Innovation Practices and Performance of Islamic Banks in Nairobi-Kenya

Purpose: The dominant feature of the modern financial system is a high pace of innovation practices, both in terms of their number and value. Thus, it is important to analyze their influence on the financial system. The current study aimed at determining the effect of innovation practices on the financial performance of Islamic banks in Kenya. Specifically, the study sought to determine the influence product innovation practices, process innovation practices, technological innovation practices and market innovation practices on the organizational performance of Islamic banks in Kenya. This study was informed by the following theories and models: the innovation diffusion theory of innovation, the Henderson-Clark model of innovation, the Task Technology Fit theory of innovation and the Shareholder’s Wealth Maximization (SWM) Theory. Methodology: The study adopted a descriptive research design and targeted 3 Islamic banks in Kenya with a total of 142 managers. The sample selection was scientifically guided using the Yamane (1967) simplified formula to calculate the sample size of 105 respondents. The study used structured questionnaires to collect the data. In order to ascertain how valid and reliable the questionnaires are, a pilot study was carried out. Descriptive statistics was used to collect summary statistics including means and standard deviations while inferential statistics helped in measuring the causal relationship between the variables and included correlation and regression analysis. The generation of the statistics was through SPSS program (v.25.0). The study employed both figures and tables to present the results of the study. Findings: The results established that product innovation practices, process innovation practices, technological innovation practices and market innovation practices positively and significantly affect the organizational performance of Islamic commercial banks in Kenya. This is shown by respective beta values of 0.398, 0.311, 0.443 and 0.295 and respective significant values of 0.002, 0.009, 0.000 and 0.01. Unique contribution to theory, practice and policy: The results bears the implications that increasing each of the variable with one unit results to increase in organizational performance levels of Islamic commercial banks with respective beta values. The study recommends the Islamic commercial banks operating in Kenya to enhance their product innovation, process innovation, technological innovation and market innovation practices since the practices positively and significantly affects organizational performance.