The Kenyan financial system in Kenya has a multi-regulatory regime where the financial system comprising of financial institutions, financial markets and financial infrastructure fall under different regulators, namely:
- The Central Bank: for deposit taking institutions as well as the payments, clearing and settlement system.
- Commercial Banks
- Non-Bank Financial Institutions
- Capital Markets Authority (CMA) for the capital markets intermediaries such as the stock exchange and investment banks.
- The Nairobi Stock Exchange
- Investment banks such as CIC
- Insurance Regulatory Authority (IRA) for the insurance industry;
- Insurance Companies
- Retirement Benefits Authority (RBA) for the pensions industry
- Sacco Societies Regulatory Authority (SASRA) for the deposit taking Sacco societies
The structure of the financial system in Kenya is illustrated by the figure below:
The Central Bank of Kenya is the top financial institution that regulates the financial sector in Kenya. It plays the role of licensing, inspecting, and regulating financial intermediaries, commercial banks, and non-bank financial institutions. The Central Bank of Kenya also issues treasury bills and bonds through various intermediaries.
Banks and non-bank institutions also important players in the Kenyan financial system. They are licensed by the Central Bank under the Banking Act, while insurance banks are licensed under the Company’s Act.
Commercial banks and non-bank financial institutions offer facilities for depositing and saving. In offering these facilities to savers, they consider savers’ needs like liquidity of savings – the financial security of savings. The institutions also lend or advance the monies deposited with them to borrowers in commerce, industry, agriculture and household sectors. Commercial banks, through branch banking systems, dominate the Kenya financial system – they account for the majority of all deposits from the public. However, non-bank financial systems attract an increasing volume of private savings.
The capital market is controlled by the Capital Markets Authority (CMA), whose role is to control activities of the capital market in Kenya. The CMA is a regulating body charged with the prime responsibility of supervising, licensing and monitoring the activities of market intermediaries, including the stock exchange and the central depository and settlement system and all the other persons licensed under the Capital Markets Act.
Nairobi Stock Exchange (NSE) is part of the capital markets, and its role is to issue shares in the primary and secondary stock markets. In the primary stock market, new firms issue their shares to the public for the first time through an initial public offering (IPO). On the other hand, the secondary stock market involves the buying and selling of existing shares. This component plays a critical role in the financial system in Kenya because it promotes capital creation and investment.
