Financial Markets, Central Bank Interest Rate and the Growth of Mortgage Market in Kenya
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Date
2024-10
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Kenyatta University
Abstract
Financial markets are important in playing the role of accessing long-term funds to help in accelerating growth of mortgage market. To improve the mortgage finance market growth, studies have been done on financial markets and growth of mortgage market. However, most of these studies focuses on other countries creating contextual gaps. Other studies, though related to the current study focused on effect on financial structure on other dependent variables, creating a conceptual gap. Some gave conflicting results while others applied weak methodologies hence the motivation for this study. Generally, the main aim of this research was to determine the effect of financial markets, central bank rate and growth of mortgage market in Kenya. Under the general objective, were specific objectives which include: to examine the effect of bonds, equities, real estate investment trusts, private credit fund markets on mortgage market growth in Kenya. The study was conducted on the basis of four different theories namely: the theory of financial intermediation, agency theory, the theory of arbitrage pricing, and Modern portfolio theory. The current study adopted Positivism Philosophy reinforced by explanatory research design. The target population of the research was the 39 Mortgage lending Institutions regulated by Central Bank of Kenya. The study had its basis from panel data generated from published and audited statements of finance of individual banks trading in financial markets, Capital Market Authority and Central Bank of Kenya for the year period running from 2018 to 2022. The panel data was collected using data abstraction tool. The methods of descriptive statistics, correlation, and the panel regression evaluation were used to evaluate the information. Tables, charts and graphs were used to portray the data after analysis. This study adhered to all ethical considerations. Results indicate that bond market makes little to no difference in the growth of mortgage market in Kenya. Results also indicate that equity market makes little to no difference in the growth of mortgage market in Kenya. Real estate investment trusts market was found to be significantly influence the growth of mortgage market in Kenya. Similarly, results further indicate that private credit market significantly influences the growth of mortgage market in Kenya. Findings show that Central Bank rate fails to substantially play a moderating role on the relationship between financial markets and growth of mortgage market in Kenya. While the bond and equity markets exhibit no significant influence, the private credit fund and real estate investment trusts markets significantly affect mortgage growth, underscoring the importance of diverse financing sources. The role of Central Bank rates as a moderator is minimal, with other factors like market segmentation, investor behavior, regulations, macroeconomic conditions, and long-term perspectives taking precedence. This highlights the need for integrated policies that encourage diversified financing, regulatory clarity, stability, and long-term investments to foster fruitful connections between these financial sectors and the mortgage market, advancing sustainable economic progress.
Description
Thesis Submitted to School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Science in Finance of Kenyatta University, October 2024
Supervisors:
1.Moses Odhiambo Aluoch
2.Anthony Thuo