Open Access Open Access  Restricted Access Subscription or Fee Access

CREDIT RISK MANAGEMENT AND ACCESS TO BANKING SERVICES BY ISLAMIC BANKING CUSTOMERS IN KENYA

Hussein Diriye Jimale, Dr. Ndede, F.W.S F.W.S Ndede

Abstract


Purpose: This study sought was to assess the effect of credit risk management on access to banking services by Islamic banking customers in Kenya.

Methodology: Descriptive research design was adopted. The target population for this study was 225 employees working in the head offices of the selected Islamic banks. Stratified sampling and simple random sampling were used in generating the sample. This study made use of primary data collected using structured questionnaires. The collected data was entered into the Statistical Program for Social Sciences for windows version 20 because of its ability to analyze data easily and accurately. Multiple regression analysis was used to obtain the model for the study. The study results were presented using percentages, tables and charts

Results: The study findings revealed that asset quality as measured by the non-performing loans ratio had a negative and significant effect on access to banking service by Islamic customers in Kenya. Capital adequacy, market structure and technology adoption were found to have a positive and significant effect on access to banking service by Islamic customers in Kenya. It was concluded that the level of credit risk management in Islamic banking where the level of credit risk was high was crucial for the banks in Kenya if they were to expand the level of access to Islamic banking by Islamic customers.

Unique contribution to theory, practice and policy: The study recommended that banks needed to develop strategies on how to deal with credit risk by striving to keep the amount of nonperforming loans low. The study also recommended that these banks should expand their capital bases in order to strengthen their resilience and internal strength to withstand losses especially when faced by a crisis. They needed to pursue diversification across individual customers by increasing the breadth of products they coul offer to their customers. The regulators of the market needed to ensure prudent supervision so as to maintaining healthy competition in this market. It was also recommended that banks needed to promote the use of technological innovations within banking area such as internet banking, mobile banking as well as ATM banking by their customers.



This Abstract was viewed 307 times | PDF Article downloaded 112 times

Keywords


credit risk management, access, Islamic banking, capital adequacy, market structure, asset quality, technology adoption

Full Text:

PDF

References


Ahmad, W. (2008). Islamic banking in the UK: Opportunities and challenges (Unpublished Dissertation, Kingston Business School, Kingston University)

Amit R, Schoemaker PJH (2003). Strategic assets and organizational rent. Strategic Management Journal, 14(1), 33-46.

Anderson, E. W., Sullivan, M. W. (1993). The antecedents and consequences of customer satisfaction for firms. Journal of Marketing Science, 12(2), 125-143.

Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money, 18(2), 121-136.

Ayub, M. (2002). Islamic banking and finance: theory and practice. State Bank of Pakistan.

Bala, A. (2004). Comparative analysis between Islamic banking system as an alternative to the western banking system (Unpublished BSc Thesis, Bayero University, Kano).

Barkley, A., Peterson, H. H., & Shroyer, J. (2010). Wheat variety selection to maximize returns and minimize risk: An application of portfolio theory. Journal of Agricultural and Applied Economics, 42(1), 39–55.

Bellalah, M., & Ellouz, S. (2004). Islamic finance, interest rates and Islamic banking: A Survey of the literature. Finance India, 18, 533.

Central Bank of Kenya, CBK (2010). Bank supervision report; Kenyan banking Sector for the period ended December 2010. Retrieved on 10th August 2012 form: www.centralbank.go.ke/downloads

Chapra, M.U. (1985). Towards a just monetary system, London. The Islamic Foundation.

Clulow, V., Gerstman, J., & Barry, C. (2003). The resource-based view and sustainable competitive advantage: The case of a financial service firm. Journal of European Industrial Training, 27(5), 220-232.

Dar, H. A., Harvey, D. I., & Presley, J. R. (1999). Size, profitability and agency in profit-and loss sharing in Islamic banking and finance. The Second Harvard University Forum on Islamic Finance: Islamic Finance into the 21st Century.

Dick, A. A. (2006). Nationwide branching and its impact on market structure, quality, and bank performance. The Journal of Business, 79(2), 567-592.

Dusuki, A. W., & Abdullah, N. I. (2007). Why do Malaysian customers patronize Islamic banks? International Journal of Bank Marketing, 25(3), 142-160.

Dwairi, M., Bhuian, S.N., & Jurkus, A. (2007). Revisiting the pioneering market orientation model in an emerging economy. European Journal Marketing, 41(7-8), 713-721.

El-Gamal, M. A. (2006). Overview of Islamic finance. US Department of the Treasury.

Elgari, M. A. (2003). Credit risk in Islamic banking and finance. Islamic Economic Studies, 10(2), 1-25.

Essendi, L. K. (2013). The effect of credit risk management on loans portfolio among Saccos in Kenya (Doctoral dissertation, University of Nairobi).

Faniela, I. M., & Majchrzakb, A. (2007). Innovating by accessing knowledge across departments. Decision Support Systems, 43(4), 1684-1691.

Finney, R. Z., Campbell, N. D., & Powell C. M. (2005). Strategies and resources: Pathways to success? Journal of Business Research, 58, 1721-1729.

Foley, A. J. (2009). Seeing market orientation through a capabilities lens. European Journal Marketing, 43(1-2), 13-20.

Gakure, R. W., Ngugi, J. K., Ndwiga, P. M., & Waithera, S. M. (2012). Effect of credit risk management techniques on the performance of unsecured bank loans employed commercial banks in Kenya. International journal of business and social research, 2(4), 221-236.

Galbreath, J. (2005). Which resources matter the most to firm success? An exploratory study of resource-based theory. Technovation, 25, 979-987.

Grant, R. M. (1991). The resource based theory of competitive advantage: Implications for strategy formulation. California Management Review, 33(3), 114-135.

Greenhalgh, T., Robert, G., Macfarlane, F., Bate, P., & Kyriakidou, O. (2004). Diffusion of innovations in service organizations: systematic review and recommendations. The Milbank Quarterly, 82 (4), 581–629.

Heitfield, E. A., & Prager, R. A. (2004). The geographic scope of retail deposit markets. Journal of Financial Services Research, 25(1), 37-55.

Hill, C. W., & Deeds, D. L. (1996). The importance of industry structure for the determination of firm profitability: A neo‐Austrian perspective. Journal of Management Studies, 33(4), 429-451.

Honohan, P. (2001). Islamic financial intermediation: economic and prudential considerations. Development Research Group of Financial Sector Strategy and Policy Department, World Bank.

Ikhide, S. I. (2008). Measuring the operational efficiency of commercial banks in Namibia, South African Journal of Economics, 76(4), 586 – 95.

Iqbal, Z. (1999). Financial engineering in Islamic finance. Thunderbird International Business Review, 41(4‐5), 541-559.

Kamau, A. W. (2009). Efficiency in the banking sector: An empirical investigation of commercial banks in Kenya (Doctoral Dissertation, University of Nairobi, Nairobi).

Khan, M. M., & Bhatti, M. I. (2006). Why interest-free banking and finance movement failed in Pakistan? Humanomics, 22(3), 145-161.

Khan, M. M., & Bhatti, M. I. (2008). Development in Islamic banking: A financial risk-allocation approach. The Journal of Risk Finance, 9(1), 40-51.

Kinyanjui, S. N. (2013). Challenges facing the development of Islamic banking. lessons from the Kenyan experience. European Journal of Business and Management, 5(22), 94-102.

Kraaijenbrink, J., Spender J. C., & Groen, A. J. (2010). The resource-based view: A review and assessment of its critiques. Journal of Management, 36(1), 349-372.

Lee, J., & Marlowe, J. (2003). How consumers choose a financial institution: Decision-making criteria and heuristics. International Journal of Bank Marketing, 21(2), 53-71.

Mansourov, A. Y. (2005). Bytes and bullets: Information technology revolution and national security on the Korean Peninsula, APCCS Asia-Pacific Center for Security Studies Honolulu, Hawaii.

Maubi, A. M., & Jagongo, A. (2014). Corporate loan portfolio diversification and credit risk management among commercial banks in Kenya. International Journal of Current Business and Social Sciences, 1(2), 81-111.

McIver, C., & Naylor, G. (1986). Marketing of financial services. Managerial Finance, 5 (3).

Mehra, A. (1996). Resource and market based determinants of performance in the U.S. banking industry. Strategic Management Journal, 17, 307- 322.

Mingala, M. S. (2002). Financial markets and institutions. Addison Wesley, New York.

Mugenda, O. M., & Mugenda, A. G. (1999). Research methods, quantitative and qualitative approaches. Nairobi: Acts Press.

Mutua, J. M. (2015). Effect of mitigating credit risk on performance of commercial banks in Kenya: A case of Chuka town. European Journal of Business and Social Sciences, 4(07), 113-125.

Nzongang, T., & Atemnkeng, J. (2006). Market structure and profitability performance in the banking industry of CFA countries: The case of commercial banks in Cameroon. Available from: http://www.jsd-africa.com/Jsda/Summer_2006/PDF [Accessed: 14 September 2012]

Obiri-Yeboah, K., Kyere-Djan, R., & Kwarteng, K. O. (2013). The Role of Information Technology on Banking Service Delivery: A Perspective from Customers in Ghana. International journal of Innovative Research in Management, 2(6), 1-12.

OGLE, A. I. (2010). A comparative analysis of credit risk management practices of Islamic and conventional banks in Kenya (Doctoral dissertation, School of Business, University of Nairobi).

Olavarrieta, S., & Friedmann, R. (2008). Market orientation, knowledge-related resources and firm performance. Journal of Business Research, 61, 623-630.

Peteraf, M. A. (1993). The cornerstone of competitive advantage: A resource-based view. Strategic Management Journal, 14, 179-191.

Rammal, H. G., & Zurbruegg, R. (2007). Awareness of Islamic banking products among Muslims: The case of Australia. Journal of Financial Services Marketing 12(1), 65-74.

Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23(12), 1077-1094.

Schreyögg, G., & Kliesch-Eberl, M. (2007). How dynamic can organizational capabilities be? Towards a dual-process model of capability dynamization. Strategic Management Journal, 28, 913-933.

Sinkula, J. M. (1994). Market information processing and organisational learning. Journal of Marketing, 58, 35-45.

Sirmon, D. G., Gove, S., & Hitt, M. A. (2008). Resource management in dyadic competitive rivalry: The effects of resource bundling and deployment. Academic Management Journal, 51(5), 919-935.

Stiroh, K. J., & Strahan, P. E. (2003). Competitive dynamics of deregulation: Evidence from U.S. banking. Journal of Money, Credit and Banking, 35(5), 801-828.

Tang, Y. C., & Liou, F. M. (2010). Does firm performance reveal its own causes? The role of Bayesian inference. Strategic Management Journal, 31, 39-57.

Teece, D. J., Pisano G, Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533.

Tregenna, F. (2009). The fat years: the structure and profitability of the US banking sector in the pre-crisis period. Cambridge Journal of Economics, 33(4), 609-632.

Usmani, I. A. (2002). Guide to Islamic banking. Karachi: Darul-Ishaat Urdu Bazar.

Warsame, M. (2016). Credit Risk Management Practices and Its Impact on Banks’ Financial Performance: An Empirical Study of Islamic and Conventional Banks in Kenya. Proceedings of Business and Social Sciences Research Conference 11 - 13 April 2016, University of London, London, UK

Webster, F. E. Jr. (1988). The rediscovery of the marketing concept. Business Horizon, 31(3), 29-39.

Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 15, 171-180.

Yousfi, I. (2015). Risk Management Practices and Financial Performance in Jordan: Empirical Evidence from Islamic Banks.

Yudistira, D. (2003). Efficiency in Islamic banking: An empirical analysis of 18 banks. Islamic Financial Architecture, 479.

Zaman, M. R., & Movassaghi, H. (2001). Islamic banking: A performance analysis. Journal of Global Business, 12(22), 31-38.


Refbacks



Paper submission email: info@carijournals.org

This journal follows ISO 9001 management standard and licensed under a Creative Commons Attribution 3.0 License.

Copyright © www.carijournals.org