Strathmore Institute of Mathematical Sciences (SIMs)

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The Strathmore Institute of Mathematical Sciences(SIMs) succeeds the Centre of Applied Research in Mathematical Sciences (CARMS). It is committed to delivering high quality graduate education and research through providing a stimulating research environment and continuous support for our researchers and students. SIMS promotes and develops research and consulting in the mathematical sciences, including statistics, mathematical biology, mathematical finance and mathematics education

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Assessing the optimal inflation rate for the Kenyan economy
(Strathmore University, 2) Auma, Laura
This study seeks to estimate the optimal level of inflation for the Kenyan economy that is favorable for its economic growth by using time-series dataset for the period 1981 to 2014. The study adopts a model proposed by Ademola & Aiwo (2006) to examine the existence of threshold level effects in the inflation-growth relationship. The estimated model suggests a 4 percent optimal level of inflation above which inflation retards economic growth.
A Copula-based approach to differential gene expression analysis
(Strathmore University, 2006) Chaba, Linda Akoth
Microarray technology has revolutionized genomic studies by enabling the study of differential expression of thousands of genes simultaneously. The main objective in microarray experiments is to identify a panel of genes that are associated with a disease outcome or trait. In this thesis, we develop and evaluate a semi-parametric copula-based algorithm for gene selection that does not depend on the distributions of the covariates, except that their marginal distributions are continuous. A comparison of the developed method with the existing methods is done based on power to identify differentially expressed genes (DEGs) and control of Type I error rate via a simulation study. Simulations indicate that the copula-based model has a reasonable power in selecting differentially expressed gene and has a good control of Type I error rate. These results are validated in a publicly available melanoma dataset. The copula-based approach turns out to be useful in finding genes that are clinically important. Relaxing parametric assumptions on microarray data may yield procedures that have good power for differential gene expression analysis.
Value creation in Kenyan e-businesses
(United States International University, 2008) Madigu, Godfrey Achono
E-businesses promise new avenues for creation of wealth. According to Amit and Zott (200 1), this value creation potential arises from the combination and exchange of resources . While research on value creation in e-businesses has been carried out elsewhere, the author is not aware of any such research on Kenyan e-businesses.Therefore, the study sought to examine sources of value creation for Kenyan e-businesses based on Amit and Zott's (2001) model. Amit and Zott claim that organisations can create value in e-businesses by leveraging on complementarities, novelty, efficiency and lock-in. The study was guided by two research questions. What are the sources of value creation for Kenyan e-businesses? Secondly, are the measures of value creation formulated by Amit and Zott, relevant to Kenya? The research methodology adopted was case study. This is a research strategy that attempts to examine contemporary phenomenon in real-life contexts. Listed companies with e-business implementations from the Nairobi Stock Exchange (NSE) formed the population. Companies examined include; Kenya Airways, TPS Serena and Nation Media Group chosen due to the richness of their e-business implementations. Data was collected from company annual reports, investor communiques, questionnaires, organization techniques were used for data analysis; the within case analysis technique which involved generating detailed case study write-ups based on questionnaires. The cross case analysis technique involved looking at the data in many divergent ways. The study findings showed that complementarities, lock-in, novelty and efficiency as identified by Amit and Zott (2001) were sources of value creation for all three Kenyan companies above. However, there were differences in the way the companies leveraged on these sources. Kenya Airways leveraged on efficiency, TPS Serena on complementarities, Nation Media Group leveraged on all the four sources; complementarities, novelty, efficiency and lock-in. The study also revealed that Amit and Zott's' (2001) model was relevant in the Kenyan context. The Kenyan companies studied created value in their business implementations by focussing on the different sources of value creation in their e-business. Kenya Airways in its e-business deployments was driven by the need to make its processes more efficient. Similarly, TPS Serena was driven by complementarities. Nation Media Group was the only company to have focussed on all four sources of value creation complementarities, novelty, efficiency and lock-in in its ebusiness implementations. The study findings revealed that the three Kenyan companies studied created value by leveraging on complementarities, efficiency , novelty and lock-in their business implementations. Kenyan companies should therefore make use of Amit and Zott's (2001) model in the design and implementation of e-businesses. The findings also showed that the importance of a source was determined by the industry a company operated in. It is therefore necessary for Kenyan companies to be informed of the critical value creation sources in their industries to adequately leverage on them.However, further research is needed to determine whether the difference in leverage of the value creation sources across industries is due to characteristics specific to the industry or due to chance. A research that includes value creation practices of more Kenyan e-businesses across different time frames and stages of maturity is therefore encouraged .
Mathematical Modeling for Human Immunodeficiency Virus (HIV) Transmission using Generating Function Approach
(Strathmore university, 2009) Waema, Rachel; Olowofeso, Olorunsola
This study is concerned with the mathematical modeling for human immunodeficiency virus (HIV) transmission epidemics. The mathematical models are specified by stochastic differential equations that are solved by use of Generating Functions (GF). Models based on Mother to child transmission (MTCT) (age group 0-5 years), Heterosexual transmission (age group 15 and more years) and combined case (incorporating all groups and the two modes of transmission) were developed and the expectations and variances of Susceptible (S) persons, Infected (I) persons and AIDS cases were found. The S$_{1}$(t) Susceptible model produces a constant expectation and increasing variance. It was shown that Mother to Child transimission and Heterosexual models are special cases of the Combined model.
The factors for the growth of the mortgage industry in Kenya between 1980 and 2012
(Strathmore University, 2013-03) Dima, Adam Dima
This study was carried out with the aim of looking into the growth of the mortgage industry in the over the past years and the variables that have affected this growth so far. It aims at understanding the motivating factors for the players in this industry. By analyzing a selection of factors in relation to the size of the mortgage industry, stakeholders in the mortgage industry could stand to gain through the determination of relationships that exist. It also aimed at determining the reason for the rapid growth of the industry over the span of the previous decade. The study identified the problems faced by stakeholders that have hindered the growth of the mortgage industry over the years. The research was mainly quantitative and mainly used secondary data. The secondary data was obtained from past research which mainly included journals and reports on housing finance and its developments over the years. After the data was collected it was analyzed a11d regression on the determinants was carried out to identify which variables affected the mortgage loans level an which did not (and to what degree). The findings identified the variables to consider as the rate non-performing loans, gross domestic product, population size and the prevailing Treasury bill rates. The findings were used to add to the limited existing body of knowledge on mortgage industry. This will serve to inform decisions by the various stakeholders within the mortgage industry as well as policymakers in terms of policy on housing for the public.
A research proposal on viability of crop insurance in Kenya
(Strathmore University, 2013-03) Chebet, Cheruiyot Jackline
Farmers have for a long time suffered losses due to adverse weather conditions and fluctuating prices. Recently crop insurance has been the emphasis for farmers to protect their income from adverse conditions. This study has investigated the viability and expansion of crop insurance and made a comparison on weather indexed insurance and traditional crop insurance to determine whether traditional crop insurance could still work even with the over emphasis on weather indexed insurance. To provide answers to the research questions quantitative methods were employed. Use of simulation of variables, correlation tests, and regression analysis were the major quantitative tools used to analyze the data availed. The findings indicate that there is a high correlation between production and weather specifically rainfall, and production and gross claims of crop insurance cover. The farmers face a high exposure to failure in crop yields due to weather risks hence make crop insurance viable and increase opportunities for insurance companies to develop more insurance products to suit different crops hence risk reduction and expansion of crop insurance.
Financial development and economic growth in Kenya 1990 to 2010
(Strathmore University, 2014) Mutiga, Brian Muchiri
This study is intended to investigate the link between financial development and economic growth with special emphasis on the banking sector and the stock market in Kenya. The nature of the relationship was determined through an econometric analysis off financial development on Kenyan economic growth. A time series analysis was employed through the Vector Error Correction framework after cointegration had been established among the variables through the Johansen cointegration test framework. The model was adopted to estimate the effects of the banking and stock market indicators on economic growth. The existence of a long term relationship between financial development and economic growth was achieved through the Johansen co integration test which confirmed the existence of a long run relationship and the construction of a Vector Error Correction framework which confirmed the significance of the long term relationship. The direction of causality between financial development and economic growth was carried out using the Granger-causality framework and established the existence of bi-directional causality between financial development and economic growth with banking development having a greater impact on economic growth than stock market development. The results of the study indicate that there exists a long run equilibrium relationship between financial development and economic growth in Kenya and bi-directional causality running from financial development to economic growth and also from economic growth to financial development.
The impact of microfinance institutions on savings culture in a rural farm - based region - a case of MFIs in Meru county, Kenya
(Strathmore University, 2014) Kimathi, Nelly Makena
The research project seeks to examine the microfinance sector and advances made by microfinance institutions towards facilitating rural finance in terms of savings, with the eventual impact on Kenyan savings culture. Credit creation has been the hub of microfinance institutions and initially, these institutions were purely microcredit. With time, the need to incorporate savings and other savings avenues like micro-pension has come up as credit is not the only solution to poverty alleviation. Specific issues that will be addressed are the question of household savings and incentive to save among the rural inhabitants, available savings products by microfinance institutions, challenges in accessing these products as well as policy issues. These shall depict the wider picture of financial inclusion and microfinance outreach in relation to savings culture. In this regard, the study will be based in Kenya with keen interest on microfinance institutions in a farm-based region, Meru County. Both primary and secondary data will be used, the ASCA (Accumulated Savings and Credit Associations) model applied and the research will take the shape of a cross-sectional, evaluative study.
Quantifying idiosyncratic risk in defined benefit pension schemes in Kenya
(Strathmore University, 2014) Mburu, Edna Njeri
Pension schemes are prone to numerous risks that could affect the funds resulting in payments different from those that were guaranteed on entrance into the scheme. This study sought to measure the idiosyncratic risk in a sample of defined benefit schemes in Kenya, based on a model by Catherine Donnelly, a fellow of the Institute and Faculty of Actuaries. The study was conducted in Nairobi between August 2013 and February 2014. Data was collected from five civil service defined benefit schemes still in operation. The idiosyncratic risk was quantified using the coefficient of variation of each scheme's liability with respect to its expected value. Each scheme presented different levels of the risk based on factors such as the number of scheme members, their ages, salaries and expected pension benefit. The results suggested that the levels of idiosyncratic risk could be reduced by increasing the number of scheme members and that different job classes within the scheme further affected the risk level of the scheme.
Effects of government expenditure on economic growth in Kenya - (1990 - 2012)
(Strathmore University, 2014) Abwoga, Timothy
Given the recent fiscal scenario of the Kenyan government, an explanation of this required studying the impact of government expenditure on economic growth. The specific objectives of the study were to: investigate the existence of a long term relationship between the components of government expenditure and economic growth; and examine the effects of components of government expenditure on GOP growth rate. The data used were government expenditure components that included expenditure on government investment, and government consumption. Sources of data were Kenya government documents and international financial publications. The study applied Vector Auto Regression estimation technique using annual time series data for the period 1960 to 2012 to evaluate the impact of government expenditure on economic growth. The Johansen cointegration tests revealed a long-run relationship between GOP growth rate and the selected components of government expenditure. Further, the Granger- Causality test indicated bi-directional causality between GOP growth rate and components of government expenditure. The results of impulse response functions and variance decomposition revealed that government expenditure on investment, and total government expenditure had a positive effect on economic growth while government consumption had mixed effects. The study concludes by giving policy recommendations based on findings and suggests areas such as optimal level of government expenditure for future studies.
Water Filter Provision and Home-Based Filter Reinforcement Reduce Diarrhea in Kenyan HIV-Infected Adults and Their Household Members
(The American Journal of Tropical Medicine and Hygiene, 2014) Chaba-Omondi, Linda Akoth
Among human immunodeficiency virus (HIV) -infected adults and children in Africa, diarrheal disease remains a major cause of morbidity and mortality. We evaluated the effectiveness of provision and home-based reinforcement of a point-of-use water filtration device to reduce diarrhea among 361 HIV-infected adults in western Kenya by comparing prevalence of self-reported diarrhea before and after these interventions. After provision of the filter, 8.7% of participants reported diarrhea compared with 17.2% in the 3 months before filter provision (odds ratio [OR] = 0.39, 95% confidence interval [95% CI] = 0.23–0.66, P < 0.001). The association was similar among 231 participants who were already taking daily cotrimoxazole prophylaxis before being given a filter (OR = 0.47, 95% CI = 0.25–0.88, P = 0.019). Educational reinforcement was also associated with a modest reduction in self-reported diarrhea (OR = 0.50, 95% CI = 0.20–0.99, P = 0.047). Provision and reinforcement of water filters may confer significant benefit in reducing diarrhea among HIV-infected persons, even when cotrimoxazole prophylaxis is already being used.
Viability of Equity Valuation Techniques with regard to Price Target Attainability for Nairobi Securities Exchange Companies
(Strathmore University, 2014) Nzesya, Lilian Mwikali; Injeni, Geoffrey Ikavulu
The purpose of this research was to establish the popular techniques that used by different firms in the valuation of shares. In line with this, the study has also sought to establish the reason behind the popularity of certain tools. The research was also aimed at finding out whether price targets formulated by actual valuation techniques are valuable. This was achieved through a series of correlation tests as well as examining of how many of the price targets were either attained or exceeded. The third objective of this research was to pinpoint some of the key challenges that analysts and investors in the market face when using these valuation tools. By highlighting the main challenges they face, the research sought to provide possible recommendations that may benefit the Capital Market Authority (CMA) in Kenya, the Nairobi Securities Exchange, investors, analysts and other stakeholders in the financial markets. The findings of the research showed that Discounted Cash flow analysis, Price/Earnings multiple, Price/Book Value are the most popular techniques with net Asset Value being the least relied upon valuation tool. With regard to price target attainability, only 50.83% of the price targets from analysts' valuation reports were attained or exceeded. This was however skewed in terms of the valuation techniques in that price targets obtained through Price Book Value had the highest percentage being met. Difficulty in establishing fore - casted cash flows and discount rate and the difficulty in using and interpreting multiples were the main challenges that face analysts in the industry.
A comparison of performance of unit trusts and the stock market in Kenya
(Strathmore University, 2014) Kahura, Kennedy
This paper seeks to make a comparison between the performance of equity unit trusts and the stock market. It answers two questions; whether equity funds are better performers than the market and whether the results obtained over the period of study are consistent with past conclusions of other researchers. Risk adjusted measures of return including Jensen's alpha, Sharpe Index and Treynor Measure are used in calculating the returns to be compared. Evidence from the results indicates that equity funds perform below the stock market unlike in a previous study by Kagunga that concludes unit trusts outperform the market. Raw returns analysis shows inferior returns across the equity funds industry compared to the returns from the market. Evaluating the same based on market adjusted returns simply emphasizes the fact that fund managers have not delivered superior returns relative to the market. In fact, there is only one out of ten funds that outperforms the market. It could therefore be concluded that equity fund managers should just manage indexed portfolios since they have not been able to beat the index. Further investigation could be done to see if the outcome is the same on including dividend yields before comparison is done. Our results question the value of engaging in rigorous investment strategies as opposed to passive; simply saving in high interest accounts or government papers for short term investment as well as long term since I year bond earns around 11% per annum with minimal deviation and 10 year bonds earn around 14%.
The viability of private pension, defined contribution scheme, in Kenya.
(Strathmore University, 2014) Mue, Mathew Musaki
Pension refers to the benefits one receives after attaining retirement age. There has been a significant increase in the needs for such benefits as the number of citizens in the country reaching retirement age has increased. Regardless of the fact, the state has been overwhelmed in the provision of such benefits. It has put in place policies to encourage private provision. There are three main pension schemes: Defined Benefit, Defined Contribution and a Hybrid Scheme. There has been a significant shift from the DB pension scheme to the DC pension scheme. This shift has been as a result of the wider changes in the pension landscape such as change in the legal and regulatory framework within countries and introduction of mandatory funded level just to mention a few reasons. The important question to ask is how suitable are these pension products being offered by private pension providers in particular, insurance companies. This study addressed two issues. First, it attempts to check whether the interest rate used by insurance companies in the calculation of interest earned considered the needs of the pension scheme members and if so protected them against investment risk. Secondly, from the rate acquired, the study determined the benefit amount attributable to the scheme members and showed how it is achieved. The results show that the interest rates used in attaining the earned interest amounts for the scheme members were sensitive to interest rate news. However, it was achieved that the interest rate news was not determined by the company's characteristics nor was it influenced by the needs of the scheme members. In conclusion, the study presented a good opportunity for research on what factors caused the sensitivity of the rate of return used to calculate the interest amounts to interest rate news. It also provided an understanding of the valuation of the pension benefit amounts for scheme members of a defined contributions pension scheme.
Examining the potency of foreign currency as an asset class - evidence from Kenya
(Strathmore University, 2014) Mwaniki, Maryanne Wairimu
In this study I allocate currency assets namely, the US dollar, the Great Britain Pound, the Japanese Yen and the Tanzanian shilling to a portfolio using mean variance optimization. Similarly, I analyze currency as an asset class within the Kenyan context and given the various attributes pertaining to asset classes, the currency portfolio exhibited all the characteristics. The portfolio had positive returns thus giving investors an opportunity to make profits; the assets are strictly mutually exclusive since they can only be classified under currency assets, homogenous and liquid. The Tanzanian shilling met the criterion that assets should have low correlations relative to other asset classes. However, the pound, the dollar and the Yen exhibited quite high correlations to the equity class. Mean variance analysis has been used to create portfolios that minimize risk for a given level of return and the resulting currency portfolio performed better than the equity class given that it had higher returns and lower risk. The study lead to the conclusion that currency is an asset class and can be allocated to portfolios using mean variance optimization.
Long term implications of early access to pension benefits - the case of Kenya
(Strathmore University, 2014) Rotich, Ivy Chepng'etich
In July 2009, a bill was introduced that allowed members of a pension scheme to access their contributions and 50% of their employer's contribution. This change in law resulted to increased early access of pension funds upon change of jobs by individuals in pension schemes. This study sought to determine the implications of early access of funds by members and the long-term implications it has. Data was collected on a sample of 336 individuals and analysis done on how factors such as age, job change frequency, withdrawal option, withdrawal amounts and financial education of the members affected their retirement income adequacy. The results obtained concluded that increased job frequency and the option to withdraw significantly resulted to reduced retirement income adequacy while increased financial education improves pension adequacy as an individual is able to make more informed decisions.
Identifying the gap between supply and demand of life insurance
(Strathmore University, 2014-03) Wekhuyi, Lisa Nabulumbi
This is a study that aims at helping the insurance industry solve the problem of low insurance uptake taking into consideration the new measures adopted by the industry in an attempt to increase life insurance uptake. To do this, the study aims at merging information from the consumer and supplier side so as to identify the main factors that contribute to the gap barring relationship. This will be done by considering two different concepts. First is considering if the products in the market sufficiently meet policyholder's needs. Second is considering whether the distribution channels used are effective in terms of raising awareness of life insurance products. From this we will deduce the major barriers that contribute to the gap between demand and supply of life insurance.
Extent of compliance with IFRS Financial Instrument Standards - a case study of Banks in Kenya
(Strathmore University, 2014-03) Ochieng', Yvonne Adhiambo; Injeni, Geoffrey
The aim of this study is to identify the extent to which listed banks in Kenya comply with International Financial Reporting Standards, with particular reference to financial instruments IAS 32, IAS 39 and IFRS 7. It also seeks to identify the formal mechanism employed to monitor and enforce IFRS compliance in Kenya. In addition, it is further intended to identify the problems listed banks encounter in complying with IFRS.The level of mandatory compliance with lAS 32, JAS 39 and IFRS 7 was measured using a mandatory disclosure index (MDI) which the researcher developed from a self-constructed compliance checklist. An open ended questionnaire was also used to gather data for the study. The sample consisted of 42 registered banks and covers the period of2012. The overall results show a high degree of compliance with lAS 32, lAS 39 and IFRS 7, though not absolute. The study reveals the existence of a monitoring and enforcement mechanism which the researcher finds to be not too rigorous. Finally, the study identifies the number of regulatory requirement registered banks had to comply with in addition to the IFRS requirements, the ever changing IFRS, and the inability of the banks to automate the IFRS into their system to make it easier and faster for financial statement preparation, as some of the major challenges that registered banks go through in complying with the IFRS.
Examining the effect of product innovation on financial risk management in SACCOs - evidence from Kenya
(Strathmore University, 2014-03) Njoroge, Alice Ngonyo
This purpose of this study was to identify the effect of product innovations on risk management in SACCOs. The study relied on data collected from SACCO staff through questionnaires, company websites and publications. 34 SACCOs in Nairobi County were chosen to represent Kenya deposit taking SACCOs. The study was purely qualitative. The main data collected included the types of product innovations adopted, the risks arising from them and the risk mitigation techniques in response. The findings indicated that product innovations had a positive correlation with credit risk and default risk. Risk management techniques had changed and increased in response to this with SACCOs becoming more concerned with their risk management. The main conclusions were that although effort has been made towards improving risk management in SACCOs, a lot of gaps remain. In most SACCOs, risk management is still a new concept and skills are inadequate. The researcher recommends more robust risk management techniques and policies from both the authority and the SACCOs. Additionally, the growth and contribution of SACCOs requires higher accounting standards to be put in place. The researcher recommends for further research in SACCOs specifically in formulating a risk index to provide a robust measurement of various risks.
Corporate governance and dividend payout - analysis of firms listed at the Nairobi Securities Exchange
(Strathmore University, 2014-03) Njugi, Mwangi Kevin
The study aims to examine the effect of corporate governance on dividend payout of firms listed at the Nairobi Securities Exchange. Based on agency theory, the study considers the effect of two conflicting hypotheses, the outcome and substitution hypothesis, where dividends can be an outcome of corporate governance or a substitute of corporate governance. Using a sample of 37 listed firms covering the period 2003-2012 the paper employs a fixed effects and random effects method of estimation. Corporate governance measured used were the size of the board, proportion of independent directors to the board size, institutional shareholding and women representation. The results show that the size of the board, proportion of independent nonexecutive directors and institutional ownership are not statistically different from zero in explaining dividend payout. Women representation in corporate boards represented, as a dummy variable is statistically significant in explaining dividend payouts as women are seen as more risk averse and will disgorge more cash in form of dividends to minimize agency costs. The results are consistent with the outcome hypothesis. This present study contributes to the corporate governance literature by looking at the importance of corporate governance in influencing fi1ms' dividend behaviour in Kenya.

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