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    Monday, March 19, 2018

    Banking in Kenya: Evolutionary Perspective

    At the start of 2000, a reputable economic magazine referred to Africa as the 'hopeless' continent – a comment that may not have seemed controversial at the time. However, more than a decade later, the picture couldn't be more different. 'Africa Rising' was the new message of the day.
    There can be no doubt that banking is a crucial pillar of Africa Rising. The banking industry has a transformative power few other institutions can claim, and Africa is demonstrating this better than perhaps any other continent. One example which has made headlines in recent years is the development of personal mobile banking. Access to day-to-day banking services in large parts of the continent has been a major challenge over the last few decades.

    According to GSMA's 2014 Mobile Economy report, just 26% of sub-Saharan Africans had a registered bank account. Without access to savings and loan facilities, riding out crises such as Ebola can be close to impossible. But according to the report, 51% of sub-Saharan Africans had access to a mobile phone. In countries such as Nigeria, mobile phone usage is as high as 90%, even while 56 million Nigerians live without access to electricity and 38 million lack access to clean water. Little wonder then that the mobile banking market in Africa has exploded. More than 16% of people in sub-Saharan Africa say they use their phones to regularly pay bills or receive money, compared with less than 5% worldwide.
    The banking sector in Kenya is ever evolving. Despite the numerous economic challenges that have been witnessed within the sector, the industry remains strong and vibrant. At the moment, three banks have been placed under receivership with only one having recovered and back to operations. Kenya currently has 44 banks. 31 of the banks are locally owned while the remaining 13 are foreign owned. Among the 31 locally owned banks, the government of Kenya has a shareholding in three of them, 27 of them are commercial banks and one is a mortgage finance institution, known as Housing Finance.

    When did the banking journey in Kenya start?
    The treacherous financial journey in Kenya dates back to the colonial times. The British Empire declared Kenya a British Sphere of Influence and established the East African Protectorate in the year 1865 and officially declared Kenya as a colony in the year 1920. During that 19th Century, the East African region engaged in trading activities and there was need for the use of currency. That was when the revolution in the banking sector kicked off.
    In 1986, a year after the establishment of the British Administration in Kenya, National Bank of India came into being. Many people think that the British were the first people to establish banks in the country but the first bank ever in Kenya came from India; National Bank of India.
    In 1910, Standard Bank of South Africa came into being. Six years after coming to Kenya, the National Bank of South Africa merged with Anglo-Egyptian Bank Ltd to form Barclays Bank. Barclays Bank was, therefore, born in 1910 as a merger between National Bank of South Africa and Anglo-Egyptian Bank Ltd. In 1951, General Bank of Netherlands was set up. In 1953, Bank of India and Bank of Baroda were set up. In 1956, Habib Bank (overseas) Ltd was set up.

    In the year 1955, the Ottoman Bank and the Commercial Bank of Africa were established. Cooperative Bank of Kenya opened its doors in the year 1968. In 1968 National Bank of Kenya took over the Ottoman Bank. In 1971, Kenya Commercial Bank was formed as a result of the merger between National and Grindlays Bank with the governing owning a stake of 60 percent. The Merchant Bank division of Grindlays was merged with Grindlays Bank International Ltd and formed Stanbic Bank. 1971 saw Barclays Bank change its name to Barclays Bank International Ltd while in the year 1974, National Bank of Chicago and City Bank of New York were formed.
    The Merchant Bank division was incorporated into a new bank, Grindlays Bank International Ltd, which has changed to Stanbic Bank. In 1971, Barclays Bank (DC) changed its name to Barclays Bank International Ltd and became a wholly owned subsidiary of Barclays Bank Ltd based in Britain. In 1974, the American Banks were established in Kenya i.e. first National Bank of Chicago and first National City Bank of New York.

    How long these eleven banks have been in operation in Kenya
    Barclays Bank of Kenya has been in operation in Kenya for 97 years, CFC Stanbic Bank has been up and kicking for the last 58 years, Diamond Trust Bank Kenya has been breathing the atmosphere in Kenya for 70 years while Equity Group Holdings Ltd has been in existence for 32 years.
    Housing Finance has been in Kenya for 51 years, I&M Holdings for 44 years, Kenya Commercial Bank for 41 years under the brand, National Bank of Kenya for 53 years, NIC Bank of Kenya for 57 years, Standard Chartered Bank for 47 years while Co-operative Bank of Kenya has been into existence for 51 years though it went public as a bank in the year 2008.
    Increased usage of the agency banking model, introduced in May 2010, allows commercial banks to offer banking services through third parties. Increasing access to finance has been abridged with the use of innovation such as agent banking, which allows commercial banks and Deposit-Taking Microfinance (DTM) institutions to engage the services of third party outlets to deliver specified financial services on their behalf.
    The banking industry in Kenya in collaboration with the Kenya Bankers Association (KBA) rolled out the Check Truncation System in August 2011.  Check truncation refers to a process in which physical checks presented for payment in a bank by individuals or corporate bodies are converted into electronic form and the image transmitted electronically to the clearing house for processing and eventual payment by the paying bank. The introduction of this system is expected to speed up clearing of such checks in addition to reducing incidences of frauds and the costs of transporting these checks from one bank to another.

    Today, more than half of the 44 banks in Kenya offer various internet products to their customers.  Internet services provided include; opening accounts, transferring funds to different accounts, online viewing of the accounts, online inquiries and requests, online salaries payments, clearing checks status query and instant alerts or messages of account status. According to the CBK, 66.7 per cent of the adult population in 2013 had formal access to financial services through commercial banks and the government-owned Post Bank. With the advent of mobile money and its recent linkages to the formal banking system, however, the number of Kenyans with access to electronic financial services has grown rapidly.  Kenya has now become a leader in financial inclusion and its example is being replicated in countries around the world. With over 30 million cell phone subscriptions, the vast majority of Kenyan adults now have cell phone access, which they use for everything from voice and SMS communication to banking, insurance, internet access, and other services.  The CBK said the increase in mobile money transfers was fuelled by a high number of consumers moving money in their bank accounts using mobile phones.

    Customers have also increased the use of bank platforms through a wide array of services.  Mobile money platforms have been used to offer medical insurance, microloans, transfer money to a pre-paid credit card, and even to pay parking, electricity, and water bills.
    Kenya's capital markets have also continued to expand. While treasury bills and bonds dominate the market for short-term securities there is only light trading in commercial paper.  However, the sector has seen increased activity via issuances of corporate bonds and the establishment of collective investment schemes (unit trust, investment clubs, mutual funds and employer share ownership plans), asset-backed securities and venture capital funds.

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