Credit Risk Management and Access to Banking Services by Islamic Banking Customers in Kenya

Abstract

Kenya has in the last ten years made great strides in improving access to banking services throughout the country completing a number of financial reforms. Financial inclusion has risen in recent years, with aggressive expansion by Kenyan banks. However, access to banking services in Kenya is still a challenge to many. This challenge could be attributed to tile credit risk management practices applied by the banks. First Community Bank and Gulf African Bank as well as units of Islamic banking in Barclays, Kenya Commercial Banks and National Bank are meant to cater for the Islamic communities largely. The general objective of this study was to assess the effect of credit risk management on access to banking services by Islamic banking customers in Kenya. Specifically, the study sought to: determine the effect of assets quality on access to banking services by Islamic banking customers in Kenya; to establish the effect of capital adequacy on access to banking services by Islamic banking customers in Kenya; to determine the effect of market structure on access to banking services by Islamic banking customers in Kenya and to establish the effect of technology adoption on access to banking services by Islamic banking customers in Kenya. The research targeted the five banks' staff members in the top, middle and lower management levels. This study was based on Portfolio theory, Resource Based View theory, Market Power Theory and Diffusion of Innovation Theory. The target population for this study was 225 employees working in the head offices of the above banks. Stratified sampling and simple random sampling were used in generating the sample. This study also made use of both primary and secondary data. Primary data was collected using structured questionnaires while the secondary data was obtained using a secondary data template. 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. The primary data was used to obtain the descriptive statistics and opinion while the multiple regression analysis was used to obtain the model for the study. The study results were presented using percentages, tables and charts. 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.