LLM Theses and Dissertations (2023)
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- ItemThe Adequacy of Kenya’s bank resolution framework in managing bank failures(Strathmore University, 2023) Omundi, R. M.An effective bank resolution framework is crucial to the realisation of financial stability in an economy. This flows from the appreciation that failure of one banking institution if not well managed could have a crippling effect to an entire banking industry and the financial system at large as witnessed during the global financial crisis. This study examines the egal and regulatory framework for resolving problem banks in Kenya to determine whether the framework is adequate to manage bank failures. In its analysis the study focuses on the statutory provisions encapsulated in the Banking Act, the Central Bank Act, the Kenya Deposit Insurance Act, the Companies Act 2015 and the relevant regulations and the role of the key resolution authorities. The need for existence of a special resolution framework at a national level to deal with problem banks as highlighted in this study cannot be overstated. The study evaluates the significant contributions of the Financial Stability Board in formulating guidelines and recommendations for an effective resolution regime against which the effectiveness of existing national bank resolution frameworks are bench marked. Reforms to the United States of America and the United Kingdom’s bank resolution regimes following the global financial crisis are analysed to draw lessons that could be applied to strengthen Kenya’s bank resolution regime. The findings from this study establish that despite the various reforms implemented to the bank resolution framework resting with the enactment of the Kenya Deposit Insurance Act in 2012 and the Companies Act 2015, the bank resolution process in Kenya has continued to be marred by delayed intervention by the resolution authorities, protracted legal disputes and inconsistency in judicial decisions. The study further establishes a lack of transparency, accountability and integrity in the resolution process. To this end, this study proposes various reforms to strengthen Kenya’s bank resolution framework in line with international best practices.
- ItemTowards anticipating and mitigating the legal risks of bank mergers on the welfare of consumers of financial services(Strathmore University, 2023) Thuranira, I. K.Mergers and acquisitions (MNAs) in the banking sector are characterized by unique aspects that are inherent in the sector considering that the sector is regulated separately. Therefore, the extent to which bank mergers alter the market composition and shifts in market power and dominance expose consumers of financial services to legal risks that are anchored on consumer protection concerns. This is considering that such changes that emerge from such MNAs could result in change in bank behaviour in a manner that has bearing on cost of credit, financial exclusion and resort to alternative informal financial services under which consumers do not enjoy protection. Historically, the absence of proper regulation of the financial sector has led to recessions, depressions and financial crises emerging from proliferation of bank MNA transactions. This study, therefore, investigates the nature of these legal risks, their effects on the welfare of the consumers of financial service; the extent to which the Kenyan legal framework anticipates and mitigates against the same as well as best practices that have been implemented to address these concerns. It proceeds to find that bank MNAs pose the risk of barring competition, increasing the cost of credit at the expense of vulnerable consumers of banking services, and other contemporary risks such as the risk of abuse of information-based market power and the risk of creeping mergers. Hence, it proceeds to identify the important role of the law in striking a balance between market power and efficiency gains of bank MNAs; the need to regulate information-based market power; and the need to subject unregulated mergers to scrutiny for possibility of creeping mergers; among other findings. This is important considering that bank mergers bear effects that traverse different sectors that are separately regulated, hence the need to iterate the utility of the law in facilitating regulatory coordination to anticipate, prevent and mitigate against these legal risks that otherwise remain hidden. Key Words: Mergers and acquisitions, consumers, financial services, legal risks
- ItemIs corporate governance effective in preventing bank failure? A Case study of the collapse of Chase Bank Limited(Strathmore University, 2023) Arina, G. W.Kenya experienced an onslaught of bank failures between 2015 and 2016 which had serious adverse effects on the economy and bank stakeholders. The bank failures have been attributed to corruption, weak internal control systems and poor Corporate Governance (CG) Kenya being a Commonwealth country adopts the Anglo-American CG model. The model is shareholder-centric and arguably unsuitable for banking institutions, due to their unique features of being quasi-public, highly leveraged institutions with a wide range of key stakeholders, thus increasing the stakeholder conflict. The peculiarities of banking institutions vis-a-vis corporations and the crucial stakeholder concerns, necessitate a probe into CG as a crisis prevention mechanism particularly because it has been used as an off-the-rack solution for a variety of problems in recent years despite its failure being elucidated globally by the Global Financial Crisis (GFC) and nationally by the bank failures experienced between 2015 and 2016. This is a doctrinal research that analyses both primary and secondary sources of data on bank governance. The research interrogates several models of CG to determine the most suitable for Kenyan banking institutions, analyses the regulatory framework on bank governance in Kenya to determine whether the same is sufficient in curbing failure and includes a case study on the failure of Chase Bank Limited (CBL), which was felled by the failure of its CG mechanism and lax regulatory supervision. Success in curbing future bank failures depends on the gatekeeper's accountability and the regulator’s willingness to enforce already existing laws. To do so, the regulators must coordinate amongst themselves and be independent of external influence.
- ItemAn Assessment of the enforcement of banking supervision framework to avert bank failure in Kenya(Strathmore University, 2023) Olinga, R.The banking sector plays a crucial role in any economy. This thesis examined the state of banking supervision in Kenya in light of the previous bank failure cases, the economic challenges and the emerging developments in the industry. The research sought to evaluate and analyze the theoretical, policy, legal, and institutional aspects of bank supervision in Kenya, discussed the most effective supervisory tools, and recommended best practices to enhance the effectiveness and efficiency of bank supervision in the country. The study found that bank supervision is justified by the economic and social necessities, including the need to protect against emerging challenges such as digital technologies, mobile money, and unstable economic realities. Additionally, the study noted that consumer protection remains a crucial aspect of supervision. On the legal and institutional framework, the study underscored the robust laws and institutions, both domestic, regional and international, that have shaped banking supervision in Kenya. Through the CBK, these laws have enabled the adoption of international best practices for banking supervision through the implementation of risk-based supervision mode. However, the study recognizes that the evolving challenges threaten the fabric for which bank supervision has been built and calls for the adoption of novel tools and procedures for supervision that incorporate emerging realities. There is, therefore, a need for continuous review of the laws and institutions to ensure that the supervisory framework is constantly updated, in line with the changes and developments in society.
- ItemInterest rate control law and accessibility of credit by MSMEs in Kenya: towards alternative approaches(Strathmore University, 2023) Wamaitha, S. N.Kenya has been through a complete cycle of imposing and eliminating interest rate caps when it comes to the lending practices of banks. This has born both positive and negative consequences on lenders and borrowers in equal measure. Even so, the recent elimination of interest rate caps has left Micro, Small and Medium Enterprises (MSMEs) affected the most. With a view to establishing a different approach to interest rate control that takes to account the interests of MSMEs, this study investigates the implications associated with capping laws on the interests of MSMEs by way of doctrinal legal research. In its findings, it identifies alternatives and best practices that can be implemented to limit the high costs of borrowing in the even interest rate control becomes an inevitable regulatory mechanism. This is based on the postulation that interest rate control law can be iterated towards enhancing financial inclusion of MSMEs without registering negative effects on their interests as borrowers. The study finds that despite being aimed at financial inclusion of low-income consumers of credit such as MSMEs, interest rate control also bears negative implications such as adverse selection and financial exclusion of this group. Hence, the study finds that the Kenyan legal framework can be iterated pursuant to the pillars of the social contract theory to exercise interest rate control with caution through consumer protection and through monetary policy tools used by the Central Bank to influence liquidity in the banking sector. Key words: interest rate control, MSMEs, financial inclusion, cost of borrowing