The banking sector in Kenya is one of the oldest, largest, and most important of part of the country’s industries.
The Banks play very important economic functions and the most significant of them is the operations of a payments system, and a modern economy cannot function well without an efficient payments system.
Business and individuals make payments by writing cheques, using credit cards issued by banks as well as paying bills via online banking. Most of the money stock of any country is usually bank money; the rest of the currency is “legal tender” issued by the Central Banks.
Citizens of a country have confidence in bank money because it can be exchanged at the bank or an ATM for legal tender. Banks are mandated to hold reserves of legal tender to make these exchanges when we request them.
Kenya’s banking industry has evolved over the years and today banks offer a wider range of products and services than ever before in a faster and more efficient way.
1895; Mombasa -Kisumu Railway and the entry of National Bank of India
According to the Kenya Bankers Association, a branch of National Bank of India (Now KCB Group) opened in Mombasa owing to the thriving trade and The Imperial British East Africa Company (IBEAC) opening new trading posts in the interior.
The National Bank of India, (NBI) entered into agreement with the East African representatives of the merchant company, Smith, Mackenzie & Co, to act as its banking agent on the East African coast.
At the time, the East African protectorate had began building a railway line to Kisumu and the National Bank of India was the main banker of the project.
The 660 railway line, which reached Kisumu (then known as Port Florence) in 1902, marked the beginning of Kenya’s relationship with India, with most of the workmen who did the real construction being Indians.
Before currency was introduced in East Africa trade was conducted by barter, and later by cowrie shells and beads. The first currency to be used in the East Africa coastal region was the Maria Theresa Thaler, a silver coin introduced to East Africa between 1800 and 1850. This was replaced by the Indian rupee following the coming of British trade to East Africa.
In 1920 came the East African florin introduced by the East African Currency Board which had been set up in 1919. The florin was replaced by the East African shilling in 1922.
Establishing of the Post Office Savings Bank
It was only until 1910 that banking services became available to Africans. This was made possible when the Post Office Savings Bank as a department within the colonial postal service.
According to data from Kenya Bankers, by March 1911, Post Office Savings Bank boasted 1,231 accounts, of which 684 belonged to Africans.
Even then, the service was only available in places where officials of the colonial postal service were stationed and therefore did not reach the majority of Africans who resided in rural areas.
Barclays Bank-Dominion, Colonial and Overseas
Absa Bank Kenya (formerly Barclays) traces its history from 1916 when the National Bank of South Africa (now First National Bank) opened a branch in Mombasa.
In 1925, National Bank of South Africa was merged with the Anglo-Egyptian Bank and the Colonial Bank in 1925 to form Barclays Bank (Dominion, Colonial and Overseas) . This brought the Kenyan operations under Barclays Bank.
1953; Bank of Baroda
The first Bank of Baroda (Kenya) Ltd. branch at Mombasa on 14th December 1953. The Branch was opened at Makadara Road, Mombasa.
Rosemary Mwangi Njoki, the first female bank clerk
In 1959, Rosemary Mwangi Njoki became the first female clerk employed by Barclays DCO in East Africa.
Establishment of Kenya Bankers Association
The Kenya Bankers Association was registered on 16 July 1962 as Kenya Bankers (Employers) Association by the Registrar of Trade Unions. In its formative years, the main aim of the Association was to cater for the interests of the member banks in negotiating terms and conditions of service of its unionisable employees and as far as possible standardize management practices so as to ensure harmony in the industry.
1963 – First African manager of a bank branch
It would take time before Kenyans took prominence. It was not until June 1963, a few months before the country became independent, that the first African manager of a bank branch – Peter Nyakiamo – was appointed. Nyakiamo was appointed sub-branch manager at the Queen’s Way branch of Barclays Bank after working for the bank for more than 15 years.
By the time Kenya became independent, the currency used by the banks in Kenya, Uganda and Tanganyika was the East African shilling. This had not always been the case.
1965; Co-operative Bank of Kenya
The country’s first fully locally owned commercial bank came on June 19th 1965 when the Co-operative Bank of Kenya was registered as a co-operative society initially to serve the growing farming community. Co-op Bank, as it came to be known, commenced operations as a bank on January 10th 1968 with a start-up capital of only KShs 255,000, supplemented by an interest-free loan from the government of KShs 214,000, repayable in ten years.
1966; The Establishment of the Central Bank of Kenya
The first Kenyan currency notes went into circulation in 1966 after the establishment of the Central Bank of Kenya three years after the country became independent. The Bank issued the first Kenya coins on April 10th 1967. They were in denominations of 1 and 2 shillings, and 5, 10, 25 and 50 cents. The Central Bank established accounts for all the commercial banks in Kenya. On November 16th 1966, the Central Bank took over the operations of the Bankers’ Clearing House. These were the first steps the Central Bank took towards controlling and regulating the activities of banks.
The Central Bank’s first governor was Dr. Leon Baranski who was seconded to the Kenyan government by the International Monetary Fund and the World Bank. In May 1967 Baranski was succeeded by Duncan Ndegwa who until then had been the head of the country’s public service in the government of country’s first President Jomo Kenyatta.
1968; Kenya Commercial Bank (Now KCB Group)
In 1968, the government set up Kenya Commercial Bank after buying a 60% stake in the National and Grindlays Bank and splitting the bank up into two banks – the Kenya Commercial Bank and Grindlays Bank International (Kenya). KCB took over all but two of the branches previously operated by National and Grindlays Bank in Kenya. It was those two branches that constituted Grindlays Bank International (Kenya).
1968; Establishment of National Bank of Kenya
The first fully government owned bank – the National Bank of Kenya – was established on June 19th 1968 with John Michuki, then Treasury permanent secretary, as chairman of its board of directors.
The Entry of Technology In The Banking Sector
Beginning in the late 1960s the main banks started investing in computerizing their operations. In June 1968 National and Grindlays Bank installed a 16K 1901 ICL main frame computer at its headquarters in Nairobi to serve as the central depository for information from all the bank’s branches countrywide.
Barclays Bank of Kenya was the first bank to fully computerize its operations in the country. Its Barclays International Accounting System computer programme was rolled out in November 1982, with its Enterprise Road, Nairobi, branch being the first beneficiary. The programme was a phenomenal success and the bank soon expanded its use to cover all branches within Nairobi and later countrywide. Other banks would eventually follow suit and computerize operations in their branches.
1976; Government fully acquires KCB Group
In November 1976 the government assumed full ownership of KCB by buying out the 40% stake initially retained by Grindlays Bank of London.
The government of Kenya bought a 60% stake in National & Grindlays Bank and took full control of it in 1970; renaming it Kenya Commercial Group. It was renamed KCB Bank Kenya after a corporate restructure.
1DR MARY OKELO IN 1977 – First African woman bank branch manager
Dr Mary Okelo in 1977 became the first African woman to rise to the post of a bank branch manager. Her promotion at Barclays Bank opened the door for more women to rise to management positions in Kenyan banks.
EQUITY BUILDING SOCIETY (EBS) – OCTOBER 1984
In October 1984 Equity Building Society was established that grew to what is now Equity Group Holdings.
1985; MOBILE BANKING.
Mobile Banking. Standard Chartered offered mobile banking in the early 1980s -1985.
Funfact; Clearing of Bank Cheques in the 1990s!
It took an average of 21 days to process bank cheques. Prior to that it would take well over a month since processing was manual and centralised in Nairobi, which meant that banks had to transport their cheques by car to the Bank Clearing House in Nairobi. Today, it takes banks an average of 2 days to process your cheque!
1998 Bank Strike
The biggest confrontation between banks and their staff came in 1998 when employees of all banks in Kenya started an industry wide strike in February 1998.
About 15,000 bank and insurance staff in Kenya have gone on strike to protest against a tax increase on preferential loans provided by their employers.
2004; Co-op Bank’s mobile banking solution
An even more innovative system of banking would come in 2004 when Co-op Bank launched mobile banking in Kenya. The service allowed customers to check their account balance, request statements and track the status of cheques, it did not facilitate actual transfer of money. That only became a possibility with the launch of the M-pesa mobile money transfer system by Safaricom in 2007.
2007 The Entry of Mpesa
Kenya’s largest mobile network operator, Safaricom on 6th March 2007 launched M-PESA as a phone-based peer to peer money transfer service. The rest is history!
2009; Coop Bank Introduces First Agency Banking Model
2010; Family Bank Launches First Mobile Banking Platform in Kenya
DTB Bank appoints First Woman CEO
Diamond Trust Bank CEO Nasim Devji was the first woman to be appointed CEO of a bank in Kenya. In 2012, she became the first female Vice Chair of the Kenya Bankers Association.
In June 2016, The Kenya Bankers Association (KBA) through its fully owned financial technologies firm -Integrated Payment Services Limited (IPSL)-launched PesaLink, a bank-to-bank money transfer platform, after a four-month pilot phase. Founded under the Central Bank of Kenya’s National Payment System (NPS) guidelines, IPSL provides a platform aimed at harnessing the potential of digital payment solutions for the local market. The platform was developed to provide interoperability and related technology solutions for local commercial banks.
August 2016; Interest Rate Cap Law
A bill capping bank interest rates in Kenya was signed into law in August 2016 to regulate applicable rates to bank loans and deposits.
2019; Interest Rate Cap Law Repealed
Kenya’s Parliament repealed its cap on the lending rate for banks, in a move to boost business activity and economic growth in the East African nation.
In December 2019, reports emerged about a new disease that was at the time spreading in the Wuhan Province in China. By February 2020, the Coronavirus disease (COVID-19) had spread into other countries in the world. On 12th March 2020, the Ministry of Health confirmed the first case of the disease in the country. The situation prompted the Government to introduce a wide range of containment measures, which included lockdowns, travel restrictions, among a wide range of other interventions.
The pandemic sailed the banking industry – and all other sectors of the economy – into a rather unfamiliar business environment in the year 2020. Reeling from the repeal of interest capping in November 2019, the year 2020 set off on a great sense of optimism and anticipation, with the overall economy scaling up to over 5 per cent in the initial months of the year.
Post COVID-19, the banking industry continued to adapt to the economic dynamics imposed by the disruption. Some of the interventions that continue to be sustained include supporting affected customers and creating innovative solutions, including blended finance and the use of the moveable assets registry, to address credit access to vulnerable sectors. Stakeholders in the sector also continue to work closely operationalize risk-based pricing as an important cog in promoting credit access.