The Adoption of Islamic Banking in Uganda: The Moderating Role of Customer Awareness in the Diffusion of Innovation

Purpose ‒ The aims to examine the factors influencing the adoption of Islamic Banking in Uganda, utilizing the theory of Diffusion of Innovation (DOI). The study investigates the effects of relative advantage, compatibility, and perceived risk on adoption, and evaluates the moderating role of customer awareness in the relationships. Design/Methodology/Approach ‒ A cross-sectional survey was conducted with 256 banking customers in Kampala Metropolitan Area. Data was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) through SmartPLS. Findings ‒ Findings indicate that relative advantage and compatibility have a significant and positive influence on adoption, whereas perceived risk has an adverse effect. Customer awareness significantly moderates these relationships, enhancing the effects of relative advantage and compatibility and reducing the negative impact of perceived risk Originality/Value ‒This research is among the first empirical investigation of Islamic Banking adoption in Uganda following the launch of the country’s first dedicated Islamic Bank back in 2023. It provides a timely and critical examination of adoption drivers, uniquely introducing and validating customer awareness as a significant moderator within the DOI framework in Ugandan novel context. Research Limitations/Implications ‒ The study's focus on the Kampala Metropolitan Area may limit the generalizability of the findings to other regions. Future research could expand the geographical scope. This study addresses a notable gap in the empirical literature on Islamic banking within Sub-Saharan Africa and contributes to understanding financial innovation diffusion in emerging Muslim communities. Practical Implications ‒ The insights provide strategic value to practitioners aiming to promote Islamic Banking in Uganda. Enhancing customer awareness initiatives can accelerate adoption by showcasing the benefits and alignment of Islamic Banking with customers’ financial values. Concurrently, marketing and educational campaigns should explicitly address and mitigate perceived risks to broaden acceptance.