was
the primary motivating factor for Kuwaitis dealing with an Islamic bank. That said, slightly more
than half of the respondents preferred to deal with a conventional banks because of the better
service record. This meant that any religious motivation in preferring an Islamic bank was
subsumed by the greater concern for the quality of bank services.
2.6 Islamic Culture and Islamic banking
Every organizational environment is different, even within one culture. Therefore, a contingency
approach is best (Lawler, 1994). A preliminary step is to understand the firm’s particular
environment through employee interviews, focus group surveys and observation. An evaluation
of the external environment should also be conducted. The Islamic Banking could be treated as
evidence that shows how culture and its set of traditions and beliefs can be applied to the
business area with a high rate of success. Prohibiting the recovery of interest in a tool such as the
loan as a policy inspired in the religious statements dictated by their code of law (Quoran)
represents a great measure that encompasses the economic and political ambits with the religious
and social ones.
36
The Qur’an (Koran), the Muslims’ Holy Book, explicitly deals with economic-related matters
and how they apply in Islam. The Sharia’h, this being the Islamic law of human conduct, is
derived from the Qur’an. The Sharia’h prohibits what is called “Riba” (i.e. payment over and
above what has been lent which causes the payment of interest or usury to be a wrong). What the
Sharia’h does not prohibit is profit acquired from a trading activity, the reasoning behind this
positive stance being that there is a risk of loss involved in any trading activity. With Riba, in
theory, there is no risk of loss. For example, with a conventional fixed-term deposit, all a
depositor has to do is wait until the maturity date of the deposit comes along and, if the mandate
that he or she gave to the bank was for the repayment of capital and interest, that is what the
depositor will get back (in essence, placing monies in a traditional fixed term deposit involves no
risk). Because of Riba, Islamic banks have had to develop financial products which are not in
conflict with the Sharia’h. This has resulted in traditional deposit and lending products, which
are made available by what can be called “conventional” banks, being restyled so as to satisfy
the Sharia’h. The task has been achieved by creating a number of special financial products (Ali
and Ali, 1994). With each of these products, the parties (i.e. the depositors and the borrowers)
can be considered as operating in a partnership to which a risk is attached. Both will receive a
rate of return which is based on performance – rather than pay interest or receive interest at a
pre-determined rate.
2.6.1 Profit and Loss Sharing (PLS) Theory
Islamic scholars treat PLS instruments, mudarabah and musharakah as a central pillar of the
Islamic banking model. In mudarabah banking, the Islamic bank accepts funds from depositors
under risk-sharing arrangements. The Islamic bank either directly invests these funds in
profitable investments or extends them to entrepreneurs on a risk-sharing basis. The Islamic bank
shares the profit or loss made on mudarabah ventures with its depositors. In musharakah
banking, the Islamic bank contributes the depositors' funds to a joint enterprise with the client
(an entrepreneur). Generally, the Islamic bank allows the client to manage all the affairs of a
Musharakah business. The Islamic bank and the client mutually share the profit or loss made on
the Musharakah investment. In a typical PLS arrangement, an Islamic bank provides the risk
37
capital to a firm in which professional managers are responsible for making strategic and
operational decisions.
The bank shares in profits and is liable to any financial loss. There is no serious problem with
this arrangement if the bank is able, and is allowed, to monitor business operations of the firm.
However, proper monitoring mechanisms are yet to be devised for PLS, especially in case of
Mudaraba that does not provide any control rights to the financier (the Islamic bank in this case).
Fiqh literature on this issue is quite out-of-date and needs serious reconsideration. For example,
Saleh (1986) lists three rights and one responsibility of the financier in a Mudaraba arrangement.
The rights include ensuring that the borrowing entrepreneur (firm) complies with the terms of the
contract, sharing profits, and limited liability in case of loss. The sole responsibility is handing
over the Mudaraba capital. He also outlines two rights and two responsibilities of the borrower.
The rights include conducting the business with an appropriate degree of freedom, and
accounting decisions. The responsibilities are compliance with the terms of the contract, and
liquidation of the Mudaraba business at the end of the contract. The modern use of Mudaraba as
a mode of financing obviously requires more than such preliminary specification of rights and
responsibilities. There is a need for construction of standardized PLS contracts, or bylaws, in the
light of the legal frameworks of Muslim countries. A prominent feature of these bylaws should
be definition of the rights and obligations of various officers or groups within the organizational
structure. Similar bylaws should delineate the clauses related to performance of the borrowing
firm compared with other firms in the same sector and, possibly, other firms.
2.6.2 Murabaha (Deferred Payment Sale): Theory and Practice
Under the Murabaha arrangement, the client makes a promise to buy specified goods from the
Islamic bank on a deferred payment basis. The Islamic bank purchases goods from the original
supplier and sells them on to the client after adding its own pro profit margin. The legality of
murabaha could not be established from the primary sources of Islamic Shari‟ah, i.e. the holy
Quran and Sunnah. The early Islamic jurists, such as Imam Malik (796) and Imam Shafi (820),
approved murabaha sales but they did not refer to the increase in price in the case of deferred
payment. Subsequently, certain other Islamic jurists, such as Sarakhsi (1091), Marghinani (1197)
38
and Nawawi (1277), allowed the seller to charge a higher price in the deferred payment sale by
characterizing it as a normal trade practice (Saadullah, 1994; Vogel and Hayes, 1998).
Contemporary Islamic scholars have mixed opinions about the murabaha banking system. The
majority of them have strong reservations about it because of its close resemblance to
conventional banking practice.
The practice of murabaha financing grossly violates Shari‟ah principles. Islamic banks insure
murabaha goods against the risks of damage, destruction and theft, and impose all such costs on
their clients (Bashir, 1999; Warde, 2000). They use interest rates to fix returns on murabaha
contracts. They assign higher returns on murabaha contracts with longer periods, just as
conventional banking does. They follow the rule: pay now, pay less principal. They recover fines
and additional charges from clients who delay murabaha loan repayments. Furthermore, they
unlawfully recover losses from clients who breach their promises to buy murabaha goods. Thus,
Islamic banks earn almost risk-free returns on their murabaha investments (Khan & Bhatti,
2008).
2.6.3 Ijarah (Lease Financing)
The features of Ijarah financing are very similar to those of conventional lease financing.
However, unlike in the conventional lease contract, Shari‟ah holds the leaser responsible for all
damage, repairs, insurance and depreciation of the leased asset. The leaser should also bear the
risk of uncertainty attached to the useful life of the leased asset. Islamic financial institutions
mostly rely on leasing, known as Ijarah wa iqtina, for meeting financing needs in the real estate,
retail, industry and manufacturing sectors. Leasing enjoys strong support from Shari‟ah scholars
and bears a close resemblance to conventional leasing (Iqbal, 2000).
2.6.4 Bai Salam (Advance Payment) and Bai Istisna (Procurement Engagement)
Bai salam and bai istisna are forward sale contracts in which the seller pays in advance the price
of goods that are to be delivered to him at a specified future date. Bai salam was widely practiced
in the Arabian agricultural sector long before the dawn of Islam. These instruments are best
suited to meet the financing needs of the farming and manufacturing industries in the Islamic
39
economy. Shari‟ah stipulates that the terms and conditions of bai salam and bai istisna
contracts, such as price, quantity and quality of goods, should be clearly determined without
involving any features of interest, gharar (speculation) or dubious sale (Iqbal, 2000).
2.7 Chapter Summary
This chapter presents the work of other authors in relation to the study. The study first discusses
the influence of Regulatory Framework on the implementation of Islamic Banking with a
specific focus on Legal framework challenges facing the Islamic banking industry; here the study
also reviews the importance of prudential supervision to Islamic banking. Secondly, the study
reviews the attitudes towards Islamic Banking with specific focus on behaviors of customers -
demographics, beliefs, and attitudes towards Islamic banking. Other variables discussed are bank
competition and efficiency; the various selection criteria applied on Islamic Banking and how the
Islamic culture influences the implementation of Islamic banking. Chapter three explained the
research methodology which included study design, target population and sampling design, data
collection and finally data analysis.
40
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
3.1 Introduction
This chapter explained the various stages and phases that were followed in completing the study.
It involved a blueprint for the collection, measurement and analysis of data. This section was an
overall scheme, plan or structure conceived to aid the researcher in attaining the research
objectives. In this stage, most decisions about how research was executed and how respondents
were approached, as well as when, where and how the research was completed. Therefore in this
section the research identified the procedures and techniques that were used in the collection,
processing and analysis of data. Specifically the following subsections were included; study
design, target population and sampling design, data collection and finally data analysis.
3.2 Research Design
Research design is the plan and structure of investigation so conceived as to obtain answers to
research questions. The plan is the overall scheme or program of the research (Robson, 2002).
According to Cooper & Schinder (2003), there are many definitions of research design but no
one definition impacts the full range of important aspects. However, all definition provides
answers for questions such as; what techniques will be used to gather data? What kind of
sampling will be used? How will time and cost constraints be dealt with? The study design
therefore includes an outline of what the investigator will do from writing hypotheses and their
operational implications to the final analysis of data (Leedy, 1989). A research design expresses
both the structure of the research problem and the plan of investigation used to obtain empirical
evidence on relations of the problem (Cooper & Schinder, 2003:146).
This research problem was studied through the use of a descriptive research design. According to
Cooper and Schindler (2003), a descriptive study is concerned with finding out the what, where
and how of a phenomenon. Descriptive survey designs are used in preliminary and exploratory
studies to allow researchers to gather information, summarize, present and interpret for the
purpose of clarification. The choice of the descriptive survey research design was based on the
fact that in the study, the research was interested on the state of affairs already existing in the 41
field and no variable would be manipulated. This study therefore was able to generalise the
findings to a larger population.The main focus of this study was quantitative. However some
qualitative approach was used in order to gain a better understanding and possibly enable a better
and more insightful interpretation of the results from the quantitative study.
3.3 Population and Sample Design
3.3.1 Population
Accordingly Ngechu (2004), a study population is a well defined or specified set of people,
group of things, households, firms, services, elements or events which are being investigated.
Thus the population should fit a certain specification, which the researcher is studying and the
population should be homogenous. The population of study consisted of all the 2 fully fledged
Islamic commercial banks in Kenya (First Community Bank and Gulf African Bank) and two
convectional banks, Barclays Bank Kenya and Kenya Commercial Bank (KCB), which had
provided Islamic banking services for the longest period as compared to other convectional
banks; and registered with CBK as at 31st December 2012. The banks were chosen upon because
they are the ones involved in the implementation of Islamic banking hence have clear
information on the challenges facing its implementation in Kenya. Mugenda and Mugenda
(1999) explain that the target population should have some observable characteristics, to which
the researcher intends to generalize the results of the study. This definition assumes that the
population is not homogeneous.
Table 3.1 Target Population
Target Population Target Number
First Community Bank 72
Gulf African Bank 64
Kenya Commercial Bank (KCB) 108
Barclays bank Kenya 116
Total 396
42
3.3.2 Sampling Design
The basic idea of sampling was to select some elements of the population that helped the
researcher to draw conclusions about the same entire population. Sampling presents benefits. It
has the advantages of lower research costs, greater accuracy on the obtained results, and greater
speed of the data collection and the availability of the required population elements (Cooper and
Schindler, 2008).
3.3.2.1 Sampling Frame
Once the population has been clearly defined, the sampling frame is the next step. Saunders,
Lewis, and Thornhill (2007), define a sample frame as the complete list of all the cases in the
population from which the sample is drawn. The study planned to collect the sample frame from
the two (2) fully-fledged Islamic banks and the eight (8) Islamic banking windows involved in
the study. In each institution, the head of operations and/ or branches provided a listing of the
names of potential managers and members of staff of their respective offices who were part of
the study.
3.3.2.2 Sampling Technique
Sampling is the technique of selecting elements from the population that will represent the
population (Collins and Hussey, 2006). A sample is a group from the population that will be
representative of the population (Coopers and Schindler, 2008).
A stratified random sampling technique was used to collect the data. The stratified random
sampling is the probability of selection in which units are randomly sampled from a population
that has been divided into categories or strata (Bryman, 2008). Stratified sampling has three basic
advantages: it increases sample’s statistical efficiency; provides adequate data for analyzing
subpopulations; and enables different research methods and procedures to be used in different
strata (Coopers and Schindler, 2008). Upon receiving the sample frame of the respondents that
were provided by the heads of operations, the researcher selected the sample size randomly. The
respondents were stratified according to their functions in the banks and more specifically,
43
Islamic Banking and then randomly selected in order to ensure that each respondent has an equal
chance of being chosen.
3.3.2.3 Sample Size
The sample size enabled the researcher to have adequate time and resources in piloting and
designing the means of collecting data. It ensured that the information collected was detailed and
comprehensive enough to answer the research questions. From each Islamic bank and Islamic
banking window, a sample size of 30% was taken from each stratum to give a sample size of 119
respondents as shown below.
Table 3.2 sample size
Target Population Target Number
Sampling (%) Sample Size
First Community Bank 72 30 22
Gulf African Bank 64 30 19
Kenya Commercial Bank (KCB) 118 30 35
Barclays bank Kenya 142 30 43
Total 396 119
3.4 Data Collection Methods
A questionnaire was employed as the sole research instrument. The researcher then administered
a survey questionnaire to each member of the sample population. The questionnaire had both
open and close-ended questions. The close-ended questions provided more structured responses
to facilitate tangible recommendations. The closed ended questions was used to test the rating of
various attributes and this helped in reducing the number of related responses in order to obtain
more varied responses. Semi structured interview refers to the use of already prepared questions
during the study. The open-ended questions provided additional information that was not
captured in the close-ended questions. The questionnaire was carefully designed and tested with
a few members of the population and the project supervisor for further improvements. This was
44
done in order to enhance its validity and accuracy of data to be collected for the study.
Questionnaires gave respondents freedom to express their views or opinions and also to make
suggestions. It was also anonymous.
3.5 Research Procedure
Before the actual study was conducted, piloting was done on 5 staff working in FCB Kimathi
Branch in Nairobi which is one of the branches of FCB in Kenya of which the findings was not
included in the final report. According to Berg and Gall (1989), a pilot study is a small
preliminary investigation conducted to develop and test measures or procedures that will be used
in the research study. Piloting is important as it helps the researcher to identify
misunderstanding, ambiguities and useless or inadequate items (Shenghverzy, 2003). Therefore,
the researcher was able to get rid of unclear items on the research instrument for the final study.
The researcher administered the research instrument personally to the respective respondents.
The researcher randomly dropped the questionnaire to the management staff that was well
conversant with the companies’ operations. The researcher exercised care and control to ensure
all questionnaires issued to the respondents were received and to achieve this, the researcher
maintained a register of questionnaires, which was sent, and which was received.
3.6 Data Analysis Methods
Before processing the responses, the completed questionnaires were edited for completeness and
consistency. The data was then coded to enable the responses to be grouped into various
categories. Data collected was both qualitative and quantitative and it was analyzed by
descriptive and content analysis techniques. The descriptive analysis employed descriptive
statistical tools such as SPSS and MS Excel which helped the researcher to describe the data and
determine the extent used. The findings were presented using tables and charts. The Likert scales
were used to analyze the mean score and standard deviation, this helped in determining the
extent to which the banks are affected by the various innovation strategies. Data analysis used
SPSS and Microsoft Excel, percentages, tabulations, means and other central tendencies. Tables
were used to summarize responses for further analysis and facilitate comparison. The qualitative
45
data was analyzed using content analysis and presented in prose form. Both quantitative and
qualitative data was compiled to generate the final project report.
3.7 Chapter Summary
In this chapter, the methodology and research design that was adopted in the research process
was provided. Specifically, the chapter highlighted the design adopted as well as the target
population and sampling design. Similarly, the research instruments that were utilized were
specified. Lastly, the research procedures adopted as well as the method used in analyzing data
was explained by the researcher. The next chapter presented the study results and findings based
on the research objectives.
46
CHAPTER FOUR
4.0 DATA ANALYSIS AND PRESENTATION
4.1 Introduction
This chapter presents analysis and findings of the study as set out in the research methodology.
The results are presented on the regard challenges facing the implementation of Islamic banking
in Kenya.
4.2 Response Rate
The study targeted a sample of 119 respondents in regard challenges facing the implementation
of Islamic banking in Kenya. From the study, 85 out of 119 sampled respondents filled in and
returned the questionnaire contributing to 71%. This response rate was favorable, according to
Mugenda and Mugenda (2003) in which they assert that a 50% response rate is adequate, 60%
good and above 70% rated very well.
4.2.1 Distribution of respondents by response rate
Table 4.1 Response Rate
Response Rate Frequency Percentage
Responded 85 71
Not responded 34 29
Total 119 100
47
4.3 General Information
The researcher begun by a general analysis on the general data from the respondents which included:
Age, gender, education level, department respondent work in and work duration.
4.3.1 Gender
The study sought to establish the gender of the respondents who took part in the study.
4.3.1.1 Distribution of Respondents by Gender
The table below shows that 59% of the respondents were male while 41% were female.
Table 4.2 Gender of Respondents
Gender Frequency Percentage
Male 50 59
Female 35 41
Total 85 100
4.3.2 Age of the Respondents
4.3.2.1 Distribution of Respondents by Age
The table below indicates that 32% of the respondents were between 39-45 years, 23% were
between 25-31 years and 18% were between 18-24 years. The table also shows that 15% of the
respondents were between 32-38 years and 12% were above 46 years.
48
Table 4.3 Ages of Respondents
Age Frequency Percentage
18-24 years 15 18
25-31 years 20 23
32-38 years 13 15
39-45 years 27 32
Above 46 years 10 12
Total 85 100
4.3.3 Level of Education
4.3.3.1 Distribution of Respondents by Level of Education
The study sought to establish the level of education of the respondents. The table below shows
that 76% of the respondents had attained an undergraduate degree, 18% had attained
postgraduate degree and 6% had a diploma certificate.
Table 4.4 Level of Education
Level of Education Frequency Percentage
Diploma 5 6
Undergraduate 65 76
Postgraduate 15 18
Total 85 100
49
4.3.4 Work Duration
4.3.4.1 Distribution of Respondents by Work Duration
In this section the researcher sought to establish the duration of time the respondents had worked
in the organization. The table below shows that 55% of the respondents had worked for a period
of 5-10 years, 27% had worked for less than 5years and 18% had worked for more than 10 years.
Table 4.5 Work Duration of the Respondents
Work Duration Frequency Percentage
Below 5 years 23 27
Between 5-10 years 47 55
More than 10 years 15 18
Total 85 100
4.3.5 Position in the Organization
4.3.5.1 Distribution of Respondents by Position in the Organization
The researcher asked the respondents to state their position in the organization. The results
indicated that 71% of the respondents were in the middle level position, 18% were in the top
level and 11% were in the lower level position in the organization.
Table 4.6 Position in the Organization
Position Frequency Percentage
Top level 15 18
Middle level 60 71
Lower level 10 11
Total 85 100
4.3.6 Banking Institution
4.3.6.1 Distribution of Respondents by their Banking Institution
50
The findings revealed that shows that 32% of the respondents were working at first community
bank, 27% were working at gulf African bank, 23% were working at Barclays bank of Kenya
and 18% were working at Kenya commercial bank. The table below shows the banking
institutions of the respondents as established by the researcher.
Table 4.7 Banking Institution
Banking Institution Frequency Percentage
First community bank 27 32
Gulf African bank 23 27
Barclays bank Kenya 20 23
Kenya commercial bank 15 18
Total 85 100
4.4 Regulatory Framework and Implementation of Islamic Banking
4.4.1nfluence of Regulatory Framework on Implementation of Islamic Banking
The study sought to establish the influenced of Regulatory Framework on the Implementation of
Islamic Banking. From the findings, 65% of the respondents stated that the regulatory framework
has had a great influence on the implementation of Islamic banking as shown in the figure above.
51
Table 4.1 Regulatory Frameworks and Implementation of Islamic Banking
Respondents Frequency Percentage
Yes 55 65
No 35 35
Total 85 100
4.8.1 Extent to which Regulatory Framework influences implementation of Islamic
Banking
The table below indicates the extent to which respondents consider influence of the regulatory
framework on the implementation of Islamic banking. Majority of the respondents indicated that
Legal Support is the most important challenge facing the Islamic banking industry as shown by
a mean score of 3.8273.Special issues in Islamic banks that need to be recognized and addressed
to help make the conduct of banking supervision more effective was to a very great extent as
shown by a mean score of 2.9637 , Weak regulatory framework reduce public confidence in the
financial system, impeding or delaying necessary structural reforms in this area was to a very
great extent as shown by a mean score of 2.7634, Ensuring efficiency of the payments system
and the effectiveness of monetary policy was to a moderate extent as shown by a mean score of
2.3456, Enhancing soundness of the banking system and reduces insolvency risks was to a
moderate extent as shown by a mean score of 1.2934.Inappropriate commercial banking and
company laws for implementation of Islamic banking and financial contracts was to a moderate
extent as shown by a mean score of 1.2838 and Commercial banking and company laws
containing provisions that are narrowly defined and prohibit the scope of Islamic banking
activities within conventional limits was also to a moderate extent as shown by a mean score of
1.2390.
52
Table 4.8 Regulatory Framework influences on Implementation of Islamic Banking
Extent Mean Standard deviation
Enhances soundness of the banking system and reduces insolvency risks
1.2934 2.3456
Ensure efficiency of the payments system and the effectiveness of monetary policy
2.3456 1.3456
Weak regulatory framework prevent the economy from benefiting from the ongoing globalization process and the liberalization
1.2367 3.7254
Weak regulatory framework reduce public confidence in the financial system, impeding or delaying necessary structural reforms in this area
2.7634 2.7365
Commercial banking and company laws contain provisions that are narrowly defined and prohibit the scope of Islamic banking activities within conventional limits
1.2390 1.2537
Legal Support is the most important challenge facing the Islamic banking industry
3.8273 2.3749
There are no appropriate commercial banking and company laws for implementation of Islamic banking and financial contracts
1.2838 1.7826
There exist special issues in Islamic banks that need to be recognized and addressed to help make the conduct of banking supervision more effective
2.9637 2.7389
4.5 Attitudes towards Islamic Banking
4.5.1 Influence of Attitudes towards Islamic Banking
The study sought to investigate if there are any attitudes towards Islamic Banking that affect the
implementation of Islamic banking. From the findings 81% of the respondents indicated that
there are certain attitudes that affect the implementation of Islamic banking.19% stated that they
53
are not aware of any attitudes towards Islamic banking that affect the implementation of Islamic
banking. The results are as shown in the table below.
Table 4.9 Attitudes towards Islamic Banking
Extent Frequency Percentage
Yes 69 81
No 16 19
Total 85 100
4.10 Extent to which Attitudes influence implementation of Islamic Banking
The table below indicates that 35% of the respondents stated that attitudes to a very great extent
affect implementation of Islamic banking.28% stated that attitudes to a great extent affect
implementation of Islamic banking, 18% stated to a moderate extent, 13% stated to a little extent
and 6% stated that attitude do not at any extent affect implementation of Islamic banking.
Table 4.10 Attitude and implementation of Islamic Banking
Extent Frequency Percentage
To no extent 5 6
To a little extent 11 13
To a moderate extent 15 18
To a great extent 24 28
To a very great extent 30 35
Total 85 100
4.11 Extent of agreement on the influence of Attitude towards Islamic Banking
The findings revealed that respondents agreed to a great extent that consumers’ choice on
Islamic banking services and products is based on based on dimensions of value, cost, and prior
satisfaction attitude affects implementation of Islamic banking as shown by a mean score of
2.9384 .in addition respondents agreed to a great extent that Non-Islamic customers refuse to
invest in companies engaged in unethical and socially harmful activities attitude affects
implementation of Islamic banking as shown by a mean score of 2.4894.the findings also
54
revealed that respondents agreed to a great extent that Customers’ beliefs determine attitudes
towards Islamic banking religious perspective influences customers choice of Islamic bank as
shown by a mean score of 2.3837.respondents also agreed to a moderate extent that Consumers
perceive financial services and products that conform to Islamic religious principles pose special
challenges/ risks as shown by a mean score of 1.9237.the findings revealed that to a moderate
extent Customers demographics determines attitudes towards Islamic banking as shown by a
mean score of 1.2348.
Table 4.11 Effects of Attitude on the Implementation of Islamic Banking
Attitude Mean
Standard Deviation
Non-Islamic customers refuse to invest in companies engaged in unethical and socially harmful activities
2.4894
1.2387
Consumers’ choice on Islamic banking services and products is based on dimensions of value, cost, and prior satisfaction
2.9384
2.0374
Customers demographics determines attitudes towards Islamic banking
1.2348
1.0937
The Islamic Banks have to address the importance of knowledge building programs on customers, training for employees
2.3837
2.3876
Consumers perceive financial services and products that conform to Islamic religious principles pose special challenges/ risks
1.9237
1.7283
4.6 Bank Competition and Efficiency
4.6.1 Effect of Bank Competition and Efficiency on implementation of Islamic Banking
The study sought to establish whether bank competition affect the implementation of Islamic
banking in Kenya. From the findings, 73% of the respondents stated that bank competition
affects the implementation of Islamic banking in Kenya while 27% of the respondents stated that
bank competition does not affect implementation of Islamic banking. The researcher further
sought to establish whether bank efficiency has an influence on implementation of Islamic
banking. From the findings 64% of the respondents stated that bank efficiency has an influence
55
on implementation of Islamic banking while 36% of the respondents stated that bank efficiency
has no influence on implementation of Islamic banking. The results are as shown in the table
below.
Table 4.12 Bank Competition and Efficiency on implementation of Islamic Banking
Extent Bank Competition Bank Efficiency
F % F %
Yes 62 73 54 64
No 23 27 31 36
Total 85 100 85 100
4.6.2 Extent of agreement on the effect of Bank Competition and Efficiency on
implementation of Islamic Banking
The findings revealed that the respondents agreed to a very great extent that deregulation and
increased competition leads to inefficiency in Islamic banking as shown by a mean score of
3.5874. The respondents agreed to a very great extent that natures of risks facing Islamic banking
are unique as shown by a mean score of 3.2874. In addition the respondents agreed to a great
extent that an enabling operational environment for Islamic finance will need more suitable
regulatory framework and new financial instruments and institutional arrangements as shown by
a mean score of 2.9725. the respondents also agreed to a great extent that rapid and dynamic
changes in the global financial landscape have posed various risks to Islamic banking institutions
as shown by a mean score of 2.4673.however the respondents agreed to a moderate extent that
Improved resources management practices increase efficiency in Islamic banking as shown by a
mean score of 1.3785 the respondents also agreed to a moderate extent that deregulation
enhances competition in Islamic banking as shown by a mean score of 1.2739.the respondents
also moderately agreed that deregulation results in improvement in productivity as shown by a
mean score of 1.0292.the respondents moderately agreed that Increased efficiency is as a result
of improved resources management practices as shown by a mean score of 1.0273.
56
Table 4.13 Bank Competition and Efficiency and implementation of Islamic Banking
Statement Mean Standard Deviation
Deregulation and increased competition leads to inefficiency in Islamic banking
3.5874 3.0987
Improved resources management practices increase efficiency in Islamic banking
1.3785 1.9364
Rapid and dynamic changes in the global financial landscape have posed various risks to Islamic banking institutions.
2.4673 2.8373
Deregulation enhances competition in Islamic banking
1.2739 1.0928
Deregulation results in improvement in productivity
1.0292 1.2839
Nature of risks facing Islamic banking are unique 3.2874 3.2315
An enabling operational environment for Islamic finance will need more suitable regulatory framework and new financial instruments and institutional arrangements
2.9725 2.7282
Increased efficiency is as a result of improved resources management practices
1.0273 1.2930
4.7 Selection Criteria of Islamic Banking
4.7.1 Effect of Selection Criteria on implementation of Islamic Banking
The study further sought to establish whether selection criteria of Islamic banking affects the
implementation of Islamic banking.72% of the respondents stated that selection criteria affects
the implementation of Islamic banking while 28% of the respondents stated that selection criteria
57
does not affect implementation of Islamic banking. The results are represented in the figure
below
Table 4.2 Impact of Selection Criteria on implementation of Islamic Banking
Respondents Frequency Percentage
Yes 61 72
No 24 28
Total 85 100
4.7.2 Extent of agreement on the effect of Selection Criteria on implementation of Islamic
Banking
The findings indicated that the respondents agreed to a great extent that religion factor is a key
influence Islamic banking adoption as shown by a mean score of 3.9487. the respondents also
agreed to a great extent that financial services and products nature, price, influence
implementation of Islamic banking as shown by a mean score of 3.3282.the respondents also
agreed to a great extent that nature of products determines customers’ bank choice as shown by a
mean score of 2.9372.the respondents agreed to a great extent that reputation and reliability are
crucial factors to gain customers’ confidence in bank as shown by a mean score of 2.8762.the
respondents agreed to a moderate extent that quality of bank services influences customers in
Islamic banking as shown by a mean score of 1.3832.the respondents agreed to a moderate extent
that Situational factors influence implementation of Islamic banking as shown by a mean score
of 1.2834.
58
Table 4.14 Selection Criteria and Implementation of Islamic Banking
Statement Mean Standard Deviation
Religious factor is a key influence in Islamic banking adoption 3.9487 2.9743
Reputation and reliability are crucial factors to gain customers’ confidence in bank
2.8762 1.2873
Quality of bank services influences customers in Islamic banking 1.3832 1.3748
Nature of products determines customers’ bank choice. 2.9372 2.0384Financial services and products nature, price, influence implementation of Islamic banking
3.3282 3.0382
Situational factors influence implementation of Islamic banking 1.2834 1.1028
4.7.3 Extent of agreement on the effect of Selection Criteria on implementation of Islamic
Banking
The study sought to establish further the extent to which selection criteria affects the
implementation of Islamic banking. From the findings 33% agreed to a very great extent that
selection criteria affects the implementation of Islamic banking.28% agreed to great extent that
selection criteria affects the implementation of Islamic banking while 17% agreed to a moderate
extent that selection criteria affects the implementation of Islamic banking.13% agreed to a little
extent that selection criteria affects the implementation if Islamic banking and 9% agreed that to
no extent does selection criteria does affect implementation of Islamic banking.
59
Table 4.15 Influence of Selection Criteria on the Implementation of Islamic Banking
Extent Frequency PercentageTo no extent 8 9To a little extent 11 13To a moderate extent 14 17To a great extent 24 28To a very great extent 28 33Total 85 100
4.8 Islamic Culture
4.8.1 Influence of Islamic Culture on implementation of Islamic Banking
The researcher further sought to establish whether culture affects the implementation of Islamic
banking in Kenya.71% of the respondents stated that Islamic culture affects the implementation
of Islamic banking and 29% of the respondents stated that Islamic culture does not affect the
implementation of Islamic banking. The results are as shown in the figure below;
Table 4.16: Influence of Islamic Culture on implementation of Islamic Banking
Respondents Frequency Percentage
Yes 60 71
No 25 29
Total 85 100
4.8.2 Extent of agreement on the influence of Islamic Culture on implementation of Islamic
Banking
The findings revealed that 36% of the respondents agreed to a very great extent that Islamic
culture affects the implementation of Islamic banking, 28% of the respondents agreed to a great
extent that Islamic culture affects the implementation of Islamic banking. On the other hand 14%
of the respondents agreed to a moderate extent that Islamic culture affects the implementation of
Islamic banking.12% of the respondents agreed to a less extent that Islamic culture affects the
60
implementation of Islamic banking. However 10% of the respondents agreed that to no extent
does Islamic culture affects implementation of Islamic banking.
Table 4.17 Islamic Culture effects on the Implementation of Islamic Banking
Extent Frequency PercentageTo a very great extent 31 36To a great extent 24 28To a moderate extent 12 14To a less extent 10 12To no extent 8 10Total 85 100
4.8.3 Extent of agreement on the influence of Islamic Culture on the implementation of
Islamic Banking
The table below shows that majority of the respondents agreed to a great extent that Islamic
banks success is attributed to Islamic culture, traditions and beliefs as shown by a mean score of
2.9284.the respondents agreed to a great extent that Islamic culture and law have played a critical
role in creating financial products in Islamic banking as shown by a mean score of 2.7291.the
respondents further agreed to a moderate extent that Sharia’h guides the nature and form of
financial products in Islamic banks as shown by a mean score of 2.3828.the respondents agreed
to a moderate extent that Code of law (Quran) is a great measure of Islamic banking operations
as shown by a mean score of 2.1836.
61
Table 4.18 Influence of Islamic Culture on Islamic Banking
Statement Mean Standard DeviationIslamic banks success is attributed to Islamic culture, traditions and beliefs
2.9284 2.1937
Code of law (Quran) is a great measure of Islamic banking operations
2.1836 2.0374
Islamic culture and law have played a critical role in creating financial products in Islamic banking
2.7291 1.2372
Sharia’h guides the nature and form of financial products in Islamic banks
2.3828 1.2839
4.9 Chapter Summary
This chapter has analyzed the findings of the data collected from the managers and supervisors
of the various departments at the selected banks. 85 out of 119 sampled respondents filled in and
returned the questionnaire contributing to a great percentage. The findings indicated that
majority of the respondents were male. In addition majority of the respondents had attained an
undergraduate degree; majority of the respondents had worked for a period of 5-10 years.
Majority of the respondents were in the middle level position and worked at first community
bank.
With regard to the influence of regulatory framework on the implementation of Islamic banking,
majority of the respondents indicated that Legal Support is the most important challenge facing
the Islamic banking industry. Majority of the respondents also stated that Commercial banking
and company laws contain provisions that are narrowly defined and prohibit the scope of Islamic
banking activities within conventional limits.
62
The respondents on the influence of attitudes on the implementation of Islamic banking indicated
that Customers’ beliefs determine attitudes towards Islamic banking religious perspective
influences customer’s choice of Islamic bank. The findings also indicated that respondents
agreed that Customers’ beliefs determine attitudes towards Islamic banking and religious
perspective influences customers’ choice of Islamic bank.
On the impact of bank competition and efficiency on the implementation of Islamic banking the
findings revealed that respondents indicated that deregulation and increased competition leads to
inefficiency in Islamic banking. The findings also revealed that respondents indicated that an
enabling operational environment for Islamic finance will need more suitable regulatory
framework and new financial instruments and institutional arrangements.
On the influence of selection criteria on the implementation of Islamic banking the respondents
indicated that religious factor is a key influence Islamic banking adoption. On the other hand on
the impact of Islamic culture on the implementation of Islamic banking the respondents stated
that Islamic banks success is attributed to Islamic culture, traditions and beliefs.
63
CHAPTER FIVE
5.0 DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter provides a summary of the findings, the conclusion and the recommendations of the
study to investigate the challenges facing the implementation of Islamic banking in Kenya.
5.2 Summary
The purpose of the study was to determine the challenges facing implementation of Islamic
banking in Kenya. The study was guided by the following research objectives. Determine the
influence of regulatory framework on the implementation of Islamic banking in Kenya,
Determine the effects of attitudes towards Islamic banking on its implementation in Kenya,
Determine the effect of bank competition and efficiency on the implementation of Islamic
banking in Kenya, Establish the effects of selection Criteria of Islamic Banking on the
implementation of Islamic banking in Kenya, and establish the effects of Islamic culture on the
implementation of Islamic banking in Kenya.
The study adopted a descriptive research design. The population of study consisted of all the 2
fully fledged Islamic commercial banks in Kenya (First Community Bank and Gulf African
Bank) and two convectional banks, Barclays bank Kenya and Kenya Commercial Bank (KCB),
which have provided Islamic banking services for the longest period as compared to other
convectional banks; and registered with CBK as at 31st December 2012. A stratified random
sampling technique was used to collect the data. A questionnaire was employed as the sole
research instrument. The researcher administered a survey questionnaire to each member of the
sample population. The questionnaire had both open and close-ended questions. The close-
ended questions provided more structured responses to facilitate tangible recommendations. The
closed ended questions were used to test the rating of various attributes and this helped in
reducing the number of related responses in order to obtain more varied responses. Data
collected was both qualitative and quantitative and was analyzed by descriptive and content
64
analysis techniques. The descriptive analysis was employed in descriptive statistical tools such as
SPSS and MS Excel which helped the researcher to describe the data and determine the extent
used. The findings were presented using tables and charts. The Likert scales were used to
analyze the mean score and standard deviation, this helped in determining the extent to which the
banks are affected by the various innovation strategies. Data analysis used SPSS and Microsoft
Excel, percentages, tabulations, means and other central tendencies. Tables were used to
summarize responses for further analysis and facilitate comparison. The qualitative data was
analyzed using content analysis and presented in prose form. Both quantitative and qualitative
data were compiled to generate the final project report. The major findings and conclusions of
the research were that regulatory framework, attitudes, bank competition and efficiency,
selection criteria and Islamic culture have greatly affected the implementation of Islamic
banking. The findings were consistent with earlier studies carried out in the developed world.
Regulatory framework has a great influence on the implementation of Islamic banking. The
study revealed that legal support is the most important challenge facing Islamic banking industry.
A good regulatory framework enhances soundness of the banking system, reduces insolvency
risks and ensures efficiency of the payments system and the effectiveness of monetary policy.
Certain attitudes have a great influence on the implementation of Islamic banking. The study also
revealed that consumers perception of financial services and products that conform to Islamic
religious principles pose special challenges/ risks that affect the implementation of Islamic
banking.
Bank competition and efficiency is another major challenge facing the implementation of Islamic
banking in Kenya. The study revealed that an enabling operational environment for Islamic
finance will need more suitable regulatory framework and new financial instruments and
institutional arrangements. In relation to selection criteria the study revealed that that religion
factor is a key influence in Islamic banking adoption. The study further revealed that Islamic
banks success is attributed to Islamic culture, traditions and beliefs. Islamic culture greatly
affects the adoption of Islamic banking in Kenya. Islamic culture and law have played a critical
role in creating financial products in Islamic banking. The study revealed that the Qur’an
(Koran), the Muslims’ Holy Book, explicitly deals with economic-related matters and how they
apply in Islam. This in return has affected the implementation of Islamic banking.
65
5.3 Discussion
5.3.1 Regulatory Framework and Islamic Banking
The research findings revealed that majority of the respondents agreed that Regulatory
Framework influences the Implementation of Islamic Banking in Kenya. Islamic banking
industry has been trying to extend its outreach to bring it at least to the level of conventional
banking but the absence of Shariah-compliant legal framework needed to make interest-free
banking acceptable (and create sound financial institutions) is the major snag behind its low
penetration in the financial market. Majority of the respondents also stated that commercial
banking and company laws appropriate for implementation of Islamic banking and financial
contracts do not exist thus posing a great challenge to the implementation of Islamic banking .
Majority of the respondents stated that Islamic banking contracts are treated as buying and
selling properties and hence are taxed twice and this has contributed to major losses to the banks
Majority of respondents clearly explained how weak regulatory framework has prevented the
economy from benefiting from the ongoing globalization process and the liberalization. Majority
of the respondents stated that there exist special issues in Islamic banks that need to be
recognized and addressed to help make the conduct of banking supervision more effective. The
findings revealed that the respondents felt that it is necessary address such issues in order to
improve the current position of Islamic banks in the current.
The findings revealed that majority of the respondents stated that the most important challenge
facing the Islamic banking industry is identified as Legal Support whereby the Islamic law offers
its own framework for execution of commercial and financial contracts and transactions which is
in most cases not consistent with the conventional banking setting (Muljawan, Dar and Hall,
2004). Nevertheless, commercial banking and company laws are appropriate for implementation
of Islamic banking and financial contracts do not exist thus posing a great challenge to the
implementation of Islamic banking. Islamic banking contracts are treated as buying and selling
properties and hence are taxed twice (Errico and Farahbaksh, 1998).
With regard to commercial banking and company laws, majority of the respondents stated that
commercial banking and company laws have contain provisions that are narrowly defined and 66
prohibit the scope of Islamic banking activities within conventional limits. It is necessary that
special laws for the introduction and practice of Islamic banking be put in place to promote its
implementation (Hassan and Chowdhury, 2004). The legal framework of Islamic banking and
finances might include the Islamic banking courts where the disputed cases of the Islamic banks
are subject to the same legal system and are dealt with the same court and judge as the
conventional one while the nature of the legal system of Islam is totally different. Regulatory
framework ensures efficiency of the payments system and the effectiveness of monetary policy.
Enhances soundness of the banking system and reduces insolvency risks. It also enhances
soundness of the banking system and reduces insolvency risks.
Weak regulatory framework however reduces public confidence in the financial system,
impeding or delaying necessary structural reforms in this area. In addition the weak regulatory
framework prevents the economy from benefiting from the ongoing globalization process and the
liberalization. There are no appropriate commercial banking and company laws for
implementation of Islamic banking and financial contracts.
5.3.2 Attitudes towards Islamic Banking
The research further determined that certain attitudes affect the implementation of Islamic
banking. General attitudes are relatively good predictors of general behavioral likelihoods.
Furthermore, customer’s attitude toward a product or service is influenced by a match of the
product or service user image with the customer’s self-concept. The customer perception is often
identified by their level of satisfaction towards particular products or services. Customer
Satisfaction is usually measured in terms of service quality and service features offered by an
institution.
The study further revealed that majority of the respondents felt that the Islamic Banks have to
address the importance of knowledge building programs on customers, training for employees in
both generic and specialized format, communicating the customers regarding new service
offerings, cost benefit aspect of services purchased by customers, and positive word of mouth
etc. Ahmed & Haron (2002) reported that financial decision making authority in Malaysia
corporate sectors believed that the Islamic banking system had a good potential as an alternative
to conventional system. However the providers of Islamic Banking products & services have not
67
done enough in educating customers and marketing their products. This study highlights the
important factor perceived by corporate customers in selecting their bank is the cost of service
and products. Rexha (2003) proposed a model that demonstrates the factor impacting on
corporate customer’s client commitment towards their banks.
The study has shown the positive relationship between Customer satisfaction, trust and bank
commitment. The study further demonstrated that satisfaction of corporate clients with their
banks does not impact directly on the propensity to use electronic banking by the corporate
clients. However as satisfaction has significant impact on both trust and commitment, and both
of these constructs impact on the corporate client’s propensity to use electronic banking. Dusuki
and Abdullah (2007) discovered that competency and courtesy.
Attitudes have greatly influenced the implementation of Islamic banking in Kenya. Customer’s
attitude toward a product or service is influenced by a match of the product or service user image
with the customer’s self-concept (Ekinci and Riley, 2003; Wang and Heitmeyer, 2005).
Customers’ beliefs determine attitudes towards Islamic banking. Religious perspective
influences customer’s choice of Islamic bank. The customer perception is often identified by
their level of satisfaction towards particular products or services. Customer Satisfaction is
usually measured in terms of service quality and service features offered by an institution. Due to
increase in demand, various researches are done for measurement of customer’s satisfaction.
Turnbull (1983) was among the first researchers who studied perception of corporate customers
towards their banks. . He found that large corporations prefer foreign banks more as compared to
the local banks. He also examined that size played an important role in maintaining split banking
practices. Rosenblatt (1988) determined the two factors that influenced the decision making of
corporate customers. First is the banks with better branching networks and second is their quality
service rather than innovative products. The findings of Turnbull and Gibs (1989) showed that
the corporate customers perceived that quality of services was an important factor in establishing
a relationship. Among the other factors that can influence selection process were quality of staff,
bank manager attitude’s and price of service .Physical appearance of the bank has no impact on
selection process. Tyler and Stanley (1999) found reliability, assurance, empathy, responsiveness
and pro-activity as key elements of perceived quality by large corporations. Erol and El-Bdour
68
(1989) discovered that the most important criteria by customers while selecting Islamic Banks
were the provision of fast and efficient services, banks reputation and image, and confidentiality.
5.3.3 Bank Competition and Efficiency
The findings revealed that bank competition has been a great challenge in the implementation of
Islamic banking in Kenya. Majority of the respondents agreed that this is mainly because of the
rapid and dynamic changes in the global financial landscape of various banking institutions.
Effective and efficient risk management in Islamic financial institutions has assumed particular
importance as they endeavor to cope with the challenges of globalization. Majority of the
respondents stated that this requires the development of not only a more suitable regulatory
framework, but also new financial instruments and institutional arrangements to provide an
enabling operational environment for Islamic finance. According to Naser and Moutinho (1997)
the marketing effectiveness of the Islamic banks and the Islamic banking system needs to do
more to activate its marketing effectiveness. They concluded that the Islamic banks should put
more coherent efforts to improve their long-term competitive position. Competition in banking
has intensified over the past decades and is putting increasing pressure on bank returns. Major
financial institutions are strategically entering new markets and/or offering a diverse spectrum of
products and services to consolidate their presence and boost their profitability. Among such
developments is the expansion of Islamic banking since 1975 and its growing recognition as a
viable mode of financing.
The study revealed that bank competition as a great challenge to the implementation of Islamic
banking in Kenya has been triggered by the rapid and dynamic changes in the global financial
landscape of various banking institutions. Despite the rapid growth and vast expansion of Islamic
banking industry around the world, the fact remains that ‘The provision and use of financial
services and products that conform to Islamic religious principles pose special challenges for the
identification, measurement, monitoring, and control of underlying risks. Effective and efficient
risk management in Islamic financial institutions has assumed particular importance as they
endeavor to cope with the challenges of globalization. This requires the development of not only
a more suitable regulatory framework, but also new financial instruments and institutional
69
arrangements to provide an enabling operational environment for Islamic finance’ (Sundararajan
& Errico, 2002).
The study further revealed that the increasingly competitive environment in which conventional
banks operate has seen customer satisfaction become the focus of increasing attention. Generally,
there is a consensus among many studies that service quality is the primary factor in customers’
satisfaction with conventional bank services (Taylor and Baker 1994; Lévesque and McDougal
1996; Jamal and Naser 2002). Moutinho and Smith (2000), for instance, considered customer
satisfaction with human and automated banking and found that consistent and efficient service
delivery was most-highly valued. Deregulation and increased competition has lead to
inefficiency in Islamic banking. Increased efficiency on the other hand is as a result of improved
resources management practices.
5.3.4 Selection Criteria and Islamic Banking
The findings revealed that Selection criteria which includes convenience, cost and benefit,
influence from friends and relatives, religion and mass media advertising all affect the
implementation of Islamic banking. Majority of the respondents stated that convenience of a
bank was a primary motivation for customers in selecting a specific institution. The importance
of recommendations or word-of-mouth in the formation of attitudes in a service purchase
decision making context has been important in influencing the implementation of Islamic
banking. The role of advertising in commercial banking, found that advertising played a
significant role in banking and positively affected the profitability. It was evident that there were
size advantages for advertising in banking. Religion is a key factor key factor that would
influence Islamic banking adoption. Size and reputation of the bank was a significant factor in
choosing a conventional bank because of the need of increasing amount of credit. Bank size,
reputation and reliability were the crucial factors to gain customers’ confidence. The study
concluded that the most important factor in determining the attitudes of Islamic bank customers
was religion then profitability. In addition, most bank customers were satisfied with the quality
of Islamic bank services, especially investment accounts.
70
Majority of the respondents stated that, the lowest satisfaction was with more complex Islamic
financing schemes because of the relatively high costs. The importance of recommendations or
word-of-mouth in the formation of attitudes in a service purchase decision making context has
been discussed in many studies (Wangenheim and Bayon, 2004; Grace and O’Cass, 2003),
especially in professional services (Razzouk et, 2004; Ettenson and Turner, 1997). A study
reported in unpublished dissertation of Gray (1977) described an investigation of student
attitudes towards banking in the U.K. He reported convenience and parental influence were the
most important factors influencing British students’ bank selection. Zainuddin. (2004) in his
study of Malaysian bank customers (to illustrate the different perceptions of users and non-users
of Islamic banking services) found out that that the decision-making processes of Islamic bank’s
users were affected by spouses, friends and relatives as well as their innate religious motivation.
Kohers and Simpson. (1981) found that a negative but insignificant association between
profitability and advertising intensity. Ors (2003) on the role of advertising in commercial
banking found that advertising played a significant role in banking and positively affected the
profitability. It was evident that there were size advantages for advertising in banking. Sudin.
(1994) found that apart from other factors, mass media advertising was considered as an
unimportant factor in the bank selection factor, moreover, although mass media advertising was
less important for a customer as the bank selection factor, commercial banks were still willing to
invest a large amount of money for advertising for greater competitiveness despite the
uncertainties of its return.
With regard to religion, majority of the respondents stated that religion as a psychological
attachment is a powerful emotional relationship to things. Omer (1992) indicates that religious
reason is the primary variable that influences the volume of deposits of Muslims in UK in
Islamic financial institution. He also reports that the higher the religious commitment and the
lower the level of general education, the stronger the preference for Islamic over conventional
finance. Haron (1994) argued that only 38.7 percent of the respondent indicated that religion was
a prime reason for using Islamic banking services. Gerrard and Cunningham (1997) found no
difference between Muslims and non-Muslims on bank selection criteria. In terms of outcomes,
Pont and McQuilken (2005) concluded that a high level of customer satisfaction impacted
positively on the continued loyalty of a customer towards a particular bank. Hamid andNordin
71
(2001) focused on the awareness of Malaysian customers towards Islamic banking within the
context of the wider promotion of Islamic education. They found that most Malaysians did not
differentiate between Islamic and conventional bank products and services, though the majority
had sufficient knowledge of the existence and services offered by Islamic banks in Malaysia.
Moreover, even though half of respondents of this study dealt with Islamic banks, they were in
need of extra understanding of Islamic banks’ products.
72
5.3.5 Islamic Culture and Islamic Banking
The findings revealed that Islamic banks success is attributed to Islamic culture, traditions and
beliefs. The study also revealed that Code of law (Quran) is a great measure of Islamic banking
operations. Majority of the respondents agreed that Islamic culture and law have played a critical
role in creating financial products in Islamic banking. Sharia’h guides the nature and form of
financial products in Islamic banks. The findings indicated that if a bank is defined as a dealer in
credit, an Islamic Bank can be defined as a dealer in equity. Majority of the respondents stated
that there are several shariah principles which are essential for operation of Islamic banks. These
principles include the prohibition of riba (interest), the avoidance of gharar (uncertainty) and the
prohibition of maysir (gambling). The other criteria of Islamic finance is to be free from ikrah
(coercion), to be free from ihtikar (hoarding), to be free from the element of exploitation of
needs and to be free from insufficient information that may lead to disputes (Hassanuddeen,
2009). Kalaithasan & Mohamed (2007) add, for Islamic banking and finance, there are five
principles that need to be followed in order to be regarded as complying with the Islamic faith.
These are riba (interest free financial transaction), zakat (introduction of tithe-like religious
levy), haram (prohibition of the production of goods and services that are forbidden by Islam),
maysir and gharar (prohibition from gambling and economic activities that involve
uncertainties) and takaful (Islamic insurance).Another study conducted by Gerrard and
Cunningham (1997) investigating the degree of awareness of the Islamic banking system in
Singapore revealed that there was a general lack of awareness of the culture of Islamic banking
in both Islamic and non-Islamic communities.
The study revealed that majority of the respondents sated that the Qur’an has been a major
source of reference to the issue of Islamic culture and its impact on Islamic banking. The Qur’an
(Koran), the Muslims’ Holy Book, explicitly deals with economic-related matters and how they
apply in Islam. The Sharia’h, this being the Islamic law of human conduct, is derived from the
Qur’an. The Sharia’h prohibits what is called “Riba” (i.e. payment over and above what has been
lent which causes the payment of interest or usury to be a wrong). What the Sharia’h does not
prohibit is profit acquired from a trading activity, the reasoning behind this positive stance being
that there is a risk of loss involved in any trading activity. With Riba, in theory, there is no risk
73
of loss. For example, with a conventional fixed-term deposit, all a depositor has to do is wait
until the maturity date of the deposit comes along and, if the mandate that he or she gave to the
bank was for the repayment of capital and interest, that is what the depositor will get back (in
essence, placing monies in a traditional fixed term deposit involves no risk). Because of Riba,
Islamic banks have had to develop financial products which are not in conflict with the Sharia’h.
This has resulted in traditional deposit and lending products, which are made available by what
can be called “conventional” banks, being restyled so as to satisfy the Sharia’h. The task has
been achieved by creating a number of special financial products (Ali and Ali, 1994). With each
of these products, the parties (i.e. the depositors and the borrowers) can be considered as
operating in a partnership to which a risk is attached. Both will receive a rate of return which is
based on performance rather than pay interest or receive interest at a pre-determined rate.
5.4 Conclusion
The purpose of the study was to determine the challenges facing implementation of Islamic
banking in Kenya. The following are the major conclusions based on the findings and
conclusions.
5.4.1 Regulatory Framework and Islamic Banking
Regulatory framework affects the implementation of Islamic banking. It enhances soundness of
the banking system and reduces insolvency risks. It also ensures efficiency of the payments
system and the effectiveness of monetary policy. Employees feel that to ensure a proper, speedy
and supporting Islamic legal system, amendments in existing laws, which are repugnant to
injunctions of Islam, are required to promulgate Shariah compliant law for resolution of disputes
through special courts. Supervision of Islamic banks is equally important. There needs to be
amendment of existing laws because Islamic banking has some kind of resemblance to universal
banking, therefore, laws and regulations have to be amended accordingly to accommodate this
new concept such as sections and of the Banking Companies Ordinance while Islamic banks are
big or wholesale traders in reality. There is need to establish Islamic banking law because in the
absence of Islamic banking laws, the enforcement of agreements in courts may require extra
efforts and costs. An appropriate regulatory framework for an Islamic system should aim at
74
reinforcing banks’ operating environment, internal governance, and market discipline. To help
develop such a regulatory framework, standards and best practices established by the Basle
Committee on Banking Supervision are useful and provide a valuable reference.
5.3.2 Attitudes towards Islamic Banking
Certain attitudes have greatly influenced the implementation of Islamic banking. Customer’s
attitude toward a product or service is influenced by a match of the product or service user image
with the customer’s self-concept. In addition Customers’ beliefs determine attitudes towards
Islamic banking. Respondents feel that religious perspective influences customer’s choice of
Islamic bank. Consumer perception is also a major influence of the implementation of Islamic
banking. Consumers perceive financial services and products that conform to Islamic religious
principles pose special challenges/ risks. The Islamic Banks have to address the importance of
knowledge building programs on customers, training for employees in both generic and
specialized format, communicating the customers regarding new service offerings, cost benefit
aspect of services purchased by customers, and positive word of mouth.
5.3.3 Bank Competition and Efficiency
Bank competition has been a great challenge in the implementation of Islamic banking in Kenya.
This is mainly because of the rapid and dynamic changes in the global financial landscape of
various banking institutions. Despite the rapid growth and vast expansion of Islamic banking
industry around the world, the fact remains that ‘The provision and use of financial services and
products that conform to Islamic religious principles pose special challenges for the
identification, measurement, monitoring, and control of underlying risks. Effective and efficient
risk management in Islamic financial institutions has assumed particular importance as they
endeavor to cope with the challenges of globalization. The increasingly competitive environment
in which conventional banks operate has seen customer satisfaction become the focus of
increasing attention. This requires the development of not only a more suitable regulatory
framework, but also new financial instruments and institutional arrangements to provide an
enabling operational environment for Islamic Banking75
5.3.4 Selection criteria and Islamic banking
Selection criteria which includes convenience, cost and benefit, influence from friends and
relatives, religion and mass media advertising all affect the implementation of Islamic banking.
The convenience of a bank is a primary motivation for customers in selecting a specific
institution. Profit or interest rate serves as a reason for people maintaining their relationship with
Islamic banks. The importance of recommendations or word-of-mouth in the formation of
attitudes in a service purchase decision making context has been important in influencing the
implementation of Islamic. On the role of advertising in commercial banking, employees felt that
advertising played a significant role in banking and positively affected the bank’s profitability. It
was evident that there were size advantages for advertising in banking. Religion is a key factor
key factor that would influence Islamic banking adoption. The size and reputation of the bank is
a significant factor in choosing a conventional bank because of the need of increasing amount of
credit.
5.3.5 Islamic culture and Islamic banking
Islamic culture and law have played a critical role in the implementation of Islamic banking.
Code of law (Quran) is a great measure of Islamic banking operations. The Qur’an (Koran), the
Muslims’ Holy Book, explicitly deals with economic-related matters and how they apply in
Islam. The Sharia’h, this being the Islamic law of human conduct, is derived from the Qur’an.
The Sharia’h prohibits what is called “Riba” (i.e. payment over and above what has been lent
which causes the payment of interest or usury to be a wrong). What the Sharia’h does not
prohibit is profit acquired from a trading activity, the reasoning behind this positive stance being
that there is a risk of loss involved in any trading activity. With Riba, in theory, there is no risk
of loss. Because of Riba, Islamic banks have had to develop financial products which are not in
conflict with the Sharia’h. Islamic culture and law have played a critical role in creating financial
products in Islamic banking and that Islamic banks success is attributed to Islamic culture,
traditions and beliefs. It is therefore compulsory for Muslims to completely avoid riba in their
commercial and non-commercial daily activities. It is even suggested that a shadow of interest
will make a transaction haram.
76
5.5 Recommendation
The following recommendations were made based on the findings and conclusions of the study.
5.5.1 Suggestions for improvement
5.5.1 Regulatory Framework and the Implementation of Islamic Banking
The government should participate in the implementation of Islamic banks in Kenya. The
government should implement the necessary policies and laws that govern the Islamic banks.
This would ensure that the Islamic banks are recognized and enjoy other benefits like any other
banks without discrimination. The study also recommends that commercial banking and
company laws appropriate for implementation of Islamic banking should be implemented. It is
necessary that special laws for the introduction and practice of Islamic banking be put in place to
promote its implementation and avoid double taxation on Islamic banks.
5.5.2 Attitudes towards Islamic Banking
Creation of awareness on the existence of Islamic banks is vital since majority of the people and
especially the non-Muslims are not aware of them. This would create a greater market for the
Islamic banks and enable them to face the competitive market. The research concluded that there
are future market potentialities for the Islamic banking products. Many younger generations were
seen going for these products and services. For this banking system to develop and grow the
banks should create awareness through seminars, workshops, and advertisement and prayer
sermons quoting verses from Quran and sayings of the prophet (hadith) that concern Islamic
Banking system. They study suggests that banker should develop professionalism and
competency to maintain profitable relations with customers
5.5.3 Bank Competition and Efficiency
To enable the Islamic banks cope with the challenges of globalization the study recommends that
an enabling operational environment should be created. To promote bank efficiency study
recommends that resource management practices be also improved. This could be done through
further training and providing Islamic finance education to bank personnel to up skill them to
offer quality service and appropriate advise to bank customers. The study further recommend
77
banks to organize regular training and workshops by inviting well-versed Islamic scholars to
educate bank personnel about Islamic banking and financing.
5.5.4 Selection Criteria of Islamic Banking
Other than providing Islamic compliant products and services, factors such as: offering product
and services that meet the customer’s needs, reduced borrowing cost, minimum requirements to
open an account and service efficiency influences the development of Islamic banking. The
Islamic banks should put these priorities at forefront and strengthening it. By doing so, they can
also win a great number of customers from both Muslims and non-Muslims community. Above
all, they should invest in branch expansion thus enabling the marketing of Islamic banking
products at the grassroots level.
5.5.5 Islamic Culture and Islamic Banking
In Kenya, all banks offering Islamic banking have established their own separate Shariah Board
to supervise and offer guidance to their respective banks on Islamic banking system. In principle,
Shariah Boards have the authority to impose their viewpoint, but logistic considerations do not
permit timely vetting and/or monitoring of all banking operations. In view of these the study
recommends that CBK to put in place a policy to establish a universal Shariah Boards to oversee
Islamic banking operation in Kenya.
Conventional banking system in Kenya are compelled to have a uniform financial reporting
standard thus mixing their funds that are both conventional and Islamic compliant. In view of
this, Muslim customers are discouraged to bank with such conventional banks, as it is not
acceptable in terms of shariah. Therefore, the study recommends that CBK should allow such
conventional bank to have separate financial reporting standards
5.5.2 Suggestions for Further research
The research recommends the following areas for further studies:
Further research can be carried out based on focus groups for each of the different departments.
This would help bring out the challenges and obstacles that beset the implementation of Islamic
banking in Kenya and help generate workable solutions to problems identified. The scope of 78
study centered on some selected banks registered with CBK. Future research could be carried out
on all banks to compare and contrast the research findings on the subject the challenges facing
the implementation of Islamic banking in Kenya. Though the uptake of Islamic banking products
in Kenyan market was good, the rate of growth especially in conventional banking with Islamic
window has been too slow. Therefore, further research is required to establish factors that
contribute to this slow pace of growth of Islamic products in Kenyan market.
79
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APPENDICES
APPENDIX I: Cover Letter
To whom it may concern
Dear Madam/Sir
RE: INTRODUCTION LETTER
I am a student at the United States international university (USIU) carrying out a research project
as part of the course requirement. The study seeks to determine the challenges facing the
implementation of Islamic banking in Kenya. You are kindly requested to provide the required
information in the questionnaire. The findings will be confidential, strictly for academic use and
at no time will your name or the name of your company be mentioned anywhere in the report.
Your honest participation will be highly appreciated.
Yours faithfully,
89
APPENDIX II: Questionnaire
Kindly answer the following questionnaire by ticking in the appropriate box.
DEMOGRAPHIC INFORMATION
1. Gender
Male ( ) Female ( )
2. Age bracket
18-24 years ( ) 25-31 years ( )
32-38 years ( ) 39-45 years ()
Above 46 years ()
3. Level of education
Diploma () Undergraduate ( )
Postgraduate ( )
4. Period you have worked in the organization
Below 5 years ( ) Between 5-10 years ( )
More than 10 years ( )
5. Your position in the organization
Top level ( ) Middle level ( )
Lower level ( )
6. Indicate your banking institution_________________________________________
The Influence of Regulatory Framework on the Implementation of Islamic Banking
7. Has the bank being influenced by the regulatory Framework on the Implementation of
Islamic Banking
Yes () No ()
8. If yes above, explain the influences of Regulatory Framework on the Implementation of
Islamic Banking
90
______________________________________________________________________________
______________________________________________________________________________
_________________________________________________________
9. Rate the extent to which Regulatory Framework influences the Implementation of Islamic
Banking Use a scale of 1-5 where 1=Not at all, 2=Little extent, 3=Moderate extent, 4=Great
extent, 5= Very great extent
Regulatory Framework 1 2 3 4 5
Enhances soundness of the banking system and reduces insolvency risks
Ensure efficiency of the payments system and the effectiveness of
monetary policy
Weak regulatory framework prevent the economy from benefiting from the
ongoing globalization process and the liberalization
Weak regulatory framework reduce public confidence in the financial
system, impeding or delaying necessary structural reforms in this area
Commercial banking and company laws contain provisions that are
narrowly defined and prohibit the scope of Islamic banking activities within
conventional limits
Legal Support is the most important challenge facing the Islamic banking
industry
There are no appropriate commercial banking and company laws for
implementation of Islamic banking and financial contracts
There exist special issues in Islamic banks that need to be recognized and
addressed to help make the conduct of banking supervision more effective
Attitudes towards Islamic Banking
10. Are there attitudes towards Islamic Banking that affect the implementation of Islamic
banking
Yes () No ()
11. If yes above, explain the effects of attitude on the Implementation of Islamic Banking
91
______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________
12. To what extent does attitude affect the Implementation of Islamic Banking?
a) To no extent ( ) b) To a Little extent ( )c) To a Moderate extent ( ) d) To a Great
extent ( )e)To a Very great extent ( )
13.What is your level of agreement with the following statements that relate to the effects of
attitude on the Implementation of Islamic Banking Use a scale of 1-5 where 1= strongly disagree
and 5 = strongly agree
Attitude 1 2 3 4 5
Non-Islamic customers refuse to invest in companies engaged in
unethical and socially harmful activities
Consumers’ choice on Islamic banking services and products is based
on based on dimensions of value, cost, and prior satisfaction
Customers demographics determines attitudes towards Islamic
banking
Customers’ beliefs determine attitudes towards Islamic banking
Religious perspective influences customers’ choice of Islamic bank
Consumers perceive financial services and products that conform to
Islamic religious principles pose special challenges/ risks
Bank Competition and Efficiency
12. Does bank competition affect the implementation of Islamic banking in Kenya?
Yes ( ) No ()
92
b) If yes, explain how bank competition affect the implementation of Islamic banking in
Kenya__________________________________________________________
________________________________________________________________________
____________________________________________________________
13. Does bank efficiency affect the implementation of Islamic banking in Kenya
Yes ( ) No ( )
c) If yes, explain how bank efficiency affect the implementation of Islamic banking in Kenya
__________________________________________________________
________________________________________________________________________
____________________________________________________________
14. To what extent does competition affect the Implementation of Islamic Banking
a) To no extent ( ) b) To a Little extent ( )c) To a Moderate extent ( ) d) To a
Great extent ( )e)To a Very great extent ( )
15. To what extent does efficiency affect the Implementation of Islamic Banking
a) To no extent ( ) b) To a Little extent ( ) c) To a Moderate extent ( ) d) To a
Great extent ( ) e) To a Very great extent ( )
16. To what extent do you agree with the following statements that relate to bank competition
and efficiency? Use a scale of 1-5 where 1= strongly disagree and 5 = strongly agree
Bank Competition and Efficiency 1 2 3 4 5
Deregulation and increased competition leads to inefficiency in
Islamic banking
Improved resources management practices increase efficiency
in Islamic banking
93
Rapid and dynamic changes in the global financial landscape
have posed various risks to Islamic banking institutions.
Deregulation enhances competition in Islamic banking
Deregulation results in improvement in productivity
Nature of risks facing Islamic banking are unique
An enabling operational environment for Islamic finance will
need more suitable regulatory framework and new financial
instruments and institutional arrangements
Increased efficiency is as a result of improved resources
management practices
Selection Criteria of Islamic Banking
17. Does the selection Criteria of Islamic Banking affect the implementation of Islamic
banking in Kenya?
Yes ( ) No ( )
18. If yes, please specify the way in which selection Criteria of Islamic Bankingaffect the
implementation of Islamic banking in Kenya?
___________________________________________________________________________
___________________________________________________________________________
________________________________________________
19. What is your level of agreement with the following statements that relate to the effects of
selection Criteria on the Implementation of Islamic Banking ;Use a scale of 1-5 where 1=
strongly disagree and 5 = strongly agree
Effects of Selection Criteria of Islamic Banking 1 2 3 4 5
Religious factor is a key influence Islamic banking adoption
Reputation and reliability are crucial factors to gain customers’
confidence in bank
Quality of bank services influences customers in Islamic
banking
94
Nature of products determines customers’ bank choice.
Bank size and profitability determines customers choice of
Islamic bank
Financial services and products nature, price, influence
implementation of Islamic banking
Consumers attitudes, lifestyle, and motivation influence
implementation of Islamic banking
Situational factors influence implementation of Islamic
banking
20. To what extent does selection Criteria affect the Implementation of Islamic Banking
a) To no extent ( )b) To a Little extent ( )
c) To a Moderate extent ( ) d) To a Great extent ( )
e) To a Very great extent ( )
Islamic culture
21. Does Islamic culture affect the implementation of Islamic banking in Kenya?
Yes ( ) No ( )
22. If yes above, explain the effects of Islamic culture on the Implementation of Islamic
Banking
___________________________________________________________________________
___________________________________________________________________________
________________________________________________
23. Mention some of the Islamic culture that affects the implementation of Islamic banking in
Kenya?
95
___________________________________________________________________________
___________________________________________________________________________
________________________________________________
24. In general, to what extent does Islamic culture affect the implementation of Islamic
banking in Kenya?
To a very great extent () To a Great extent ()
To a moderate extent () To less extent ( )
To no extent ( )
25. To what extent do you agree with the following statements that relate to Islamic culture and
Islamic banking Use a scale of 1-5 where 1= strongly disagree and 5 = strongly agree
Statement 1 2 3 4 5
Islamic banks success is attributed to Islamic culture, traditions
and beliefs
Code of law (Quoran) is a great measure of Islamic banking
operations
Islamic culture and law have played a critical role in creating
financial products in Islamic banking
Sharia’h guides the nature and form of financial products in
Islamic banks
96
APPENDIX III: Implementation Schedule
A
Proposal
development
B
Presentation of
proposal
C
Receipt of marked
proposal
D
Make correction on
proposal
E Resubmit proposal
F
Allocation of a
supervisor and go
ahead to collect data
G Data collection
H Data analysis
I
Completion of
project
J Submit final paper
Jan
-
mar
’13
April
’13
ma
y
’13
June
’13
Jul
’13
Aug
’13
se
p
’1
3
Nov
’13
Dec
’13
Jan
’14
Feb
’14
Mar
’14
97
APPENDIX IV: Market Share
Market Share – Top 4 Banks
98
