History of Banking in Kenya: Role of Regulation

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.