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Structural issues in the Kenyan financial system: improving competition and access

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  • Beck, Thorsten
  • Fuchs, Michael

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. Crosscountry 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 non-transparency and uncertainty in the banking market are major impediments to the development of Kenya's financial system, to reducing spreads and to widening access.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3363.

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Date of creation: 01 Jul 2004
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Handle: RePEc:wbk:wbrwps:3363

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Keywords: Financial Intermediation; Payment Systems&Infrastructure; Financial Crisis Management&Restructuring; Banks&Banking Reform; Economic Theory&Research; Financial Intermediation; Financial Crisis Management&Restructuring; Environmental Economics&Policies; Banks&Banking Reform; Economic Theory&Research;

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  1. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2004. "Finance, Inequality, and Poverty: Cross-Country Evidence," NBER Working Papers 10979, National Bureau of Economic Research, Inc.
  2. Claessens, Stijn & Laeven, Luc, 2004. "What Drives Bank Competition? Some International Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 36(3), pages 563-83, June.
  3. Raddatz, Claudio, 2003. "Liquidity needs and vulnerability to financial udnerdevelopment," Policy Research Working Paper Series 3161, The World Bank.
  4. Beck, Thorsten & Cull, Robert & Jerome, Afeikhena, 2005. "Bank privatization and performance: Empirical evidence from Nigeria," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(8-9), pages 2355-2379, August.
  5. Clarke, George & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M., 2001. "Foreign bank entry - experience, implications for developing countries, and agenda for further research," Policy Research Working Paper Series 2698, The World Bank.
  6. Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
  7. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, American Economic Association, vol. 88(3), pages 559-86, June.
  8. Jeffrey Wurgler, 1999. "Financial Markets And The Allocation Of Capital," Yale School of Management Working Papers, Yale School of Management ysm123, Yale School of Management, revised 01 Mar 2001.
  9. Gerard Caprio, Jr., 1995. "The role of financial intermediaries in transitional economies," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 42(1), pages 257-302, June.
  10. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad, 2001. "Does foreign bank penetration reduce access to credit in developing countries"evidence from asking borrowers," Policy Research Working Paper Series 2716, The World Bank.
  11. Demirguc, Asli & Laeven, Luc & Levine, Ross, 2003. "The impact of bank regulations, concentration, and institutions on bank margins," Policy Research Working Paper Series 3030, The World Bank.
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Cited by:
  1. Hesse, Heiko, 2007. "Financial intermediation in the pre-consolidated banking sector in Nigeria," Policy Research Working Paper Series 4267, The World Bank.
  2. Beck, T.H.L., 2006. "Creating an efficient financial system: Challenges in a global economy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508413, Tilburg University.
  3. World Bank, 2007. "Kenya : Unleashing the Potential for Trade and Growth," World Bank Other Operational Studies 7999, The World Bank.
  4. Wolde-Rufael, Yemane, 2009. "Re-examining the financial development and economic growth nexus in Kenya," Economic Modelling, Elsevier, Elsevier, vol. 26(6), pages 1140-1146, November.
  5. World Bank, 2009. "Uganda - Making Finance Work," World Bank Other Operational Studies 12502, The World Bank.
  6. Demirguc-Kunt, Asli, 2006. "Finance and economic development : policy choices for developing countries," Policy Research Working Paper Series 3955, The World Bank.
  7. Richard Podpiera & Martin Cihák, 2005. "Bank Behavior in Developing Countries," IMF Working Papers 05/129, International Monetary Fund.

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