The reletionship between financial liberalization and economic growth in Kenya.

Abstract

Financial liberalization in Kenya is much more recent. Ceilings on bank lending rates were not removed until July 1991. The central bank continued to announce guidelines for the sectoral composition of bank credit expansion, although these were not strictly enforced after interest rate liberalization. Although the Kenyan authorities have allowed market forces to play a relatively influential role in the financial system, the government maintains a formidable presence in the financial sector. The primary function of the central bank is toregulate the flow of money and credit in order to maintain economic stability, efficiency and growth of the country. To earn profit is the secondary objective of the Central Bank but the main motive is to regulate the monetary and credit system of the country and to foster its growth in the best national interest with a view to securing monetary stability and full utilization of the country's productive resources. These regulations provide guidelines for opening of accounts, limit against advances, setting up of internal audit system, requirement for minimum capital and reserves for a banking company, maintenance of liquidity assets for every banking company, detecting banking frauds etc. The Central Bank of Kenya was established in May 1966. The powers and operations of the Central Bank of Kenya are governed by the Central Bank of Kenya Act 1966, and the Banking Act 1968. The study used descriptive technique and carried out a meta- analysis study. This study exclusively secondary data. The study used Statistical Package for Social Sciences for data analysis (SPSS) to analyze the data and the data findings were presented in tables and figures. The study carried out regression analysis to establish the relationship. The study findings established that in the year 2003, the lending rates were rates were 16.37%. These rates decreased in the year 2004 to 12.53%. Since then, the lending interest rates increased gradually to 19.65% by the year 2011. In the year 2012, there was a rapid increase in lending interest rates whereby the rates increased to 19.65%. Foreign assets as found by the study had been increasing over the study period with exception of the 2008 financial year. Foreign assets stood at USD. 110,991 million in the year 2003. Foreign assets increased thereafter to stand at USD. 115,774. After the year 2007, foreign investment dropped slightlyin the year 2008 to USD 223,549before picking up a positive trend again from the year 2009 till 2012 were it amounted to USD 374,457. The study inferences established a positive perfect correlation between the dependent variable, Financial Liberalization and the independent/ explanatory variable, Economic growth as evidenced by the empiricism from the operational variables in lieu of the currentaccount, Lending rates and Capital controls