Analysis of Internationalization of Banking in Emerging Markets: a Case of Kenya
Abstract
Paradigm shift in financial intermediation globally from inward looking operations to
outward vibrancy in provision of services has been attributed to emergence of
globalization. Globalization has made many countries to liberalize their financial
markets. For nearly two decades, banking across the world has evolved from initial
blue chip targeted clientele towards financial inclusivity for economic development
and poverty eradication. The research problem of this study therefore is how
internationalization of banking in Africa was approached, with special reference to
Kenyan banks. In understanding this, the study provides an analysis on trends of
internationalization, strategies employed and whether it has provided competitive
edge for Kenyan indigenous banks expanding in East Africa. The international
theories of a firm (The learning, the inter-governmental, the strategic competition and
the institutional-economic perspectives) are main theoretical lenses guiding the study.
A deductive descriptive approach has been used to carry out the study. The study
moves the internationalization process from a generalized point to a particular
scenario in Kenya where three Kenyan, relatively large banks, the Kenya Commercial
Bank, Equity Bank and Cooperative Bank of Kenya have been used as case studies
and Eco-bank used to as an experiential benchmark for the study. The study has relied
heavily on secondary data from the International Monetary Fund, World Bank
Reports, and Central Bank Reports among others.
Findings show that African banking industry is rapidly growing, driven by market and
increased investment in information technology which has strengthened innovation.
Emergence of new segmented markets such religious banking, unsecured loans and
mobile banking are the emerging frontiers for leveraging Pan-African banking.
Across the continent, there are sovereign bonds being floated which provide good
tidings for inter-country banking expansion. East African region was found to be
malleable with regulatory framework for cross border trade. The EAC is fast
emerging as a powerful economic hub facilitated by cross-border banking. A lot of
regional policy activities are going on aimed at harmonizing the banking supervisory,
licensing and regulation to enable faster growth and move towards East African
Monetary Union by 2024 and single currency use. The study found that the foreign
banking ownership in Africa and even East Africa is gaining momentum with nearly
half of total banking assets being foreign owned in respective countries.
In Kenya, the internationalization process is unique. Banks apply four distinctive
models: Greenfield approach, the use of diaspora and agency banking, follow-thecustomer
and collaboration/cooperation models. The role of CBK was lauded for
leading the pack towards East African integration by show casing good monetary
policy implementation, fostering the liquidity, solvency and proper functioning of
cross-border financial system. Policy development in Kenya has propelled the
expansion of Kenyan banks in the region. Among the operationalized legal and
regulatory framework include Proceeds of Crime and Anti-Money Laundering Act
(2009), issuance of guidelines on agency banking, and rolling out of the credit
information sharing mechanisms.
The study concludes that the internationalization strategies common to Kenyan
market include: subsidiary development, follow-the-customer model, the agency and
internet banking, and diaspora banking models. The performance of the Kenyan banks
in terms of assets, deposits, profitability and innovation has increased since they got
involved in cross-border banking. The strategy of expanding the branch network, both
within Kenya and in the greater East African region, automation of service needs and
globalization challenges has enhanced the growth. One key recommendation is that
policies should be generated to cushion Kenyan banks from risks associated with
destination country challenges like in the case of Burundi and South Sudan. The
expansion of banking must be conducted in a manner that does not marginalize the
banking sectors of neighbouring countries as this could provide a blacklash. Lastly,
diaspora banking must be well organized to reduce incidences of money laundering
and terrorism financing.
Publisher
University of Nairobi
Description
Thesis