Development Banking in Kenya – An Exploratory Case Study of Industrial Development Bank Limited

Abstract

The main objective of this study is to examine the determinants of the demand for development funds in Kenya. The study provides an overview of theories of development banking with respect to developing countries. It proceeds further to discuss the particular features of industrial development banking in Kenya and how such features affect the effectiveness of development banks in the economic development process. A detailed case study of Industrial Development Bank Limited provides an indication of the successes and failures of development banking in Kenya. The econometric results presented in this study indicate that the partial adjustment model is appropriate for the estimation of the specified demand function. The demand function is found to be structurally stable over time. Further, the results reveal that the determinants of demand for development funds are the level of income, the exchange rate and the degree of monetization. Nonetheless, this study recognizes that this conclusion must be treated with caution because of the limited sample period which was covered. Future research will continue to be appropriate, especially with the possible deregulation of interest rates by the government.