Post Office Savings Bank
The banks expanded but banking access and employment opportunities for Africans in the banking industry took time to materialize. 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.
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.
Decades would pass, and with each the industry saw increased Africanization – on both sides (bankers and customers).
Indeed 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. 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.
Central Bank of Kenya is Established
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.
Mr. Ndegwa took over at the Central Bank a few months after the Bank faced its first major challenge following the Tanzanian government’s nationalization of all commercial banks in the country and imposing exchange control restrictions against Kenya and Uganda. The move meant that Kenyan commercial banks had no way of remitting funds or sending cheques and bills for collection in Tanzania. This forced the Central Bank to set up emergency measures by which it became the channel for transacting business between Kenyan banks and the Bank of Tanzania.
The following year, the Central Bank of Kenya itself would be forced to temporarily suspend dealings in foreign exchange following an international gold crisis that led to the devaluation of the British sterling pound to which the Kenya shilling was pegged.
Much of what has happened in the commercial banking sector has been mirrored by the operations of non-bank financial institutions that provide specialized financial services such as mortgage, hire purchase financing, secured instalment loans and trade credit. They constitute a crucial segment of financial intermediaries beside commercial banks. They too have had their ups and downs. Among them are great success stories as well as stories of failures. In the period when the country saw a number of banks collapse, many non-bank financial institutions also went out of business more or less for the same reasons.
Diamond Trust (Kenya) Ltd was the first non-bank financial institution to be established in Kenya. It was established in 1946 as Diamond Jubilee Investments, initially covering the entire East Africa region. The name was changed to Diamond Trust (Kenya) Ltd in 1965 in line with the realignment most companies undertook after independence.
Savings & Loans followed in 1949, focusing mainly on mortgage finance.
After independence the non-bank financial sector, like the commercial banking sector, witnessed rapid growth. Indeed, by 1990 there were more than 50 non-bank financial institutions operating in Kenya, a good proportion of them being subsidiaries of commercial banks.
An important role in Kenya’s financial sector is now played by a special type of non-bank financial institution – the savings and credit co-operatives societies or SACCOs. They provide millions of Kenyans with essential financial services that they normally cannot access through banks, especially easier access to credit albeit sometimes at higher interest rates. They span nearly all the sectors of the economy. Indeed, they have been credited with spurring Kenya’s on-going real estate boom.
Co-op Bank remains by far the bank most closely associated with SACCOs. Apart from being their preferred banker, it has also entered into an agreement with most SACCOs where their customers can conduct business through the bank’s vast ATM network.
The government too has played its part in the non-bank financial institution sector through the operations of such government owned corporations as Industrial and Commercial Development Corporation (ICDC), Agricultural Finance Corporation (AFC), Development Finance Corporation of Kenya (DFCK) and the Industrial Development Bank. These corporations stand out for their tremendous contribution to the development of Kenya’s economy.