Structural Issues in the Kenyan Financial System: Improving Competition and Access

20 Pages Posted: 20 Apr 2016

See all articles by Thorsten Beck

Thorsten Beck

City University London - The Business School; Tilburg University - European Banking Center, CentER

Michael J. Fuchs

World Bank - Africa

Date Written: July 7, 2004

Abstract

Although by regional standards Kenya's financial system is relatively well developed and diversified, major structural impediments prevent it from reaching its full potential. Cross-country comparisons, however, show the importance of a well developed financial sector for long-term economic growth and poverty alleviation. Experience from other developing economies has shown the detrimental effect of government ownership and the positive impact that foreign bank ownership can have on the development of a market-based financial system. Analyzing and decomposing the high interest rate spreads and margins in Kenya helps identify structural impediments that drive the high cost of and low access to financial services. The limited information sharing on debtors, deficiencies in the legal and judicial system, the limited number of strong and reputable banks, and nontransparency and uncertainty in the banking market are major impediments to the development of Kenya's financial system, and to reducing spreads and widening access.

This paper - a product of the Finance Team, Development Research Group - is part of a larger effort in the group to understand the determinants of financial sector development.

Suggested Citation

Beck, Thorsten and Fuchs, Michael J., Structural Issues in the Kenyan Financial System: Improving Competition and Access (July 7, 2004). Available at SSRN: https://ssrn.com/abstract=610406

Thorsten Beck (Contact Author)

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Tilburg University - European Banking Center, CentER ( email )

PO Box 90153
Tilburg, 5000 LE
Netherlands

Michael J. Fuchs

World Bank - Africa ( email )

1818 H Street
Washington, DC 20433
United States

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