Kenya has experienced rapid growth of financial institutions in the past few decades. Apart from over 40 banks in operation, there are thousands of microfinance institutions, SACCOs, fintech firms, insurance companies, capital markets, and other financial institutions. The number of deposit accounts in commercial banks in Kenya increased from 2.5 million in 2005 to 66.3 million in 2021. So what are the factors that have led to this rapid growth of commercial banks and other financial institutions in Kenya? Here is a list of the factors that have promoted the growth of financial institutions in Kenya and other sub-Saharan countries:
- Government policies: Several government policies have seen a rapid growth of financial institutions over the years. The creation of regulatory agencies, simplification of registration processes, and liberalization of the financial markets have led to the growth of financial institutions.
- Economic factors: Kenya and other African countries have also seen significant increase in national GDPs. The Kenyan GDP has grown by an average of about 5% in the past 20 years. This economic growth and increase in trade and investment flows have led to increased income and created demand for financial services, leading to the growth of the financial sector.
- Human resource factors: the availability of human resources in the country has enabled financial institutions to expand and provide more financial services to customers.
- Education and Literacy: Growth in education and literacy in Kenya has increased the number of people in employment who need financial services. It has also enhanced financial literacy and improved people’s attitudes towards banking and investment.
- Urbanization: There is also a rise in movement of people, especially the youth, from rural to urban areas in search of employment and business opportunities. This has increased demand for financial services in towns and cities.
- Infrastructural Development: infrastructural developments such as roads, electricity and markets have opened up rural areas for investments and business, leading to increased demand for financial service; hence contributing towards the growth of financial institutions.
- Globalization: trade across countries, including direct foreign investments, have opened up the Kenyan economy to foreign investment banks. Investors from abroad have also brought in investment capital to fund the growth of financial institutions such as KCB, Equity, CIC and the NSE.
- Technological Innovation: Lastly, improvement in technology and innovation has enabled financial institutions to reach more people with their financial services. Mobile money, internet banking, and other innovative ways have helped more people to register for various financial services.