Inclusive Finance, Bank Regulation, Concentration And Financial Stability In Kenya
Abstract
Kenya has over the years supported the expansion of financial infrastructure and
implemented major reforms in bank regulations to ensure efficiency and stability of the
financial system. Despite these reforms, the financial system is still being exposed to
volatilities in form of liquidity and credit risks that threatens the stability of the financial
system. Empirical evidence on how inclusive finance, bank regulation and bank
concentration affect financial stability is scant. This thesis contributes to a growing literature
on financial stability by investigating whether there are trade-offs or synergies between
inclusive finance, bank regulation, bank concentration and financial stability in Kenya. The
novelty of this study lies on the use of Structural Equation Model (SEM) technique in
uncovering the determinants of financial stability. The analytical framework utilizes time
series data for the period 1990 to 2017. Estimation results reveals that financial access and
usage plays a significant role in ensuring stability of the financial system. Specifically,
deposit mobilization, opening of branches and automated teller machines (ATMs) in rural
areas, internet banking and utilization of electronic systems fosters financial stability. The
study also established that inflation, credit growth and real interest rate negatively affects
financial stability.We also established that micro and macro prudential regulations affect
financial stability. Regulatory authorities should therefore complement micro and macro
prudential regulations to ensure financial system stability. Finally, the study findings reveals
that higher concentration negatively affect financial system stability. This thesis concludes
that inclusive finance, prudent bank regulation, bank competition and concentration are
important drivers of financial stability.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Economics [237]
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