MST-Department of Applied Economics

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Browsing MST-Department of Applied Economics by Author "Gachanja, Paul Mwangi"

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    Credit risk, efficiency and performance of commercial banks in Kenya
    (Kenyatta University, 2014-10-10) Lakasia, Japheth Manguya; Muniu, Joseph Muchai; Gachanja, Paul Mwangi
    Banking in Kenya is very dynamic and robust. Performance of this sector measured by profitability is very important and should be monitored closely because it contributes immensely to economic growth in Kenya. Vision 2030 of Kenya envisages an increase of savings to 10% of GDP. The government of Kenya is relying on commercial banks to mobilize the savings that will . lead to extension of loans to the public to fuel development. Credit creation is the main income generating activity of banks; however banking comes with a couple of risks including credit risk captured by the level of nonperformingloans among other factors. Recently the level of nonperforming loans in the Kenyan banking industry has been on the upward trend. There is a felt . need to ad~ress this trend because an increase in nonperformingloans (indicator of credit risk)• may hamper commercial banks from achieving their objectives. Therefore this study seeks to . establish the effects of efficiency and credit risk on performance of commercial banks. This ..researchis significant in the sense that it will help banks to place themselves strategically towards achievement of their goals. The study will employ Data Envelopment Analysis to determine•• .. techriical efficiency of commercial banks while panel data regression model will used to establish credit risk on performance of commercial banks.
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    Effects of Monetary Policy Changes on Credit and Economic Growth in Kenya
    (2014-03-06) Chebet, Elijah Ruttoh; Gachanja, Paul Mwangi
    Several empirical studies have confirmed that there is a positive relationship between credit growth and economic growth. The Central Bank of Kenya (CBK) has in the past attempted to use monetary policy to influence the direction of credit growth with the aim of improving economic growth in Kenya. The objective of this study therefore is to determine whether there is a relationship between credit growth and economic growth, whether an increase in credit does in fact improve economic growth in Kenya and whether a reduction in the CBR reduces the commercial bank lending rates and thereby increasing the amount of credit available in Kenya. Using data between 1971 and 2008 and Vector Autoregression (VAR) model, it is found that even though credit growth deviates so much from the long run trend, it still traces economic growth and therefore using monetary policy to target credit growth with the aim of irifluencing the direction of economic growth is still beneficial in the long run. The results also show that lending rates reduces following an expansionary monetary policy. This is consistent with expectations but the lending rates seem to respond a bit sluggishly. The findings further show that loans and advances will increase if there is a positive shock in the lending rates. This finding is contrary to expectations. This positive impact could imply that loan demand in Kenya is inelastic. The findings further show that, other than own shocks, the variations in credit growth mainly come from the changes in lending rates and GDP. More emphasis therefore need to be put in these two variables to avoid too violent volatility of credit growth.
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    Effects of Public Pension Schemes on National Savings in Kenya, 1971-2011
    (2014-03-07) Thinguri, Salome Wambui; Muchai, Dianah; Gachanja, Paul Mwangi
    This study seeks to investigate the effect of pensions on national savings in Kenya. The study covers the Kenya Government's public pension schemes for its employees. The Granger causality test was employed to investigate the relationship between these two variables and it was found that there was no causal relationship between the two variables. The long run relationship between the two variables was derived using the Vector Error Correction Model. Analyzing the effect of pensions on savings requires the control of other variables which impact on savings. As a byproduct of this paper I investigated the determinants of savings. The specific variables that were of focus in this paper were inflation rate, real interest rate, GDP, dependency ratio (young and old), life expectancy, and labor force participation rate. The methodology adopted involves the lifecycle model. Annual secondary data of the relevant variables for the period 1971-2011 was used in the analysis. Some variables were not stationary and were made stationary after first differencing. Information was sourced from World Bank publications and the Kenya Government's Consolidated Fund Services. The Vector Error Correction Model was employed to investigate these relationships. The results indicated that pensions expenditure had a negative impact on savings. It was also found that Gross Domestic Product has a positive impact on Gross Domestic Savings. The results also show a negative influence of inflation on Gross Domestic Savings in Kenya. The real interest rate and life expectancy have negative and statistically significant impact on Gross Domestic Savings, suggesting that income effects outweigh the sum of its substitution and human wealth effects. The old age dependency ratio has a negative but statistically insignificant impact on saving while the young age dependency ratio has a positive but statistically significant impact on savings.
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    Performance of micro and small enterprises supported by women enterprise and development fund in Eldoret town, Kenya
    (2011-08-12) Rono, Gladys J; Wawire, N. H. W.; Gachanja, Paul Mwangi
    Women are the individuals who suffer more in the society although they perform multiple responsibilities in the home, workplace and in the community. Organizations have come up with ways seeking to uplift and empower women economically. But still little has been achieved. The government of Kenya, in realizing the women potential, established Women Enterprise and Development Fund so as to empower women both socially and economically. This study, examined performance of enterprises supported by Women Enterprise and Development Fund in Eldoret town. This study had four objectives: first, was to find out the types of activities carried out by women entrepreneurs. Secondly, was to determine the factors that influence the performance of MSEs. Thirdly, was to establish the relative importance of these factors. And lastly, to recommend possible actions that can be taken to improve the performance of MSEs. Stratified sampling technique was used to identify the sample, a sample of 60 enterprises was used, and interview schedule was used to collect the data. Descriptive statistics was applied to compute relevant statistics regarding performance of MSEs. The estimated log-linear model revealed that market size was the most significant determinant of MSEs performance. Other variables that determined MSEs profits were loan volume and business management skills. The rest of the remaining variables in estimated model were statistically insignificant. These include: technical training; size of the business; input price; level of education; age of the entrepreneur; marital status and the level of competition. Based on the findings of the study, it is recommended that the women enterpreneurs should undertake courses that will improve their business management skills. It is also important to formulate programmes to enhance marketing products of MSEs. Finally, the government should increase the loan volume and encourage women to borrow.
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    Total Factor Productivity Change in the Non-life Insurance Sector, Kenya: 2005-2009.
    (2014-03-10) Mdoe, Jackson Idi; Muchai, Dianah; Gachanja, Paul Mwangi
    The Kenya Vision 2030 acknowledges that financial services will play a critical role by providing better intermediation between savings and investments. Among the financial service providers are non-life insurers. Non-life insurers contribute to economic growth through channelling resources from savers to investment projects, inducing consumption in risk averse individuals, reducing uncertainty and volatility of events as well as diversifying risk. To develop the insurance industry the government has intervened by creating IRA. To consolidate non-life insurers the government raised the paid up capital from Kshs. 150 million to Kshs 300 million and restricted individual ownership of an insurance company to less than 25 percent. The extent to which total factor productivity (TFP) for non-life insurers has changed with these reforms is yet to be determined. This notwithstanding, the actual levels ofTFP change in the Kenyan non-life insurance sector is not known. The study sought to fill this gap by estimating and decomposing total factor productivity change for non- life insurance sector. The study used an output oriented Data Envelopment Analysis (DEA) to derive Malmquist total factor productivity change indices. The indices were then decomposed to identify the sources of productivity change. To achieve these objectives the study used data from 32 non-life insurance firms that existed during the study period (2005 to 2009).The results revealed that, there was 2.7 percent progress in TFP for the sector. This progress in TFP was sourced from innovations. The decomposition of efficiency change into scale efficiency change and pure efficiency change revealed that the 7.8 percent decline in efficiency for the entire sector was occasioned by 2.7 percent decline in scale efficiency and 5.3 percent decline in pure efficiency. The study concluded that for non-life insurers to continue improving their TFP they need to sustain the high innovations and improve efficiency by improving their level of resource utilization and product survival.