Strategic Determinants of Sustainable Competitive Advantage of Islamic Commercial Banks in Kenya

Abstract

In the past few years, the Islamic finance sector has surpassed the average growth rate attained by conventional banking as well as overall financial industry. However, despite the global growth trend, the Islamic banks in Kenya have reported declining profits with First Community Bank’s (FCB) net profit plunging by nearly half and Gulf African Bank (GAB) reporting slower growth in earnings. Thus, the main objective of this study was to assess strategic determinants of competitiveness of Islamic commercial banks in Kenya. The stud main objectives were; to determine the influence of leadership on sustainable competitive advantage of Islamic commercial banks in Kenya, To examine the influence of strategic planning on sustainable competitive advantage of Islamic commercial banks in Kenya, To determine the influence of adoption of technology on sustainable competitive advantage of Islamic commercial banks in Kenya, to examine the influence of innovativeness on sustainable competitive advantage of Islamic commercial banks in Kenya, to establish the influence of human resource performance on sustainable competitive advantage of Islamic commercial banks in Kenya and to examine the moderating effect of shariah governance on relationship between strategic determinants and sustainable competitive advantage of Islamic commercial banks in Kenya. This study was informed by Resource-Based View (RBV) Theory, Dynamic Capability theory, Porter's Theory and Configurational Theory. The study followed pragmatism paradigm and employed both descriptive and explanatory research design. The study targeted 210 HOD, managers and supervisors from the headquarters of the 5 banks offering Islamic banking (2 were fully fledged Islamic banks and 3 conventional banks were offer Islamic banking services). Stratified and Simple random sampling was used in this study to select 111 sampled respondents. The study shall use questionnaires to collect primary data. The primary data was collected using interview and questionnaires comprised both open and closed- ended questionnaires. To find out the reliability of the instruments, the instruments was reviewed to find out if they would yield same results after pre-testing. The reliability of the instrument (questionnaire) was analysed using Cronbach‘s alpha. Data was analysed using both descriptive and inferential statistics. The study used Multiple Linear Regressions to test hypothesis 1 to 5 while Hierarchical Regression for Testing Moderation Effect hypothesis 6). The findings show that Innovativeness had the highest positive and significant effect on the sustainable competitive advantage of Islamic commercial banks in Kenya, followed by leadership and adoption of technology. Both strategic planning and Human resource competencies had the least effect on the sustainable competitive advantage of Islamic commercial banks. More findings revealed that shari’ah governances moderate the relationship between leadership, strategic planning, adoption of technology and sustainable competitive advantage. This implies that shari’ah governances enhance the relationship between leadership leadership, strategic planning, adoption of technology and sustainable competitive advantage. It is therefore recommended that the top management of the Islamic commercial banks to embrace good leadership practices, undertake and encourage proper planning, focus on innovation (systems, process, products features, business practices and service market) as well as allocate resources to improve skills of employees so as to realize and sustain competitive advantage.