In 1969 Standard Bank of South Africa merged with the Chartered Bank of India, Australia and China to become the Standard Chartered Bank (StanChart). On its part, Barclays shed the Dominion, Colonial and Overseas (DCO) tag to become Barclays Bank International. A decade later it was locally incorporated in Kenya as Barclays Bank of Kenya (BBK) with Samuel Waruhiu as its first chairman while T.D. Miles became the managing director. Barclays would later become the first bank in Kenya to offer its shares to the public when in 1986 it floated 30% of its equity on the Nairobi Stock Exchange (NSE). The share floatation received an overwhelming response from the public and ended up being over-subscribed six-fold.

The government and foreign-owned banks would not continue their virtual monopoly on banking for long. During the decade or so following the death of President Kenyatta in 1978 and his succession by his Vice President Daniel arap Moi, seven new African-owned banks and 33 non-bank financial institutions came up to join the single private indigenous bank – Co-op Bank. The main characteristic of these new banks and financial institutions was that they were small; in terms of start-up capital.

African-owned banks that operate in Kenya today include Ecobank and United Bank of Africa.

In 1980 the minimum capital required to establish a bank was two million shillings, that of non-banking financial institutions was half a million shillings. But as the new banks started experiencing cash flow and other problems, the Central Bank raised the requirements for start-up capital. By 1982 it was KShs 5 million and by the end of the decade it had increased to KShs 15 million.

But by then a number of the new locally owned banks were finding it difficult to keep afloat. The expensive scramble for deposits by these banks coupled with their comparatively inferior capitalization as well as intrusive political factors in their operations made the banks financially shaky and greatly susceptible to liquidity crises.

Powerful politicians were able to lobby for exemptions from certain provisions of the Banking Act. Banks with politicians on their boards of directors were able to use their connections to obtain public sector deposits cheaply, with the end result being that most of them were able to take on deposits that exceeded their capital by far.

The Central Bank, which at the time lacked adequate capacity to regulate in this highly politicized sector, was under intense pressure. Twelve banks collapsed between 1984 and 1989.

This first wave of bank collapses forced the government to pass the Banking Act of 1989, which among other things tightened requirements for the licensing of new banks and non-banking financial institutions. The minimum capital requirement was substantially increased, deposit insurance was made mandatory, and over-lending and earning interest on non-performing loans were prohibited. And to protect depositors and oversee bank liquidation the government set up a Deposit Protection Fund Board.

In December 1989, the government combined the deposits and assets of nine of the collapsed banks to form the Consolidated Bank of Kenya and mandated the new bank was to undertake the task of reimbursing the deposit customers of the collapsed banks. The banks that were merged to form Consolidated Bank were: Union Bank, Jimba Credit Corporation, Estate Finance, Estate Building Society, Business Finance, Nationwide Finance, Kenya Savings and Mortgages, Home Savings and Mortgages, and Citizens Building Society.

Despite the government’s new regulations, there would be a second wave of bank failures between 1993 and1995 affecting19 banks.

Several of these collapsed banks had been indicted in the infamous Goldenberg scandal of the early 1990s through which is estimated to have cost the country billions of Shillings (the actual figure has never been established).

There would be a third wave of bank failures in 1998 affecting Bullion Bank, Fortune Finance, Trust Bank, City Finance Bank, Reliance Bank and Prudential Bank.

And between 2000 and 2005 five more banks and non-banking financial institutions collapsed.

But the story of local privately owned banks has not been the story of bank failure after bank failure. Indeed, indigenous banks have carved out a niche for themselves not only by competing with the long-established banks for mainstream clients but by diversifying their customer base to include Kenyans in the low-income class and informal or jua kali sectors.

Equity Bank, established as the Equity Building Society in 1984, stands out as the indigenous bank that has greatly tapped into this market to attain phenomenal success. The bank is the market leader in terms of account holders and innovative products and services targeting Kenyans in the lower-middle and low income classes. The bank and its chief executive officer, James Mwangi, have won numerous local and international awards in recognition of their performance.

Other examples of banks targeting lower income and special customers are Jamii Bora Bank, which has carved a niche for itself not only by tailoring its banking services mainly to low-income customers but by also venturing into mortgage financing for low-income housing, and two fully-fledged Islamic banks; First Community Bank and Gulf African Bank, that have succeeded in bringing Sharia-compliant banking services to Kenya.