SU+ @ Strathmore University Library Electronic Theses and Dissertations This work is availed for free and open access by Strathmore University Library. It has been accepted for digital distribution by an authorized administrator of SU+ @Strathmore University. For more information, please contact library@strathmore.edu 2025 Bank and customer-specific factors and customer trust in Islamic banks in Kenya: the moderating role of the economic environment. Guyo, Habiba Duba Strathmore Business School Strathmore University Recommended Citation Guyo, H. D. (2025). Bank and customer-specific factors and customer trust in Islamic banks in Kenya: The moderating role of the economic environment [Strathmore University]. http://hdl.handle.net/11071/16016 Follow this and additional works at: http://hdl.handle.net/11071/16016 https://su-plus.strathmore.edu/ https://su-plus.strathmore.edu/ http://hdl.handle.net/11071/2474 mailto:library@strathmore.edu http://hdl.handle.net/11071/16016 http://hdl.handle.net/11071/16016 BANK AND CUSTOMER-SPECIFIC FACTORS AND CUSTOMER TRUST IN ISLAMIC BANKS IN KENYA: THE MODERATING ROLE OF THE ECONOMIC ENVIRONMENT HABIBA DUBA GUYO 88771 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF COMMERCE STRATHMORE BUSINESS SCHOOL STRATHMORE UNIVERSITY NAIROBI, KENYA MAY 2025 i DECLARATION I attest that this thesis has not been previously presented or accepted for a degree by any institution, either here or elsewhere. To the best of my understanding and belief, the content of this thesis does not contain any material that has been previously published or authored by another individual, except where proper acknowledgment is provided within the proposal itself. Habiba Duba Guyo Signature_________________________ Date____19/05/2025______ © No part of this thesis may be reproduced without the permission of the author and Strathmore University Approval The thesis of Habiba Duba Guyo was reviewed and approved for examination by: Dr Jackson Mdoe. Strathmore University Business School Signature_______________________Date__19/05/2025____ ii ABSTRACT Islamic banking is pivotal in addressing the financial needs of Muslim communities in Kenya while appealing to non-Muslims through its ethical, interest-free, and socially responsible principles. However, with Kenya’s Muslim population growing at 2.7% annually, Islamic banking struggles to expand, leaving many Muslims excluded from formal financial systems or compelled to use conventional banking products misaligned with Sharia principles. The fragility of Islamic banks, exemplified by the 2022 liquidity crisis at First Community Bank (now Premier Bank), underscores the importance of trust. This study explored the drivers of trust in Islamic banking among customers of Islamic banks, guided by Customer Trust Theory, Theory of Planned Behavior, and Information Asymmetry Theory. Adopting a pragmatism research philosophy and a convergent mixed methods design, it examined bank-specific factors (Sharia compliance, service quality, transparency), customer-specific factors (religious adherence, financial literacy, prior banking experiences), and the moderating role of Kenya’s economic environment (macroeconomic stability, inflation, regulatory frameworks). Using ordered logistic regression to analyze survey data from 384 both Islamic banking and non – Islamic banking customers in Nairobi, Mombasa, and Garissa, and integrating qualitative insights, the study found that bank-specific factors (Sharia compliance, service quality, transparency) had a significantly positive effect on trust. Customer- specific factors (religious adherence, financial literacy, prior banking experiences) also exhibited a significantly positive effect. Contrary to expectations, Kenya’s economic environment did not moderate these relationships, indicating trust resilience across macroeconomic conditions. Qualitative insights revealed regional differences, with Garissa customers prioritizing Sharia compliance more than those in Nairobi. The study recommends institutional reforms to strengthen Sharia governance, service quality, and transparency, alongside customer-centric strategies like tailored financial literacy programs and community engagement. Policymakers should develop sector-specific regulations to enhance stability and inclusivity. By aligning operations with ethical values and customer needs, Kenya’s Islamic banking sector can deepen financial inclusion, reduce reliance on conventional systems, and foster economic resilience, harmonizing the financial landscape with the nation’s socio-cultural ethos. The study advances theoretical frameworks by demonstrating how religious norms (Theory of Planned Behavior) and ethical transparency (Commitment-Trust Theory) drive trust in Islamic banking, offering a faith-based lens for analyzing financial systems. It provides actionable strategies for Islamic banks, emphasizing Sharia compliance audits, digital transparency tools, and tailored financial literacy programs to strengthen customer trust in Kenya’s dual-banking context. Policymakers benefit from recommendations to harmonize regulations with global Islamic finance standards and integrate Sharia literacy into national education, fostering institutional credibility and financial inclusion. The finding that trust resists economic moderation challenges conventional banking models, highlighting Islamic finance’s ethical resilience and offering insights for faith-based sectors globally. Geographic bias toward urban centers (Nairobi, Mombasa, Garissa) limits rural perspectives, while the cross-sectional design overlooks temporal trust dynamics. Reliance on self- reported data risks response bias, and Likert-scale measurements may oversimplify nuanced trust constructs like religiosity or digital engagement. The study excludes emerging factors (e.g., fintech innovations, blockchain) and extreme economic scenarios, narrowing its applicability to evolving banking landscapes. Despite log transformations, skewed financial literacy variables and ordinal data constraints may underrepresent complex interactions between trust drivers. iii DEDICATION I dedicate this thesis to my beloved children, Hamoud and Haniya. May you always meet adversity with courage, resilience, and faith. Let this work serve as a testament that with unwavering determination, sincere effort, and trust in Allah's plan, you can achieve all that you set your hearts and minds to. May you be guided by purpose, grounded in values, and inspired to pursue excellence in all that you do. With love, Mom iv ACKNOWLEDGEMENT First and foremost, I would like to express my deepest gratitude to Almighty God for providing me with the strength, perseverance, and wisdom to undertake and complete this thesis. I would like to extend my sincere thanks to my supervisor for invaluable guidance, support, and mentorship throughout this research journey. Your feedback and insights were instrumental in shaping this thesis, and I am truly grateful for your patience and dedication. v TABLE OF CONTENTS DECLARATION ........................................................................................................................... i ABSTRACT ................................................................................................................................... ii ACKNOWLEDGEMENT ........................................................................................................... iv LIST OF FIGURES ...................................................................................................................... x LIST OF TABLES ....................................................................................................................... xi OPERATIONAL DEFINITION OF TERMS ......................................................................... xiii ABBREVIATIONS AND ACRONYMS .................................................................................. xiv CHAPTER ONE ........................................................................................................................... 1 INTRODUCTION ........................................................................................................................ 1 1.1 Background of the Study ...................................................................................................... 1 1.1.1 Trust in Islamic Banking ................................................................................................ 5 1.1.2 Bank Specific Factors .................................................................................................... 6 1.1.3 Customer-Specific Factors ............................................................................................. 7 1.1.4 Rise of Islamic Banking in Kenya ................................................................................. 7 1.1.5 The Economic Environment .......................................................................................... 8 1.2 Statement of the Problem ...................................................................................................... 9 1.3 Objectives of the Study ....................................................................................................... 10 1.3.1 Specific Objectives ...................................................................................................... 10 1.4 Research Questions ............................................................................................................. 11 1.5 Scope of the Study .............................................................................................................. 11 1. 6 Significance of the Study ................................................................................................... 12 1. 6. 1 Academic Contribution .............................................................................................. 12 1. 6. 2 Practical Implications ................................................................................................. 12 1. 6. 3 Policy and Regulatory Insights .................................................................................. 12 1. 6. 4 Social and Economic Consequences .......................................................................... 13 vi 1.7 Chapter Summary ............................................................................................................... 13 CHAPTER TWO .......................................................................................................................... 14 LITERATURE REVIEW ............................................................................................................. 14 2.1 Introduction ......................................................................................................................... 14 2. 2 Theoretical Review ............................................................................................................ 14 2. 2. 1 Commitment - Trust Theory ...................................................................................... 14 2. 2. 2 Theory of Planed Behavior (TPB) ............................................................................. 17 2.2.3 Information Asymmetry theory ................................................................................... 19 2.3 Empirical Review ................................................................................................................ 22 2.3.1 The effect of Bank-Specific Factors on Customer Trust in Islamic Banking .............. 22 2.3.2 The effect of customer specific factors on customer trust in Islamic banking ............ 25 2.3.3 The Moderating Effect of the Economic Environment on the Relationship Between Bank-Specific Factors, Customer-Specific Factors, and Customer Trust ............................ 27 2.4 Summary of Research Gaps and Literature Review ........................................................... 29 2. 5 Conceptual Framework ...................................................................................................... 37 2.6 Operationalisation of study variables ................................................................................. 38 2.7 Chapter summary ................................................................................................................ 41 CHAPTER THREE .................................................................................................................... 42 RESEARCH METHODOLOGY .............................................................................................. 42 3.1 Introduction ......................................................................................................................... 42 3.2 Research Philosophy ........................................................................................................... 42 3.3 Research Design .................................................................................................................. 42 3.4 Target Population ................................................................................................................ 43 3.5 Sampling Techniques .......................................................................................................... 44 3.6 Data Collection Methods .................................................................................................... 48 3.7 Research Instruments .......................................................................................................... 48 vii 3.8 Data transformation and assumption checks ....................................................................... 50 3.9 Data Analysis Procedures ................................................................................................... 50 3.9.1 Logistic Regression Model .......................................................................................... 50 3.9.2 Diagnostic tests for Ordered Logistic Regression ....................................................... 53 3.10 Research Quality ............................................................................................................... 55 3.10.1 Reliability of instruments ........................................................................................... 55 3.9.2 Validity ........................................................................................................................ 56 3.9.3 Validity of Instruments ................................................................................................ 56 3.11 Ethical Considerations ...................................................................................................... 57 3.12 Chapter Summary ............................................................................................................. 57 CHAPTER FOUR ....................................................................................................................... 58 PRESENTATION OF RESULTS AND FINDINGS ............................................................... 58 4.1 Introduction ......................................................................................................................... 58 4.2 Response rate ...................................................................................................................... 58 4.3 Characteristics of the respondents ...................................................................................... 60 4.4 Descriptive statistics ........................................................................................................... 62 4.4.1 Level of trust ................................................................................................................ 62 4.4.2 Bank transparency ........................................................................................................ 64 4.4.3 Bank service quality ..................................................................................................... 66 4.4.4 Compliance with sharia principles ............................................................................... 68 4.4.5 Customer religious beliefs ........................................................................................... 70 4.4.6 Customer financial literacy .......................................................................................... 71 4.4.7 Customer banking experiences .................................................................................... 73 4.4.8 Economic stability ....................................................................................................... 75 4.4.9 Open ended questions .................................................................................................. 76 4.5 Inferential Analysis ............................................................................................................. 79 4.5.1 Preliminary tests ........................................................................................................... 80 4.5.2 Correlation Analysis .................................................................................................... 82 viii 4.5.3 Logistic Regression Analysis ....................................................................................... 85 4.6 Chapter Summary ............................................................................................................. 100 CHAPTER FIVE ...................................................................................................................... 101 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS ...................................... 101 5.1 Introduction ....................................................................................................................... 101 5.2 Summary of the study ....................................................................................................... 101 5.3.1 The effect of bank - specific factors on customer trust in Islamic banking in Kenya. ............................................................................................................................................. 102 5.3.2 The effect of customer - specific factors on customer trust in Islamic banking in Kenya. ................................................................................................................................. 106 5.3.3 The moderating effect of the economic environment on the effect of bank specific factors and customer specific factors on customer trust in Islamic banking in Kenya. ...... 109 5.4 Conclusions ....................................................................................................................... 112 5.4.1 Bank specific factors and customer trust ................................................................... 112 5.4.2 Customer specific factors and customer trust ............................................................ 114 5.4.3 Moderating effect of the economic environment ....................................................... 116 5.4.4 Theoretical, Managerial and practical contributions ................................................. 117 5.5 Recommendations ............................................................................................................. 118 5.5.1 Recommendations for Practice (Bank Specific Factors) ........................................... 118 5.5.2 Recommendations for Practice (Customer Specific Factors) .................................... 119 5.5.3 Recommendations for Policy ..................................................................................... 120 5.5.4 Recommendations for Theory .................................................................................... 120 5.6 Limitations ........................................................................................................................ 121 5.7 Areas of further research ................................................................................................... 122 5.8 Chapter summary .............................................................................................................. 123 References .................................................................................................................................. 124 APPENDICES ........................................................................................................................... 139 ix APPENDIX 1: RESEARCH QUESTIONNAIRE ................................................................. 139 APPENDIX 2: NACOSTI PERMIT ....................................................................................... 146 APPENDIX 3: INTRODUCTION LETTER ......................................................................... 147 APPENDIX 4: ETHICAL REVIEW LETTER ..................................................................... 148 APPENDIX 5: SIMILARITY INDEX .................................................................................... 149 x LIST OF FIGURES Figure 2. 1Conceptual Framework ............................................................................................... 37 xi LIST OF TABLES Table 2. 1Summary of research gaps ............................................................................................ 30 Table 2. 2Operationalization of study variables ........................................................................... 38 Table 3. 1 Sampling frame ............................................................................................................ 47 Table 3. 2 Results of the Reliability Test Using Test-Retest Coefficients ................................... 56 Table 4. 1 Response rate ............................................................................................................... 58 Table 4. 2 Group statistics ............................................................................................................ 59 Table 4.3 Independent samples test .............................................................................................. 59 Table 4.4 :Characteristics of the respondents ............................................................................... 61 Table 4. 5 Level of trust in Islamic banks in Kenya ..................................................................... 63 Table 4. 6 Bank transparency ........................................................................................................ 64 Table 4. 7 Bank service quality ..................................................................................................... 66 Table 4. 8 Compliance with sharia principles ............................................................................... 68 Table 4. 9 Customer religious beliefs ........................................................................................... 70 Table 4. 10 Customer financial literacy ........................................................................................ 71 Table 4. 11 Customer banking experiences .................................................................................. 73 Table 4. 12 Economic stability ..................................................................................................... 75 Table 4. 13 Normality test ............................................................................................................ 80 Table 4. 14 Linearity diagnostic ................................................................................................... 80 Table 4. 15 Multicollinearity test .................................................................................................. 81 Table 4. 16 Heteroskedasticity test ............................................................................................... 81 Table 4. 17 Correlations ................................................................................................................ 83 Table 4. 18 Proportional Odds Assumption Test .......................................................................... 86 Table 4. 19 Multicollinearity Test (VIF) ...................................................................................... 87 Table 4. 20 Model Fit Statistics .................................................................................................... 88 Table 4. 21Residual Diagnostics ................................................................................................... 90 Table 4. 22 Linktest Results .......................................................................................................... 91 Table 4. 23 The Effect of Bank Specific factors and Customer Specific factors on Customer Trust in Islamic banks in Kenya ................................................................................................... 94 xii Table 4. 24 Base model and average marginal effects for each domain ....................................... 95 Table 4. 25 Test for moderation .................................................................................................... 97 Table 4. 26 Average Marginal Effects of the Moderation Effect ................................................. 99 xiii OPERATIONAL DEFINITION OF TERMS Bank-Specific Factors: These are institutional characteristics of Islamic banks that influence customer trust, including service quality, transparency, and compliance with Sharia principles (Usman, 2015; Ltifi et al., 2016). Customer-Specific Factors: These are attributes of customers that affect their trust in Islamic banks, such as religious beliefs, financial literacy, and past banking experiences (Lusardi & Mitchell, 2014; Abror et al., 2022). Sharia: Sharia refers to the Islamic legal framework derived from the Quran and Hadith that governs various aspects of life, including finance and banking (El-Gamal, 2006; Hanif & Ayub, 2022). Riba: This is the prohibition of interest in Islamic finance, as it is considered exploitative and unjust under Sharia law (Visser, 2019; Vogel & Hayes, 1998). Gharar: A concept in Islamic finance that refers to excessive uncertainty or ambiguity in transactions, which is prohibited to ensure fairness and transparency (El-Gamal, 2006). Mudarabah: A profit-sharing agreement where one party provides capital while the other manages the investment, with profits distributed according to a pre-agreed ratio (Haniffa & Hudaib, 2007). Murabaha: A cost-plus financing arrangement in which a bank purchases an asset and sells it to a customer at a marked-up price, ensuring transparency (Vogel & Hayes, 1998). Ijarah: An Islamic leasing contract where the bank retains ownership of an asset while the customer pays for its use (Usmani, 2008). xiv ABBREVIATIONS AND ACRONYMS CBK - Central Bank of Kenya M-Pesa - Mobile Money Service in Kenya PBC - Perceived Behavioral Control SEM - Structural Equation Modeling TAM - Technology Acceptance Model TPB - Theory of Planned Behavior TRA - Theory of Reasoned Action 1 CHAPTER ONE INTRODUCTION 1.1 Background of the Study Trust is a cornerstone of the global banking sector, influencing customer behavior, satisfaction, and loyalty, which are crucial for the stability and growth of financial institutions (van Esterik- Plasmeijer & Van Raaij, 2017). Banks worldwide are vital to economic systems, mobilizing savings, providing credit, and facilitating financial intermediation, thus driving economic development (Mishkin, 2007). The 2007/2008 global financial crisis revealed significant weaknesses in traditional banking, including reckless lending and poor oversight, leading to systemic risks and a loss of trust in these institutions (Brunnermeier, 2009). This crisis highlighted the importance of banking models that emphasize ethical practices and strong risk management. In response to these challenges, Islamic banking has gained prominence as a resilient alternative, particularly noted for its stability during the 2008 financial crisis. This stability is attributed to its adherence to ethical investment standards and Sharia-compliant principles, including the prohibition of interest (riba) and a focus on risk-sharing (Bourkhis & Nabi, 2013; Hussein, 2010). The growing interest in Islamic finance has extended to various regions, including Africa. Trust in Islamic banking is complex, requiring customer confidence not only in financial reliability but also in strict adherence to religious guidelines (Dusuki & Abdullah, 2007). While extensive research exists on trust in conventional banking, there is a notable gap in understanding the specific dimensions of trust within the Sharia-compliant framework, especially in developing economies like Kenya. In Kenya, Islamic banking has seen substantial growth following the 2005 amendments to the Banking Act, which established the regulatory framework for Sharia-compliant services (Central Bank of Kenya, 2022). With Muslims comprising about 11% of the population (Kenya National Bureau of Statistics, 2019), there is a significant market for Islamic financial products. Institutions like Gulf African Bank and Premier Bank (formerly First Community Bank) have been key players, offering services such as Murabaha, Mudarabah, and Ijarah (Gulf African Bank, 2023). However, maintaining customer trust is challenging, as evidenced by the 2022 bank run at First 2 Community Bank, triggered by rumors and system issues (Business Daily, 2022). This incident underscores the critical need to understand and address trust issues in Kenya's Islamic banking sector. This study examines two main categories of factors affecting trust in Islamic banking: bank- specific factors and customer-specific factors, with the economic environment as a moderating variable. Bank-specific factors include transparency, service quality, and Sharia compliance, which are essential for showcasing a bank's dedication to ethical and religious standards (Ltifi et al., 2016). Transparency helps reduce information asymmetry, building customer confidence (Manganaris et al., 2017), while high service quality—characterized by reliability, responsiveness, and empathy—boosts satisfaction and loyalty (Parasuraman et al., 1988). Sharia compliance, verified through audits and transparent reporting, is crucial; any perceived non-compliance can severely damage trust among customers who value religious adherence (Musa, 2015). Customer-specific factors, including religious beliefs, financial literacy, and prior banking experiences, significantly influence trust perceptions (Tegambwage & Kasoga, 2023; Lusardi & Mitchell, 2014; Gefen, 2002). Customers with strong religious convictions are more likely to trust Islamic banks that align with their values, leading to increased loyalty (Abror et al., 2022). Financial literacy enables customers to comprehend complex Islamic financial products, thereby enhancing trust (Ali, 2017). Additionally, positive previous banking experiences bolster confidence, while negative ones can erode it (Sharma & Chaubey, 2014). These bank-specific and customer-specific factors have been selected based on their proven impact on trust in banking. Although other variables such as macroeconomic conditions (considered here as a moderator), regulatory frameworks, or technological advancements may also affect trust, the chosen factors are directly relevant to customer perceptions and behaviors in Islamic banking (Chu et al., 2012). Prior studies have typically investigated these factors separately or in different cultural settings. There is a notable lack of research on how these factors collectively influence trust in Kenya's nascent Islamic banking sector, especially under varying economic conditions. This study seeks to address this gap by offering a thorough analysis of these interactions within the Kenyan context. 3 Furthermore, the economic environment moderates the relationship between these factors and trust. Variables like inflation, interest rates, and market stability can shape customer perceptions and the efficacy of trust-building initiatives by Islamic banks (Hassan & Bashir, 2020). For example, in times of economic uncertainty, customers might prioritize financial security over religious considerations, thereby lessening the impact of religiosity on trust. In contrast, during economic stability, bank-specific factors such as service quality and Sharia compliance may have a more pronounced effect on trust. The existing literature has largely overlooked this moderating effect within the African Islamic banking sector. This study intends to investigate how bank- specific and customer-specific factors affect trust in Kenyan Islamic banking, taking into account the moderating influence of the economic environment. Insights from this research will enable Islamic banks to devise strategies that bolster customer trust, improve their market standing, and promote financial inclusion and economic growth in Kenya. Extensive research has been conducted on trust in Islamic banking in regions such as the Middle East and Southeast Asia, where Islamic finance is more established (e.g., Amin et al., 2013; Kashif et al., 2016). Studies have explored factors like Sharia compliance, service quality, and customer satisfaction, often in contexts with majority Muslim populations and mature regulatory frameworks. However, there is a paucity of research focusing on emerging markets like Kenya, where Islamic banking is relatively new and operates within a different socio-economic and regulatory framework. This study aims to fill this gap by examining the unique factors influencing trust in Kenya's Islamic banking sector, particularly the interplay between bank-specific and customer-specific factors under varying economic conditions. The applicability of findings from mature Islamic banking markets to Kenya is limited due to significant contextual differences. For instance, in Malaysia, Islamic banking has achieved a market share of 45.6% in 2023 (DDCAP, 2024), supported by a majority Muslim population and a well-developed regulatory system. In contrast, Kenya's Islamic banking sector, with a Muslim population of approximately 11%, faces different challenges and opportunities, including competition from a robust conventional banking system and lower levels of financial literacy among customers. These differences may affect customer perceptions and trust dynamics, necessitating a tailored investigation in the Kenyan setting. 4 Since its introduction in 2005, Islamic banking in Kenya has grown steadily. As of 2023, there are three fully-fledged Islamic banks—Gulf African Bank, Premier Bank (formerly First Community Bank), and DIB Bank Kenya—and several conventional banks offering Islamic windows, such as KCB with its Sahil accounts and Absa with La Riba accounts (KCB Bank, 2022; Absa Bank, 2022). Despite this growth, Islamic banking still holds a small share of the total banking assets in Kenya. As of 2016, Islamic banking represented only 2% of the country's total banking assets (The Economist Intelligence Unit, 2015). While more recent data is not readily available, the sector has continued to expand with the introduction of new products and services, such as the Linzi Finko sukuk launched in 2024 (Femmehub, 2025), indicating ongoing development and potential for increased market share. The total net assets for the Kenyan banking sector as of December 31, 2023, were Ksh.7,690.7 billion, highlighting the small but growing presence of Islamic banking within this landscape (Central Bank of Kenya, 2024). It is important to note that the relatively small number of Islamic banks in Kenya may not be solely attributable to trust issues. Islamic banking is a relatively new concept in the country, introduced only in 2005, and factors such as limited awareness, underinvestment, and the need for specialized regulatory frameworks may also contribute to its current market size. For example, the sector faces challenges such as a shortage of trained personnel in Islamic finance and competition from well- established conventional banks with larger networks and resources (Mambodallu, 2018). Economic Environment and Moderating Effects: Kenya's economic performance has been marked by resilience and recovery. After a contraction of -0.3% in GDP growth in 2020 due to the COVID- 19 pandemic, the economy rebounded strongly with 7.5% growth in 2021, followed by 4.8% in 2022 and 5.2% in 2023 (World Bank, 2024). The economic environment, including factors like inflation, interest rates, and overall market stability, can significantly moderate the relationship between bank-specific and customer-specific factors and trust in Islamic banking. For instance, during periods of economic growth, customers may have greater confidence in banks' ability to manage their funds effectively, thereby enhancing trust. Conversely, economic downturns, such as the 2020 pandemic or political instability, may lead to increased financial anxiety, affecting trust levels and potentially reducing the influence of religiosity on customer decisions. 5 Kenya's economy is projected to grow at 5.4% in 2024 and 5.6% in 2025, driven by services and household consumption (African Development Bank Group, 2024). However, challenges such as high public debt, inflationary pressures, and global economic uncertainties can impact customer trust in financial institutions, including Islamic banks. For example, during periods of economic stability and growth, bank-specific factors like service quality and Sharia compliance may have a more pronounced positive effect on trust, while in times of economic downturn, customers may prioritize financial security over religious considerations, potentially diminishing the impact of customer-specific factors like religiosity. 1.1.1 Trust in Islamic Banking Trust is fundamental to the bank-customer relationship and is a key variable in studies on customer behavior and satisfaction in banking (van Esterik-Plasmeijer & Van Raaij, 2017). In Islamic banking, trust is particularly important due to the ethical and religious principles guiding these institutions (Hanif & Ayub, 2022). Trust in this context encompasses customers' confidence in the bank's adherence to Sharia law, delivery of high-quality services, and acting in their best interests (Dusuki & Abdullah, 2007), distinguishing it from trust in conventional banking. Trust in banking is often conceptualized through dimensions like reliability, integrity, and benevolence (van Esterik-Plasmeijer & Van Raaij, 2017). These dimensions help reduce perceived risks in financial transactions, especially where information asymmetry exists (Mishkin, 2007). Reliability refers to customers' belief in the bank's ability to deliver promised services consistently. Integrity relates to the bank's adherence to principles, particularly Sharia law in Islamic banking. Benevolence is the perception that the bank prioritizes customers' welfare over profits (Mayer et al., 1995). Trust can be effectively captured through customer surveys, gauging perceptions of reliability, transparency, and commitment fulfillment (Alam et al., 2021). Understanding these perceptions can enhance customer satisfaction, loyalty, and bank performance. In Islamic banking, Sharia compliance is a critical trust factor, with customers expecting strict adherence to religious principles, supported by visible Sharia boards and regular audits (Musa, 2015). Despite global interest, maintaining trust remains challenging, often due to perceptions of inadequate transparency and governance weaknesses (Faizullah, 2009). The 2022 bank run at First 6 Community Bank in Kenya illustrates the fragility of trust, emphasizing its importance for financial stability and inclusion (Fungáčová et al., 2019). Research has identified several dimensions of trust in Islamic banking, including cognitive trust based on the bank's competence and reliability, and affective trust based on emotional bonds and shared values (Suhartanto et al., 2018). However, few studies have empirically tested these dimensions in the African context, particularly in Kenya, where cultural and religious diversity may influence trust formation differently. This gap underscores the need for localized research to understand how trust operates within Kenya's unique market conditions. 1.1.2 Bank Specific Factors Bank-specific factors significantly influence customer trust in Islamic banks, including transparency, service quality, and Sharia compliance (Ltifi et al., 2016). Transparency involves clear presentation of policies and financial terms, reducing information asymmetry and enhancing confidence (Manganaris et al., 2017). For Islamic banks, transparency ensures transactions are halal, supported by comprehensive financial statements and risk disclosures (Lahrech et al., 2014). Service quality, based on dimensions like reliability, responsiveness, and empathy (Parasuraman et al., 1988), is crucial for building trust and loyalty. In Islamic banking, it requires understanding customers' financial needs while adhering to ethical principles, including efficient account management and Sharia-compliant advice (Ali, 2017). Sharia compliance, prohibiting interest and endorsing profit-sharing, is fundamental to Islamic banks' identity (Visser, 2019). Regular audits and transparent reporting foster customer confidence, appealing to both Muslim and ethically conscious non-Muslim clients (Mohsin & Aftab, 2013). A study by Ltifi et al. (2016) in Tunisia found that transparency and service quality significantly impact customer trust in Islamic banks. Similarly, in Malaysia, Amin et al. (2013) highlighted the importance of Sharia compliance in building trust. However, these studies were conducted in countries with different economic and cultural settings, and their findings may not directly apply to Kenya's unique market conditions, where Islamic banking is still developing and faces competition from conventional banks. 7 1.1.3 Customer-Specific Factors Customer-specific factors, such as religious beliefs, financial literacy, and prior banking experiences, profoundly influence trust in Islamic banks (Lusardi & Mitchell, 2014; Gefen, 2002). Religious beliefs strongly predict bank choice, with devout customers favoring Islamic banks aligned with their values, enhancing loyalty (Tegambwage & Kasoga, 2023; Abror et al., 2022). Financial literacy, the ability to understand financial information, fosters trust by enabling customers to evaluate Islamic products like profit-sharing models (Ali, 2017). Previous banking experiences shape perceptions, with positive interactions boosting confidence and negative ones eroding trust (Sharma & Chaubey, 2014). In Indonesia, Abror et al. (2022) found that religiosity positively influences customer loyalty through trust in Islamic banks. Meanwhile, in Pakistan, Ali (2017) demonstrated that financial literacy enhances customers' understanding and trust in Islamic financial products. Yet, there is limited research on how these factors operate in Kenya, where the Muslim population is smaller and financial literacy levels may vary, highlighting the need for context-specific studies. 1.1.4 Rise of Islamic Banking in Kenya Islamic banking in Kenya was formally introduced in 2005 following amendments to the Banking Act, enabling Sharia-compliant services (Central Bank of Kenya, 2022). Driven by a growing Muslim population (11% as per Kenya National Bureau of Statistics, 2019), demand for products like Murabaha and Mudarabah has increased. Banks like Gulf African Bank and Premier Bank have expanded, contributing to financial inclusion by attracting customers previously excluded by religious prohibitions (Gulf African Bank, 2023). Conventional banks, such as KCB and Absa, have introduced Islamic windows, enhancing market competition (KCB Bank, 2022; Absa Bank, 2022). Despite growth, challenges include low awareness, trained personnel shortages, and competition from established banks. Besides trust issues, the limited number of Islamic banks may also be attributed to the recent introduction of Islamic banking and potential underinvestment in this sector. Market Share and Trends: Despite this growth, Islamic banking still holds a small share of the total banking assets in Kenya. As of 2016, Islamic banking represented only 2% of the country's total 8 banking assets (The Economist Intelligence Unit, 2015). While more recent data is not readily available, the sector has continued to expand with the introduction of new products and services, such as the Linzi Finko sukuk launched in 2024 (Femmehub, 2025), indicating ongoing development and potential for increased market share. The total net assets for the Kenyan banking sector as of December 31, 2023, were Ksh.7,690.7 billion, highlighting the small but growing presence of Islamic banking within this landscape (Central Bank of Kenya, 2024). 1.1.5 The Economic Environment Trust is critical in shaping customer relationships in Islamic banking, influenced by bank-specific factors like service quality and Sharia compliance, and customer-specific factors like religiosity and financial literacy (Khan et al., 2018). The economic environment, including inflation and market stability, moderates these relationships (Hassan & Bashir, 2020). In unstable economic conditions, customers may prioritize financial security over religious alignment, reducing religiosity's impact on trust. In stable conditions, bank-specific factors may have a stronger positive effect. While the general impact of economic conditions on trust is acknowledged, there is a specific gap in empirically testing this moderating role in Kenya’s Islamic banking context, which this study aims to address. Kenya's economic performance has been marked by resilience and recovery. After a contraction of -0.3% in GDP growth in 2020 due to the COVID-19 pandemic, the economy rebounded strongly with 7.5% growth in 2021, followed by 4.8% in 2022 and 5.2% in 2023 (World Bank, 2024). The economic environment, including factors like inflation, interest rates, and overall market stability, can significantly moderate the relationship between bank-specific and customer-specific factors and trust in Islamic banking. For instance, during periods of economic growth, customers may have greater confidence in banks' ability to manage their funds effectively, thereby enhancing trust. Conversely, economic downturns, such as the 2020 pandemic or political instability, may lead to increased financial anxiety, affecting trust levels and potentially reducing the influence of religiosity on customer decisions. Kenya's economy is projected to grow at 5.4% in 2024 and 5.6% in 2025, driven by services and household consumption (African Development Bank Group, 2024). However, challenges such as high public debt, inflationary pressures, and global economic uncertainties can impact customer 9 trust in financial institutions, including Islamic banks. For example, during periods of economic stability and growth, bank-specific factors like service quality and Sharia compliance may have a more pronounced positive effect on trust, while in times of economic downturn, customers may prioritize financial security over religious considerations, potentially diminishing the impact of customer-specific factors like religiosity. While the general impact of economic conditions on trust is acknowledged, a specific knowledge gap exists in empirically testing the moderating role of the economic environment on the antecedents of trust in the specific context of Islamic banking in a developing economy like Kenya. This study aims to address this gap. 1.2 Statement of the Problem Customer trust is indispensable in the banking sector, particularly for Islamic banks which must uphold stringent Sharia adherence, necessitating high transparency and ethical compliance (Hassan & Lewis, 2009). In Kenya, a demonstrable trust deficit critically undermines Islamic banking's growth. Despite a substantial Muslim population of approximately 5.2 million, 11% of the total (Kenya National Bureau of Statistics, 2019), Islamic banking’s market share languishes at a mere 1.41% with only around 170,000 account holders (Central Bank of Kenya, 2022). While sector novelty and investment levels offer partial explanations, such a stark disparity unequivocally signals that customer trust, specifically its absence, is a primary limiting factor. Research consistently highlights customer trust as fundamental for loyalty and service adoption (van Esterik-Plasmeijer & van Raaij, 2017; Tabrani et al., 2018), its significance amplified in Islamic banking due to the religious compliance imperative. Indeed, Kenyan studies substantiate these trust deficits: Aden (2013) revealed that while 56.1% of respondents trusted Islamic banking, a significant 27.6% did not, citing perceived unreliability. Kasmani (2013) observed that anxieties regarding staff competence and their understanding of Islamic banking principles directly erode trust, even if religious grounds initially attract customers. These documented trust issues are evidently key contributors to Islamic banking's depressed market penetration in Kenya, as trust fundamentally dictates engagement. Persisting low customer trust presents substantial risks to the expansion of Islamic banks, potentially constraining the availability of Sharia-compliant products (Iqbal & Mirakhor, 2011) 10 and impeding Kenya’s strategic ambition to become an Islamic finance hub (Muhammad, 2016). Proactively addressing these trust barriers is imperative, especially considering the Muslim population's projected growth (Pew Research Center, 2021). Despite trust's critical role, specific research gaps obstruct targeted interventions. International studies (e.g., van Esterik-Plasmeijer & van Raaij, 2017; Tabrani et al., 2018) offer insights whose applicability to Kenya’s unique context is underexplored. More critically, while local studies like Aden (2013) and Kasmani (2013) identified trust issues, a clear knowledge gap exists as they did not comprehensively delineate the specific bank-related determinants (e.g., perceived service quality, transparency of Sharia compliance mechanisms) or customer-related determinants (e.g., impact of religious orientation, financial literacy levels) that configure this trust within the Kenyan Islamic banking sector. Furthermore, a significant gap persists in understanding how trust influences adoption among potential non-Muslim clients, and the specific mechanisms through which Kenya's regulatory framework shapes consumer confidence in these specialized banks remains uninvestigated. This study aimed to fill these delineated research gaps by investigating the specific bank-level and customer-level factors influencing customer trust in Islamic banking in Kenya, providing insights to enhance trust and support the sector's growth. 1.3 Objectives of the Study The general objective of this study was to investigate how bank-specific and customer-specific factors affect customer trust in Islamic banks in Kenya. 1.3.1 Specific Objectives i. To evaluate the effect of bank - specific factors on customer trust in Islamic banking in Kenya. ii. To investigate the effect of customer - specific factors on customer trust in Islamic banking in Kenya. iii. To determine the moderating effect of the economic environment on the effect of bank specific factors and customer specific factors on customer trust in Islamic banking in Kenya. 11 1.4 Research Questions i. What is the effect of bank - specific factors on customer trust in Islamic banking in Kenya? ii. What is the effect of customer - specific factors on customer trust in Islamic banking in Kenya? iii. What is the moderating effect of the economic environment on the effect of bank specific factors and customer specific factors on customer trust in Islamic banking in Kenya? 1.5 Scope of the Study This research was conducted in Kenya, focusing on Islamic banks, conventional banks offering Islamic banking windows, and their customers and non-customers. The study targeted these institutions and individuals in Nairobi, Mombasa, and Garissa. The target population for this study primarily encompassed customers actively patronizing sharia-compliant banking services in these three cities, to provide a more comprehensive understanding, the study also included non-Islamic bank customers within the same regions, to assess broader perceptions and barriers to trust in Islamic banking. A sample of 384 respondents was drawn for this study. This sample size was determined using Cochran’s formula with a 95% confidence level and a 5% margin of error. The respondents were selected from customers of Islamic banks and conventional banks with Islamic windows, as well as from the general Muslim and non-Muslim population (including non-customers of Islamic banks) in the specified urban areas. This sample was proportionally allocated across the counties: 180 respondents from Nairobi (comprising 100 customers of Islamic banking services and 80 non- customers), 120 respondents from Mombasa (70 customers and 50 non-customers), and 84 respondents from Garissa (50 customers and 34 non-customers). This research sought to identify the antecedents of customer trust by examining bank-level factors (transparency, service quality, Sharia compliance perception) and customer-level factors (religiosity, financial knowledge, prior banking experience). A quantitative approach using structured questionnaires administered to the sampled respondents was employed for data collection over three months, from February to April 2025. While findings are pertinent to Kenya, they aim to inform broader discussions on trust in Islamic banking. 12 1. 6 Significance of the Study In terms of contribution, this research has academic, practical, as well as policy-related implications. This study sought to establish the factors that affect trust in Islamic banks in Kenya and through this, the study will be useful in enriching the knowledge that can be useful in the development of the Islamic banking sector in the country. 1. 6. 1 Academic Contribution This study aimed to address the gap in existing literature by investigating the specific factors that defined trust in Islamic banks in the Kenyan environment from both the bank and the customer’s perspectives. Although many international works had been conducted on trust in Islamic banking, the local studies in Kenya were limited. This research work was limited to Kenya to contribute to the existing literature on Islamic banking, thus affording another angle under which global trends were viewed. Further, it added to the body of knowledge on trust in banking by analyzing how the various factors interacted and hence affected trust. 1. 6. 2 Practical Implications The findings of this study will be of great benefit to Islamic banks in Kenya in as far as developing strategies to increase customer trust is concerned. This way, these banks will be in a position to understand the factors that affect trust and hence they will be in a position to change their services, communication and the way they operate in order to meet the expectations of their customers. For example, if transparency is deemed essential, the banks can pay attention to enhancing the information sharing and disclosure strategies. Also, the findings on service quality and Sharia compliance can help banks to understand how they should improve their services as well as meet the religious standards that have been set. In the end, it will assist the Islamic banks to obtain and maintain customers and, therefore, encourage the long-term relationship that will lead to the growth of the business. 1. 6. 3 Policy and Regulatory Insights This research will be useful to policymakers and regulators in the financial sector since it offers important information. Having identified the factors that affect trust in Islamic banks, it means that the regulators can formulate policies that will enhance the growth of the Islamic banks. This could include developing principles around the disclosure of information, checking that all activities are 13 in accordance with Sharia, and raising awareness of the consumer about financial issues. Furthermore, the outcomes of this study may also be useful to the regulators in order to determine where gaps exist in the present legal environment, and therefore whether it supports the specific conditions necessary for Islamic banking. 1. 6. 4 Social and Economic Consequences Improving the level of confidence in Islamic banks can have positive implications to the society and the economy. For the Muslim population in Kenya, the enhanced confidence in the Islamic banks translates into better access to the religious compliant financial services. This can increase financial inclusion because more people and companies will be part of the formal financial sector. Also, the ethical investment principles of Islamic banking can also be of benefit to society as it can finance projects that can be socially beneficial. At the economic level, a well-developed and credible Islamic banking system will enable investors both in the domestic and the international market hence enhancing economic growth and stability. 1.7 Chapter Summary This first chapter gives insight into the background of Trust, Islamic banking in Kenya as well as the variables under study. The chapter discusses the rationale of the research study as well as the objectives that the research anticipates achieving. In the subsequent chapter, a systematic literature review of the relevant literature will be done in establishing the research progress as related to the issue of customer trust in Islamic Banks in Kenya. 14 CHAPTER TWO LITERATURE REVIEW 2.1 Introduction The literature review aims to provide a comprehensive examination of the existing research and theoretical frameworks related to trust in Islamic banking. This chapter delves into the global and local studies that explore the factors influencing trust in Islamic banks, focusing on both bank- specific and customer-specific elements. By synthesizing the findings from various studies, this review seeks to identify gaps in the current knowledge and establish a foundation for the empirical investigation in the Kenyan context. 2. 2 Theoretical Review This study draws on three foundational theories, the Commitment-Trust Theory, Theory of Planned Behavior (TPB), and Information Asymmetry Theory to capture the multifaceted nature of trust in Islamic banking. Trust in financial institutions is a complex construct influenced by organizational practices, individual perceptions, and broader market signals. In Islamic banking, where Sharia compliance, ethical considerations, and socio-religious identities converge, a singular theoretical perspective cannot sufficiently encompass all determinants of trust. Accordingly, a multiple-theory approach is justified: Commitment-Trust Theory addresses the relational underpinnings of long-term customer–bank ties; TPB elucidates the psychological and normative drivers of customer intentions; and Information Asymmetry Theory highlights the pivotal role of transparency and signaling in mitigating doubts. This integrated framework allows for a comprehensive analysis of bank-specific factors (e.g., transparency, service quality, Sharia compliance), customer-specific factors (e.g., religiosity, financial literacy, prior experience), and the moderating influence of Kenya’s dynamic economic environment on trust formation. 2. 2. 1 Commitment - Trust Theory Morgan and Hunt’s (1994) Commitment-Trust Theory is grounded in the premise that trust and commitment are critical precursors to successful relationship marketing. Trust is defined as the belief that a partner is reliable, acts with integrity, and possesses the competence necessary to fulfil 15 promises. Commitment refers to the enduring desire to maintain a valued relationship, reflecting both emotional attachment and rational calculation of relationship benefits. The theory enumerates additional constructs that are shared values, relationship termination costs, communication, and opportunistic behaviour avoidance—that sustain ongoing exchanges. Shared values facilitate goal congruence; high perceived costs of ending a relationship discourage defection; open, frequent communication reduces misunderstandings; and refraining from opportunism fosters cooperative norms. In banking contexts, these dimensions translate into clear corporate values, service guarantees, regular customer updates, and ethical conduct policies. Over the past decades, empirical studies have applied Commitment-Trust Theory in diverse sectors, including retail (Morgan & Hunt, 1994), logistics (Morgan et al., 2005), and online services (Kim et al., 2009). In Islamic banking, researchers such as Khraim (2011) have confirmed the centrality of trust and commitment in driving customer loyalty. Yet critiques persist. Ndubisi (2007) argues the theory underplays emotional intelligence which is a vital element when customers weigh moral and affective factors in Sharia banking. Fournier et al. (1998) highlight missing nuances in psychological trust dimensions like perceived fairness and empathy, reinforcing the need to integrate emotional metrics. Palmatier et al. (2006) caution against uncritical application in collectivist cultures, where collective norms and familial networks exert significant influence beyond dyadic trust and commitment. Operationalization challenges remain prevalent in trust research within Islamic banking contexts. Geyskens et al. (1996) highlight the inconsistent measurement scales used for trust and commitment across studies, which has resulted in divergent empirical findings. This inconsistency is particularly problematic in Islamic banking research, where cross-study comparisons become complicated and less reliable. The field urgently requires standardized measurement instruments that effectively incorporate both religio-ethical dimensions and commercial trust indicators to ensure research validity and facilitate meaningful comparative analysis. When examining bank-specific factors, Sharia compliance emerges as a critical trust determinant, demonstrated through regular audits and Islamic board approvals that signal institutional integrity and competence to customers. Additionally, transparency in disclosing profit-and-loss sharing 16 mechanisms significantly reduces perceived risk, thereby enhancing customer commitment to the institution. Superior service quality, characterized by prompt grievance handling and personalized advisory services, fosters effective communication and reinforces shared values between the bank and its customers, further cementing the foundation of trust in these relationships. Customer-specific factors play an equally important role in trust formation, as shared religious values and prior positive experiences enhance customers' perception of alignment with bank principles. When clients believe their personal beliefs are respected and represented by the institution, they naturally exhibit stronger affective commitment to maintaining the banking relationship. Furthermore, past satisfactory interactions continuously reinforce reliability judgments, creating a positive feedback loop that deepens trust and strengthens the overall customer-bank relationship over time. The economic environment serves as a significant moderating variable, particularly during periods of volatility such as currency fluctuations or interest rate shifts, when customers typically gravitate toward institutions offering stable, Sharia-compliant products. High trust-based commitment provides a buffer against perceived uncertainty, effectively sustaining customer-bank relationships despite market turbulence. This moderating effect of economic conditions thus amplifies the protective role that trust and commitment play in preserving banking relationships, highlighting their strategic importance during challenging economic periods. Empirical studies on Morgan and Hunt’s (1994) Commitment-Trust Theory highlight its applicability across sectors, including Islamic banking, while also exposing contextual limitations. Khraim’s (2011) findings in Islamic banking reaffirm the centrality of trust and commitment in fostering customer loyalty, aligning with the theory’s assertion that these constructs are foundational to enduring relationships. For instance, bank-specific factors like Sharia compliance audits and transparent profit-sharing mechanisms directly operationalize the theory’s emphasis on institutional integrity and communication, which reduce perceived risk and enhance commitment. However, critiques such as Ndubisi’s (2007) argument about the neglect of emotional intelligence and Fournier et al.’s (1998) focus on fairness and empathy reveal gaps in the theory’s psychological dimensions. These insights underscore the need to integrate religio-ethical values and affective metrics into trust measurement, as seen in Islamic banking contexts where shared 17 religious values deepen emotional attachment. Operational challenges, like inconsistent scales flagged by Geyskens et al. (1996), further stress the necessity of standardized tools that blend commercial and ethical indicators, ensuring cross-study reliability. The moderating role of economic volatility, which amplifies trust’s protective function during crises, aligns with the theory’s relational endurance but demands cultural adaptations in collectivist settings, as noted by Palmatier et al. (2006). Thus, empirical reviews validate the theory’s core tenets while advocating for expanded constructs to address emotional and cultural nuances in Islamic finance. 2. 2. 2 Theory of Planed Behavior (TPB) Ajzen's (1991) Theory of Planned Behavior (TPB) extends Fishbein and Ajzen’s earlier Theory of Reasoned Action (1980). The primary addition to the framework is the concept of perceived behavioral control (PBC), which complements the existing components of attitudes and subjective norms. According to TPB, the most direct precursor to actual behavior is an individual's behavioral intention. These intentions are, in turn, shaped by a combination of three key factors: an individual's positive or negative evaluation of performing the behavior (attitudes); the perceived social pressures exerted by significant others regarding the behavior (subjective norms); and the perceived ease or difficulty associated with performing the behavior, which is informed by past experiences and anticipated obstacles (perceived behavioral control). In the specific domain of Islamic banking, these TPB constructs manifest in distinct ways. Attitudes are formed as customers evaluate Sharia-compliant products, potentially viewing them as ethically superior or offering financial advantages, as suggested by Amin et al. (2011). Subjective norms emerge from the expectations of family, peers, and the wider community. These influences are particularly significant in Muslim-majority regions where adherence to religious norms is highly valued, a point highlighted by Lada et al. (2009) and Junaidi et al. (2023). Perceived behavioral control in this context reflects customers' financial literacy levels, their ease of access to both physical branch networks and digital banking platforms, and their confidence in understanding and interpreting Islamic financial contracts, as noted by Ali et al. (2017). Meta-analytic reviews of TPB applications, such as those conducted by Armitage & Conner (2001) and Sniehotta et al. (2014), consistently affirm the theory's strong predictive capabilities for planned behaviors. However, these reviews also acknowledge certain limitations. A primary 18 critique is that the model predominantly assumes rational decision-making processes, thereby underrepresenting the influence of emotional responses, habitual actions, or impulsive behaviors, an issue raised by Sheeran et al. (2016). Furthermore, TPB often does not fully account for broader contextual factors—including economic conditions, cultural nuances, and institutional frameworks—that can significantly shape both perceived behavioral control and normative influences, as Yzer (2012) pointed out. For instance, in Kenya, factors such as the accessibility of Islamic banking branches, the level of regulatory support from the Central Bank, and macroeconomic indicators like inflation rates all play a role in informing PBC and subjective norms, yet these elements fall outside the traditional TPB framework. Consequently, researchers have advocated for extended models that incorporate environmental constructs or affective variables to better capture these contextual influences (Conner & Sparks, 2005). The application of TPB can be contextualized through specific objectives related to trust in Islamic banks. Firstly, concerning bank-specific factors (Objective i), customer attitudes towards service quality, transparency, and ethical banking practices directly influence their intention to place trust in Islamic banks; positive experiences with Sharia-compliant financing and profit-sharing accounts tend to elevate these attitudes, thereby increasing intentions to trust. Secondly, customer-specific factors (Objective ii) highlight that subjective norms reflect the influence of religious leaders, family, and social circles endorsing Islamic finance, where higher religiosity and positive social endorsements strengthen normative pressure, subsequently boosting trust intentions. Similarly, perceived behavioral control corresponds to customers’ financial literacy and technological access, with higher literacy and easier service access enhancing perceived control and reinforcing intentions to trust and transact with Islamic banks. Lastly, the economic environment (Objective iii) plays a critical role, as conditions such as inflation spikes or interest rate caps affect customers’ perceived control. In unstable economic environments, even positive attitudes and strong subjective norms may not translate into actual trust behaviors if customers fear systemic failures or lack confidence in navigating complex financial products. Therefore, the economic environment acts as a moderator for the relationship between the TPB constructs and trust intentions. Ajzen’s TPB is empirically validated in Islamic banking through studies linking attitudes, norms, and control to trust intentions, yet its rationalist assumptions face scrutiny. Amin et al. (2011) demonstrate how positive evaluations of Sharia compliance shape attitudes, while Lada et al. 19 (2009) and Junaidi et al. (2023) highlight the potency of subjective norms in Muslim-majority contexts, where familial and religious endorsements drive trust. Ali et al. (2017) tie perceived behavioral control to financial literacy and digital access, aligning with TPB’s focus on self- efficacy. However, meta-analyses by Armitage & Conner (2001) and critiques by Sheeran et al. (2016) reveal the model’s neglect of emotional and habitual factors—critical in Islamic banking, where trust often intertwines with spiritual fulfillment. Contextual gaps, such as Kenya’s branch accessibility and regulatory dynamics (Yzer, 2012), further challenge TPB’s universality. For instance, economic instability may weaken perceived control despite strong attitudes or norms, as customers fear systemic risks, necessitating extensions to include environmental moderators like inflation (Conner & Sparks, 2005). Empirical findings thus affirm TPB’s utility in explaining trust intentions but call for hybrid models that incorporate affective drivers and macroeconomic variables, particularly in emerging markets where institutional and cultural forces intersect with individual decision-making. 2.2.3 Information Asymmetry theory In his seminal work, Akerlof (1970) introduced the Information Asymmetry Theory, illustrating how unequal information can lead to market inefficiencies and adverse selection. In markets beset by quality uncertainty like the used car market buyers’ inability to distinguish high-quality goods (“peaches”) from low-quality ones (“lemons”) drives prices down, crowding out better-quality products. This framework extends to financial services: borrowers possess more information about their risk profiles than lenders, leading to credit rationing or high interest rates. In insurance, high-risk individuals self-select into coverage, elevating costs for insurers. Signaling and screening mechanisms—warranties, third-party certifications, and brand reputation—emerge to mitigate asymmetry, fostering trust among less-informed parties. Critics argue that Akerlof’s model assumes static information environments, underplaying iterative learning and technological interventions (Stiglitz). Arrow (1963) cautioned that policy measures like warranties may impose cost burdens, while Spence (1978) highlighted power imbalances that exacerbate asymmetries. In digital marketplaces, user reviews and reputation systems dynamically reduce information gaps, a nuance absent from the original model. 20 Islamic banking products, such as profit-and-loss sharing contracts (mudarabah, murabaha), involve intricate profit allocation rules, Sharia board interpretations, and risk-sharing modalities that may appear opaque to customers unfamiliar with Islamic finance principles. This complexity can breed skepticism regarding the fairness or authenticity of promised returns, particularly when clients lack clarity on how profits are calculated or risks are distributed. To address these concerns, bank-specific transparency measures (Objective i) play a pivotal role. By implementing detailed disclosures of Sharia supervisory outcomes, publishing periodic performance reports, and hosting interactive educational seminars, Islamic banks can signal institutional integrity and reduce information gaps. Clear communication of contract terms and real-time online dashboards further enhance transparency, fostering trust by demystifying product structures. Simultaneously, customer-specific factors (Objective ii) shape how these signals are interpreted: individuals with higher financial literacy or prior exposure to Islamic banking are better equipped to decode transparency initiatives, translating them into elevated trust. Conversely, customers with limited literacy or entrenched conventional banking habits may remain skeptical, underscoring the need for tailored educational outreach. Economic conditions (Objective iii) further moderate these dynamics, as market volatility—such as currency devaluation or commodity price shocks— heightens customer sensitivity to information asymmetries. During turbulent periods, even robust transparency efforts may require reinforcement through regulatory endorsements or deposit insurance schemes to reassure customers, illustrating how external economic instability amplifies or attenuates the effectiveness of trust-building measures. The interplay of these factors underscores the necessity of a multidimensional theoretical framework to explain trust in Islamic banking. By integrating Commitment-Trust Theory, the Theory of Planned Behavior, and Information Asymmetry Theory, this study holistically captures the relational, cognitive, and informational dimensions of trust. Bank-specific initiatives like Sharia compliance audits and transparency protocols align with Commitment-Trust Theory’s emphasis on institutional reliability and communication, while customer literacy and proactive engagement reflect TPB’s focus on attitudes and perceived control. Meanwhile, Information Asymmetry Theory contextualizes how economic volatility exacerbates distrust, necessitating adaptive measures like regulatory safeguards. Together, these theories account for the strategic 21 role of Sharia-compliant practices, the influence of customer perceptions and social norms, and the moderating impact of Kenya’s economic environment. This multifaceted approach not only explains how trust is built and sustained through ethical governance, customer education, and crisis-responsive policies but also highlights the interdependence of institutional actions, individual agency, and macroeconomic stability. In Kenya’s emerging Islamic banking sector, such a framework provides actionable insights for balancing religio-ethical commitments with commercial viability, ensuring that trust remains resilient amid evolving market challenges and diverse customer expectations. Akerlof’s (1970) Information Asymmetry Theory finds resonance in Islamic banking’s product complexity, where opaque profit-sharing mechanisms breed mistrust. Empirical studies emphasize bank-specific transparency measures—such as Sharia board disclosures and educational seminars—as signaling tools to bridge knowledge gaps, directly addressing the theory’s call for quality assurance (Objective i). Customer-specific factors like financial literacy (Objective ii), as noted in studies, determine signal efficacy: literate clients better interpret transparency efforts, reducing asymmetry’s adverse effects. However, critiques by Stiglitz and Spence highlight the theory’s static view, overlooking iterative learning and power imbalances. Digital solutions (e.g., real-time dashboards) and regulatory endorsements during economic turbulence (Objective iii) exemplify dynamic mitigations absent in Akerlof’s original model. For example, currency volatility heightens sensitivity to information gaps, necessitating deposit insurance to reinforce trust—a moderating role the theory underplays. Empirical research thus validates the theory’s premise that asymmetry erodes trust but underscores the need for adaptive, context-sensitive interventions. By integrating signaling with customer education and regulatory safeguards, Islamic banking studies expand the theory’s relevance to modern, dynamic markets while addressing its limitations in power dynamics and environmental contingencies. In summary, each theoretical framework is both validated and refined by empirical insights, with Commitment-Trust Theory requiring emotional and cultural adaptations, TPB needing affective and contextual extensions, and Information Asymmetry Theory demanding dynamic, institutional solutions. Together, these empirical linkages construct a multidimensional understanding of trust in Islamic banking. 22 2.3 Empirical Review This section provides a review of past studies of different scholars as they relate to the objectives of the study. This section of study offers a summary of the current empirical literature, focused on the interaction of the adopted study variable. The fundamental aim of this empirical review is to identify common themes from a broad range of bank transparency and trust, bank service quality and trust, bank compliance with sharia principles and trust, customer religious beliefs and trust, customer financial literacy and trust and customer banking experiences and trust as published in peer-reviewed international journals. The outlined empirical review framework provides a comprehensive clarity on relevant research reviewed thematic areas. 2.3.1 The effect of Bank-Specific Factors on Customer Trust in Islamic Banking The existing body of literature consistently underscores that various intrinsic bank-specific factors, most notably encompassing transparency initiatives, the perceived quality of service delivery, and diligent adherence to Sharia principles, exert a significant and demonstrable influence on the cultivation and maintenance of customer trust within the Islamic banking sector. However, the precise operationalization of these mechanisms and their intricate synergistic interplay, especially within diverse socio-economic contexts like Kenya, warrant considerably deeper and more nuanced investigation. Regarding transparency, its foundational role as a cornerstone for building and sustaining trust is widely acknowledged in banking literature, yet its conceptualization, operationalization, and measured impact exhibit considerable variation across studies. For instance, Akram et al. (2024) in Pakistan used structural equation modeling on survey data to establish that financial transparency contributes to customer loyalty through trust, highlighting trust as a critical pathway. However, their conceptualization was narrow, focusing predominantly on financial disclosures and overlooking operational transparency (e.g., clarity in decision-making processes, fee structures, dispute resolution) and technological transparency (e.g., data usage policies, algorithm clarity in digital services). This omission is a methodological limitation, particularly salient in an era of increasing digitalization where customer interactions and operational processes are heavily technology-mediated. Similarly, Al-Malkawi et al. (2019) in GCC countries from 2013–2016 employed content analysis of annual reports and random-effect GLS to find that transparency 23 enhances bank stability, a key trust driver, particularly in Bahrain and the UAE. In Kenya, Adan’s (2022) qualitative study identified transparency in Sharia compliance mechanisms and product offerings as a trust driver but remained primarily descriptive, failing to delineate the causal pathways or psychological mechanisms through which perceived transparency transforms into tangible customer trust. This is a significant analytical shortcoming given Kenya’s rapid digitalization of banking services, which demands new forms of transparency. In contrast, Zaman et al. (2014) in Pakistan linked corporate governance transparency to firm performance using regression analysis, while Nasreen et al. (2024) across Asian banks used econometric models to show transparency mitigates corruption. Both studies, by focusing on institutional outcomes, neglected customer perspectives and the evolving nature of transparency expectations in digital banking environments where real-time disclosures and interactive communication are paramount. These studies highlight a fragmented understanding of transparency, necessitating a broader framework encompassing financial, operational, ethical, and digital dimensions to address evolving customer expectations in Kenya. Service quality emerges as another critical bank-specific determinant of customer trust, with nuanced implications in Islamic banking due to Sharia compliance expectations. Amin et al. (2008) in Malaysia applied the SERVQUAL model and multiple regression on 300 customers to find that ‘assurance’ and ‘reliability’ disproportionately drive trust, reflecting cultural emphasis on staff competence in Sharia products. This finding challenges the common assumption that all service quality dimensions contribute equally to trust-building and suggests a degree of cultural and contextual mediation, likely stemming from the heightened importance Islamic banking customers place on staff knowledge and the bank’s ability to deliver on promises reliably. However, this influential study primarily focused on traditional banking channels, leaving a critical gap in understanding how these SERVQUAL dimensions translate to digital banking environments where human interaction is minimized yet trust remains essential. Kadir et al. (2023) in Indonesia used structural equation modeling on survey data to establish that service quality influences loyalty through trust and satisfaction, challenging linear models and indicating a complex, non-linear pathway. In Jordan, Naser et al. (1999) surveyed 206 customers, finding satisfaction with Islamic bank facilities but dissatisfaction with some services, impacting trust. Barre et al.’s (2023) Somalian study, using surveys, emphasized assurance and reliability as trust drivers, suggesting 24 market-specific expectations, possibly reflecting cultural or market maturity differences. Zouari and Abdelhedi (2021) in Tunisia highlighted digital service quality’s role, using surveys to show system reliability and security as trust determinants in online banking, underscoring the need for platform-sensitive approaches. These studies, while insightful, often rely on surveys, overlooking operational constraints like employee training or technological infrastructure, and the integration of traditional and digital channels remains underexplored. The clear demonstration and unwavering adherence to Sharia compliance is intrinsically tied to customer trust in Islamic banking. Adan (2022) in Kenya qualitatively noted transparency in Sharia compliance communication as a trust driver. Amin et al. (2008) in Malaysia indirectly implied its importance through survey findings on staff knowledge of Sharia products. Hardwick et al. (2024) in the UK used surveys to show structural assurance and situation normality enhance trust in Sharia-compliant banks. However, these studies struggle to disentangle Sharia compliance’s unique impact from service quality or ethical conduct, particularly in digital channels where verifiable proofs are needed. The broader literature suggests that the hierarchical importance of certain SERVQUAL dimensions and the emphasis on assurance and reliability in specific markets likely reflect customer expectations surrounding Sharia compliance knowledge and integrity. Yet, how Islamic banks operationally demonstrate and communicate complex Sharia governance frameworks to a diverse customer base, especially in Kenya’s context of varying financial literacy and digital access, remains underexplored. A recurrent methodological limitation across these studies is the use of cross-sectional designs, limiting insights into dynamic trust evolution, especially in Kenya’s unique regulatory and competitive context. A recurrent methodological limitation across many of these studies (e.g., Akram et al., 2024; Zaman et al., 2014; Adan, 2022) is the predominant use of cross-sectional research designs. Such designs, while useful for identifying associations, restrict the ability to understand how the intricate transparency-trust and service quality-trust relationships evolve dynamically over extended periods, particularly in response to significant events like financial crises, major technological disruptions, or shifts in regulatory landscapes. There is, therefore, a pressing need for a more integrated conceptual framework that addresses these bank-specific factors not in isolation, but as a multidimensional construct encompassing financial, operational, ethical, and digital elements, 25 while meticulously examining their collective and interactive impact on trust formation within the unique cultural, regulatory, and competitive context of Islamic banking in Kenya. 2.3.2 The effect of customer specific factors on customer trust in Islamic banking A range of customer-specific factors, most prominently including the depth and nature of their religious beliefs, their level of financial literacy, and the quality of their past banking experiences, are recognized as pivotal in shaping the contours of trust in Islamic banks. However, the dynamic interactions between these factors, their relative importance, and their contextual dependencies across different customer segments and market conditions present a complex and multifaceted analytical picture that is far from complete. Customer religious beliefs are consistently shown to correlate positively with trust in Islamic banking institutions, yet researchers diverge in their understanding of the precise mechanisms underpinning this relationship. Amin et al. (2013) in Malaysia used structural equation modeling on survey data to posit a direct link between religiosity and trust, emphasizing Sharia compliance as a prerequisite for devout Muslims. However, this framework may overlook the nuanced relationship for moderately religious customers who balance doctrinal adherence with service quality or convenience. Abror et al. (2022) in Indonesia, using structural equation modeling, found religiosity influences trust through perceived value and satisfaction, suggesting that even religiously motivated customers engage in rational economic decision-making, challenging simplistic direct-effect models. Similarly, Suhartanto et al. (2021) in West Sumatra, Indonesia, surveyed customers and used covariance-based structural equation modeling to confirm religiosity’s impact on trust via satisfaction. Kiyalu’s (2022) qualitative study in Kenya highlighted how Islamic banks’ profit strategies, communicated transparently, build trust by aligning with religious authenticity, though its qualitative nature limits generalizability. Additionally, Ahmed (2021) conceptualizes trust as a balance between faith alignment and perceived service quality, contrasting with Amin et al. (2013)’s compliance-based framework. These studies reveal tensions between compliance-based and service quality-based trust models, with a bias toward Muslim customers, neglecting non- Muslims—an increasingly important segment as Islamic banking expands globally. The 26 predominant use of cross-sectional designs further limits understanding of trust’s dynamic evolution over time. The influence of customer financial literacy on trust formation in Islamic banking is critical yet under-analyzed. Abduh and Omarov (2019) in Malaysia used regression analysis on survey data to establish a correlation between financial literacy and trust, though causality remains unclear, raising questions about whether literacy drives trust or if trust motivates literacy. Albaity and Rahman (2019) in the UAE surveyed 350 conventional bank customers using SmartPLS, finding high Islamic financial literacy levels drive intention to use Islamic banking, varying by gender and income. Amin and Isa (2018) in Indonesia employed mixed-methods, combining surveys and interviews, to show financial literacy as a trust determinant but overlooked demographic variations, limiting understanding of how knowledge acquisition differs across segments. A study in Turkey (2024) used structural equation modeling on 409 respondents to link Islamic financial literacy to banking service adoption, emphasizing education’s role. These studies often treat financial literacy homogeneously, neglecting distinctions between general and Islamic financial knowledge, and the impact of digital literacy in modern banking environments, where digital transformation has altered the scope of required literacy. Customer banking experiences are powerful trust antecedents, with evolving conceptualizations. Lone and Rehman (2017) in Pakistan used regression analysis on survey data to link service efficiency and staff behavior to trust, though they overlooked customer heterogeneity, such as differences between retail and corporate segments. Amin (2018) in Malaysia used mixed-methods, triangulating surveys and interviews, to show personalized service and consistent positive interactions build trust incrementally, though urban bias limits generalizability to rural contexts. Tabrani et al. (2018) in Indonesia surveyed 200 customers using structural equation modeling, finding trust influences commitment and customer intimacy, mediating loyalty. Rahman and Anwar (2019) in Indonesia used structural equation modeling to map causal pathways, highlighting transparency in Sharia compliance as an active trust antecedent, not merely a passive element. These studies evolve from transactional efficiency to relational and ethical dimensions but often ignore digital experiences and rural contexts, critical for Kenya’s diverse customer base. The focus on traditional interactions limits insights into trust formation in digital environments, where different mechanisms apply. 27 Comparative analysis across these studies reveals an evolving conceptualization of "banking experience" itself. Lone and Rehman (2017) emphasized transactional efficiency and core service quality aspects. Amin (2018) expanded this to include deeper relational dimensions and personalization. Rahman and Anwar (2019) further broadened the concept to explicitly incorporate values alignment through the lens of Sharia compliance transparency. This conceptual evolution strongly suggests that customer banking experiences in Islamic contexts contain both universal service quality elements found in conventional banking and distinctive religious-ethical dimensions, with the latter becoming increasingly central to contemporary trust research in this field. Gaps persist regarding segmentation, geographical limitations, and the pervasive impact of digital transformation. 2.3.3 The Moderating Effect of the Economic Environment on the Relationship Between Bank-Specific Factors, Customer-Specific Factors, and Customer Trust The broader economic environment is not merely a passive backdrop but acts as a critical and dynamic moderator, capable of significantly reshaping the established relationships between bank- specific attributes, customer-specific factors, and the ultimate formation of customer trust in Islamic banking. A careful analysis of recent empirical studies demonstrates several key analytical patterns: firstly, periods of economic stability tend to create a trust amplification effect; secondly, economic downturns or heightened volatility can trigger a fundamental priority shift mechanism in customer evaluations; and thirdly, trust itself demonstrates a notable contextual elasticity across differing economic environments. Warsame and Ireri (2018) in Kenya used regression analysis on survey data to show economic stability amplifies the positive relationship between service quality and satisfaction through trust, suggesting a multiplier effect. These finding challenges static banking relationship models that treat trust as having a consistent, linear impact, indicating that under favorable conditions, trust enhances the outcomes of good banking practices exponentially. Hoque et al. (2019) in Bangladesh used structural equation modeling to find economic downturns diminish religiosity’s influence on trust, with financial considerations overriding religious affinity, reshaping the hierarchical relationship between variables. Similarly, Hamakhan (2020) in Iraq used regression analysis to show economic uncertainty transforms trust into a dependent variable influenced by financial 28 literacy, highlighting a transformational effect of economic conditions on trust’s role. Haron et al. (2020) in Malaysia and Naveed et al. (2019) in Pakistan, using surveys and regression, found trust’s moderating effect on loyalty contracts during instability and expands during prosperity, suggesting contextual elasticity as a fundamental property of trust. A UAE study (2021) used PLS- SEM on 416 respondents to show satisfaction and religious obligation affect trust, influencing loyalty, with economic context shaping these links. In South Africa, Hussein et al. (2024) found customer type moderates trust-loyalty relationships, using surveys, highlighting economic environment’s role across customer segments. These studies reveal trust’s elasticity but lack longitudinal analysis and exploration of Sharia compliance as a trust stabilizer during economic turbulence, critical for Kenya’s volatile economy. The consistent observation of customers prioritizing financial security over service quality or religious factors during downturns suggests an unexamined psychological mechanism, possibly linked to a hierarchy of needs in financial decision-making, warranting further research. These insightful studies, while advancing our understanding, also expose significant theoretical gaps in the current comprehension of Islamic banking trust dynamics. First, while they clearly demonstrate that economic conditions moderate trust relationships, they generally fail to establish whether this moderation follows a distinct threshold effect (i.e., trust dynamics change significantly only after economic conditions cross a certain critical point) or if it operates as a continuous function (i.e., trust relationships adjust more gradually and consistently with incremental changes in the economic environment) a critical distinction necessary for developing accurate predictive models and timely strategic interventions for banks. Second, the consistent empirical observation of customers prioritizing financial security and bank stability over aspects like service quality or even religious factors during economic downturns (evident across Haron et al. (2020), Hamakhan (2020), and Naveed et al. (2019)) suggests an unexamined psychological mechanism whereby acute economic stress triggers a fundamental reprioritization of banking attributes, possibly li