Effects of Institutional Reforms on Financial Sector Development in Selected East Africa Community Member States

Abstract

In the East African region many institutional reforms has been undertaken to foster financial sector development. However, the contribution of these reforms to financial sector development in this region remains unimpressive compared to other developing economies in Africa. This study seeks to investigate the effects of institutional reforms on financial sector development in Kenya, Uganda and Tanzania. The objectives of the study were to: determine the effect of regulatory quality reforms on financial sector development in Kenya, Uganda and Tanzania; determine the effect of reforms in accessing information on financial sector development in Kenya Uganda and Tanzania; and establish the effect of reforms in reducing corruption on the financial sector development in Kenya, Uganda and Tanzania. Secondary panel data were collected from electronic secondary sources such as World Bank, International Monetary Fund, Central Banks, previous surveys, financial reports and regulatory authorities’ data bases in the respective countries for the periods spanning from 1987 to 2016. An exploratory study design involving econometric analytic techniques was used to analyze the data collected. In this study, panel data model was used to analyze panel data and estimate the effects of institutional reforms on financial development in Kenya, Uganda and Tanzania. The study found that regulatory quality and access to information have a significant effect on financial sector development in Kenya, Uganda and Tanzania. In addition the study found out that corruption had a negative and significant effect on financial sector development in Kenya, Uganda and Tanzania. The study concluded that regulatory quality and access to information are important aspects in financial sector development. However corruption slows down the development of the financial sector. In addition, institutions play a key role in financial sector development. The study recommends that suitable institutional changes ought to be started so as to enhance transparency and responsibility of open establishments, common administration, upholds strict controls and prudential guide for business exercises.