Government Policies and the Development of Banking in Kenya (original) (raw)
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Journal für Entwicklungspolitik
Financial development and financial institution building are important prerequisites for economic growth. However, both the potential and the problems of institution building are still vastly underestimated by those who design and fund institution building projects. The paper first underlines the importance of financial development for economic growth, then describes the main elements of "serious" institution building: the lending technology, the methodological approaches, and the question of internal structure and corporate governance. Finally, it discusses three problems which institution building efforts have to cope with: inappropriate expectations on the part of donor and partner institutions regarding the problems and effects of institution building efforts, the lack of awareness of the importance of governance and ownership issues, and financial regulation that is too restrictive for microfinance operations. All three problems together explain why there are so few successful micro and small business institutions operating worldwide.
The role of the government in financial sector development
Economic Modelling, 2010
This study examines the impact of two dimensions of the government, namely, size and quality, on two dimensions of the financial sector, size and efficiency, in a cross section of 71 economies. The study finds that increased quality of the government as measured by governance and legal origin positively influences both financial sector size and efficiency. The size of the government proxied by government expenditure and the government ownership of banks has a negative effect on financial sector efficiency, and a positive impact on financial sector size, particularly in the low income economies. . I wish to thank an anonymous referee, the participants of the 22 nd Australasian Finance and Banking Conference, Sydney 2009 and Paul Wachtel for valuable comments. Abstract: This study examines the impact of two dimensions of the government, namely, size and quality, on two dimensions of the financial sector, size and efficiency, in a cross section of 71 economies. The study finds that increased quality of the government as measured by governance and legal origin positively influence both financial sector size and efficiency. The size of the government proxied by government expenditure and the government ownership of banks has a negative effect on financial sector efficiency, and a positive impact on financial sector size, particularly in the low income economies. JEL Codes: O11, O16, O43, O57
2011
An overwhelming amount of research has shown that financial development fosters economic growth and thus this paper aims to identify the determinants of financial institutions development under the Development of Financial Institutions Act (DFIA). This study investigates the determinants of financial institutions development using panel data analysis for the period 2001 to 2009 for financial institutions under DFIA which are Bank Pembangunan, SME Bank, AgroBank, Bank Simpanan Nasional (BSN), Import-Export Bank Malaysia Berhad and Bank Rakyat. The barriers for financial institutions include non performing loan that can be considered as banking crises. Other than that, ceilings on interest rates, because of high inflation rates, will lead discouraged saving and deposits. Besides, financial sectors are usually incomplete in as much as they lack a full range of markets and institutions that meet all the financing needs. The results show that loan disbursement and investment in securitie...
Development Policy Review, 1998
An important development in the banking markets of a number of sub-Saharan African countries has been the emergence, since the mid-1980s, of locally owned private sector banks and non-bank financial institutions (NBFIs), henceforth local banks. 1 These have gained a significant share of banking markets in four countries, Kenya, Nigeria, Zambia and Uganda, which are the focus of this article. The growth of local banks could provide important benefits to these economies, and facilitate the objectives of financial liberalisation, by boosting competition in banking markets, stimulating improvements in services to customers and expanding access to credit, especially to domestic small-and medium-scale businesses. But the attainment of these benefits has been jeopardised because the local banks have been vulnerable to financial distress, 2 a major cause of which has been moral hazard, with the adoption of high-risk lending strategies, in some cases involving insider lending. This article analyses the causes of financial distress in the local banks in Kenya, Nigeria, Uganda and Zambia and suggests ways in which regulatory policy reforms might mitigate the problems of moral hazard and therefore reduce the incidence of financial distress. It is organised as follows. The next section provides some relevant background data on the growth of local banks, the reasons behind this growth and the potential benefits which local banks offer for the economy. This is followed by a brief outline of why moral hazard
State banks, institutions and financial development
2002
We present a locational model of banking with two types of private banks, honest and opportunistic, and a state bank that is assumed to be less efficient. Opportunistic banks choose whether to honor their contracts with depositors depending on the probability of contract enforcement. We derive three types of equilibria, which depend on institutional quality: a "low" equilibrium in which private banks choose not to enter the market, a "high" equilibrium in which depositors place all their savings with private banks and an "intermediate" equilibrium in which state banks and private banks co-exist. In the intermediate equilibrium, the share of state banks depends inversely on institutional quality and positively on the proportion of opportunistic banks. We also show that when enforcement of deposit contracts is subject to a resource constraint, multiple equilibria can exist, and that depositors' perception of whether opportunistic behavior is present determines the type of equilibrium which prevails. We test our theoretical predictions using cross-country data. We find that both the quality of prudential regulation (or rule of law) and disclosure are inversely related to the share of state banks, consistent with our theoretical model. We also find that the incidence of banking crisis, which proxies perceived institutional quality, is positively related to the share of state banks.
Financial systems and development in africa
Financial Systems and Development in …, 1991
The Economic Development Institute (EDI) was established by the World Bank in 1955 to train officials concerned with development planning, policymaking, investment analysis, and project implementation in member developing countries. At present the substance of the EDI's work emphasizes macroeconomic and sectoral economic policy analysis. Through a variety of courses, seminars, and workshops, most of which are given overseas in cooperation with local institutions, the EDI seeks to sharpen analytical skills used in policy analysis and to broaden understanding of the experience of individual countries with economic development. In addition to furthering the EDI's pedagogical objectives, Policy Seminars provide forums for policymakers, academics, and Bank staff to exchange views on current development issues, proposals, and practices. Although the EDI's publications are designed to support its training activities, many are of interest to a much broader audience. EDI materials, including any findings, interpretations, and conclusions, are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. Because of the informality of this series and to make the publication available with the least possible delay, the manuscript has not been edited as fully as would be the case with a more formal document, and the World Bank accepts no responsibility for errors. The focus of the EDI's program on the financial sector is on the improvement of decisionmaking in seven important areas dealing with the structure, reform, and development of financial systems in developing countries. The areas covered are: * Reform of the structure of financial systems * Policies and regulations to prevent or deal with insolvency and illiquidity of financial intermediaries * The development of markets for short-and long-term financial instruments * The role of institutional elements in the development of financial systems * The links between the financial sector and the real sectors, particularly in the case of restructuring financial and industrial institutions or enterprises * The dynamics of financial systems management in terms of stabilization and adjustment * Access to international financial markets. The program is articulated around cycle-of regional and worldwide roundtables and seminars. Policymakers and professionals are brought together to discuss agendas of specific issues and problems, often identified beforehand by the participants themselves. The papers circulated at these seminars are published in the EDI Working Papers series to make them available to a broader audience than is possible within the framework of the seminars. This book assembles in a single volume the collection of documents circulated at the Senior Policy Seminar on Financial Systems and Development in Africa, held in Nairobi, Kenya, from January 29 to February 1, 1990. It also includes the report that synthesizes the presentations made at the seminar and the content of the discussions which followed them. The views presented in this volume are entirely those of the authors and do not necessarily reflect those of the World Bank or those of any of the other institutions with which the authors are affiliated.
2001
Ethiopia is one of a number of SSA economies that adopted state-led development strategies in the 1970s (others include Angola and Mozambique), and suffered from intense conflict (leading to the fall of the Derg regime in 1991). The new government was therefore faced with the twin tasks of reconstructing the economy, and embarking on the transition to a market economy. As part of this process, state banks have been reorganised, the role of the private sector in the financial system has been expanded, interest-rate controls have been liberalized, and the central bank has been given new powers of financial supervision. Financial reform has been gradual, but nevertheless determined despite disagreement with the IMF over restrictions on the entry of foreign banks and the role of the largest state bank. .../...