Strategic Capabilities and Performance of Sharia Compliant Commercial Banks in Kenya

Abstract

Strategic capabilities are complex and accumulated set of skills and knowledge that enable an organization or business unit to coordinate activities and use its assets to create economic value and sustainable competitive advantage. With the emergence of Sharia banking in Kenya, banks in that sector are doing all they can to ensure that there is significant contribution to the bottom line from Sharia compliant products. The main objective of this study was to assess the impact of strategic capabilities on the performance of Sharia-compliant commercial banks in Kenya. Specifically, the study aimed to examine the effects of market-linking capability, information technology capability, knowledge management capability, and coordination capability on the performance of these banks. Additionally, it sought to explore the moderating role of corporate culture on the relationship between strategic capabilities and performance. A cross-sectional survey design was employed, with primary data gathered through questionnaires from the eight licensed and operational Sharia-compliant commercial banks in Kenya as of December 31, 2022. The target staff compliment was 443 comprising management staff in the Sharia compliant banking segment domiciled at the Head offices of the various banks, and also the regional managers of Sharia compliant banking. A sample size of 136 members was computed using a model by Nasiurma (2000). The study adopted proportionate stratified random sampling technique. Pilot study was carried out to check the reliability and validity of the research instrument. Cronbach’s coefficient alpha was used to test for reliability while consultations from senior management in banks assisted in improving the content and face validity of the questionnaire. Statistical Package for Social Sciences version 26 was used to facilitate data analysis. Multiple linear regression analysis was used to estimate the relationship between quantitative dependent variable and independent variables. F-test was undertaken to test the significance of the overall model and each of the specific variables. The study found that the four strategic capabilities like market-linking, information technology, knowledge management, and coordination positively impacted the performance of Sharia-compliant commercial banks in Kenya. It concluded that these capabilities significantly influenced performance, with corporate culture playing a key moderating role. The study recommends that Sharia-compliant banks build strong stakeholder relationships, enhance staff IT competencies, utilize experienced staff for mentoring, and distribute resources fairly across departments.. Regulatory authorities must ensure that there are standardized frameworks that facilitate seamless operations of Sharia banking as a component of the wider banking sector in Kenya.