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Commercial Banking Essay

4791 words - 20 pages

EGERTON UNIVERSITY TOWN CAMPUS
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE

NAME: OCHIENG JARED OPONDO
REG NO: C12/60275/09
GROUP: A
FACULTY: COMMERCE
COURSE: BCOM 330; Financial Institutions and markets
TASK: TERM PAPER
TITLE: COMMERCIAL BANKING IN KENYA

PRESENTED TO: MRS. BOSIRE MARY
PRESENTED ON: 19TH October 2011

ABSTRACT:
This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the ...view middle of the document...

Banks are the main financial institutions operating in financial systems and are important as they facilitate the flow of funds between surplus units and deficit units. Banks offer a full range of financial services, both balance-sheet transactions and off-balance sheet transactions. Balance-sheet transactions are represented by assets, liabilities and shareholders’ funds while off-balance sheet transactions are contingent liabilities.
The following definitions have been advanced for commercial banks:
I. A commercial bank is a financial intermediary which collects credit from lenders in the form of deposits and lends in the form of loans. A commercial bank holds deposits for individuals and businesses in the form of checking and savings accounts and certificates of deposit of varying maturities while a commercial bank issues loans in the form of personal and business loans as well as mortgages.
II. A financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term), checking services, credit cards and savings accounts. (Business Dictionaries Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. )

THE HISTORY AND DEVELOPMENT OF BANKING
A: GENERAL CONTEXT
The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi.
In Egypt too the centralization of harvests in state warehouses also led to the development of a system of banking. Written orders for the withdrawal of separate lots of grain by owners whose crops had been deposited there for safety and convenience, or which had been compulsorily deposited to the credit of the king, soon became used as a more general method of payment of debts to other persons including tax gatherers, priests and traders. Even after the introduction of coinage these Egyptian grain banks served to reduce the need for precious metals which tended to be reserved for foreign purchases, particularly in connection with military activities.
B: KENYAN CONTEXT
HISTORY AND DEVELOPMENT OF COMMERCIAL BANKS IN KENYA
COLONIAL PERIOD ERA
The history of banking in Kenya dates back to the colonial period. Colonial rule brought in its wake new forms of banking. British commercial banks started operations in Kenya during the 1890s. The operations of these foreign-owned banks were characterised by high degree of concentration, branch banking, an almost exclusive concern with financing external trade and for many decades, a lack of interest in, or involvement with, the African population.
As Kenya became more and more part of this...

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