The Impact of Financial Liberalization in Selected Financial Sector Development Indicators in Kenya
Abstract
The paper highlights issues of financial sector reform and its impact on financial sector development.The paper first gives a brief background on economic liberalization which encompasses financial liberalization.It then outlines
the perceived benefits of financial liberalization to the financial sector from a
theoretical standpoint and assesses whether these have actually been realized in
Kenya.Financial liberalization is a broad topic and its total impact to the financial
sector cannot be exhaustively covered in this paper. Various studies have been
conducted in sub-Saharan countries to assess the impact of financial liberalization
on the financial sector. Such studies have concentrated on only a few selected
financial sector development indicators and this paper therefore seeks to replicate
the same for the Kenyan financial sector. The results of these comparative studies
have been summarized in the literature review.
The study focuses on three indicators of financial sector development which
have been used in similar studies on Sub-Saharan economies. These indicators are
the degree of financial deepening as proxied by the ratio of broad money (M2) to
Gross Domestic Product (GOP), the spread between commercial banks' lending
and deposit rates and the real interest rate.
The results of the data analysis on financial liberalization have been dismal;
despite a modest increase in financial depth in the financial sector, the spread
between deposit and lending rates has widened whilst the real interest rates
increased but savings remained low. The results from this study on Kenya are
therefore mixed and have not conclusively confirmed the theoretical postulates.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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