Acceptability Of Murabaha Financing In Kenya; Analysis Of Customer Perspective

Abstract

Islamic banking has emerged as a significant financial sector globally driven by its ethical and religious principles. Murabaha financing, a trade-based mode of financing, has become the dominant instrument in Islamic banking. In Kenya, Islamic banking has gained widespread acceptance, particularly among the Muslim population seeking alternatives to conventional interest-based banking services. The main objective of this study was to investigate the impact of customer perception on the acceptability of Murabaha financing in Kenya. Specifically, the research aimed to examine: the effect of awareness on customer perception and acceptability, the influence of religiosity on customer perception and acceptability, and the role of bank reputation in customer perception and acceptability of Murabaha financing. The study employed a descriptive research design, collecting data through a structured questionnaire from 384 Islamic banking customers, particularly, Muslims, in Kenya. Of the distributed questionnaires, 349 were returned and analyzed, representing a 91% response rate. The research utilized a comprehensive methodology involving both primary and secondary data sources, with statistical analysis conducted using SPSS version 25. For the first objective on awareness, the findings revealed moderate levels of customer understanding, with an overall mean awareness score of 3.11. The correlation analysis showed a positive relationship between awareness and Murabaha financing acceptability (r = 0.749), with awareness emerging as a significant predictor (β = 0.186, p = 0.015). Regarding religiosity, the study uncovered exceptionally high importance placed on religious considerations, with a mean religiosity score of 4.24. An overwhelming majority (84.8%) emphasized Shariah compliance as a critical factor in financial decisions. Religiosity emerged as the strongest predictor of Murabaha financing acceptability (β = 0.394, p = 0.027), highlighting the paramount importance of religious authenticity. The third objective examining bank reputation found that institutional credibility significantly influences customer perceptions. With a mean reputation score of 4.17, 86.6% of respondents indicated that bank reputation critically impacts their financial choices. Bank reputation proved to be the second most significant predictor of acceptability (β = 0.328, p = 0.034). The regression model explained 65.9% of the variance in Murabaha financing acceptability, demonstrating the interplay of awareness, religiosity, and bank reputation in customer decision-making. The study concludes that Murabaha financing acceptability in Kenya is fundamentally driven by religious conviction, institutional credibility, and customer understanding. Religiosity emerged as the primary determinant, followed by bank reputation and customer awareness. Recommendations include developing comprehensive customer education programs, prioritizing transparent Shariah compliance, and adopting holistic reputation management strategies. Islamic banks should advised to invest in meaningful customer engagement, create clear religious governance mechanisms, and demonstrate authentic commitment to Islamic ethical standards.