Decolonization & Independence in Kenya, 1940-93

By B. A. Ogot; W. R. Ochieng | Go to book overview

for withdrawal of funds from depositors, a number were forced to close their doors. The first of the non-banks to go into receivership, in December 1984, was Rural Urban Credit Ltd. Starting in July 1986, further NBFI went under. These included Continental Bank, Continental Credit and Finance, Union Bank of Kenya, Capital Finance Company and Pioneer Building Society. 101

The main reason for the banking crisis was poor management, combined with the lack of government control noted above. In far too many cases, the directors of NBFI failed to maintain a safe ratio between deposits and liabilities, and a number were undercapitalized. They were also guilty of poor lending policies (e.g. unsecured loans, loans to family members of directors) and excessive concentration of risk in certain areas. In addition to runs on several NBFI, there was a shift of deposits to the more established commercial banks.

Meanwhile, the government was forced to take rapid action to guarantee that depositors could recoup at least some of their money and to ensure that it could exercise far greater control over NBFI. Following the closure of Rural Urban, the Banking Act of 1968 was amended 'to instill discipline in the financial sector and to insure orderly growth'. 102 With further problems in 1986, the Central Bank of Kenya used the expanded powers to appoint special managers for ailing NBFI. Also a depositors' protection fund was set up, and special courts were established to deal with individuals and institutions implicated in wrongdoing by the crisis. 103 In subsequent years, the Ministry of Finance and the Central Bank of Kenya took further steps to bring banking under greater state control.

Moreover, the banking crisis of 1985-86 suggests a need for wariness in the implementation of SAP. The proliferation of NBFI represented the kind of growth of private ownership much favoured by advocates of structural adjustment. They provided opportunities for the accumulation of capital, and competition among NBFI and between the latter and commercial banks promised to benefit depositors and borrowers. 104 Yet, without adequate safeguards, 'market forces' and unbridled competition produced the uncontrolled growth of NBFI that eventually proved very costly to the national economy. As late as the end of 1990, the government was still involved in expensive activities (including a World Bank loan) aimed at sorting out the mess generated by the 1985-86 banking crisis.


Conclusion

Despite such negative impacts as those noted above, SAP had come to occupy a significant place in Kenya's economic policy by the end of 1988. Indeed, subsequent years would witness little modification in this

-182-

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Decolonization & Independence in Kenya, 1940-93
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • List of Contributors viii
  • Prologue on Decolonization xi
  • Notes xvii
  • Introduction the Invention of Kenya 1
  • Note 3
  • Part One the Decolonization of Kenya 1945-63 5
  • One Decolonization: A Theoretical Perspective 7
  • Conclusion 21
  • Notes 22
  • Two the Formative Years 1945-55 25
  • Conclusion: Towards an Alternative Future 43
  • Bibliography 44
  • Three: The Decisive Years 1956-63 48
  • Part Two the Kenyatta Era 1963-78 81
  • Four Structural & Political Changes 83
  • Conclusion 106
  • Appendix: Constitutional Amendments Under Kenyatta 107
  • Notes 108
  • Five - Social & Cultural Changes 110
  • Conclusion 143
  • Notes 144
  • Part Three the First Nyayo Decade 1978-88 149
  • Six the Economics of Structural Adjustment 151
  • Conclusion 182
  • Notes 183
  • Seven the Politics of Populism 187
  • Notes 213
  • Eight the Construction of a National Culture 214
  • Part Four Epilogue 1989-93 237
  • Nine Transition from Single-Party to Multiparty Political System 1989-93 239
  • Conclusion 259
  • Notes 260
  • Index 262
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