Value Chian Analyis of Banking Industry in Kenya

Topics: Bank, Strategic management, Barriers to entry Pages: 11 (3411 words) Published: October 25, 2010




ADM NO: EMBU/00240



The banking Industry in kenya has tremendously changed its dynamics for the last one decade. Many banks have joined the industry both local and foreign. Notably, the no-banks financial institutions have been mushrooming by an alarming speed.. In any industry, including the banking industry, the nature of competition is always a function of the market structure. The trend today is a perfect competition and the central bank has withdrawn from managing the market forces. Banks are now working on their own about what are relevant products and rates to be offered to the market. In this regard the need for the assessment of the attractiveness of the industry becomes a necessity. Porter’s Five Forces Framework has been widely used in analyzing the attractiveness of an industry. Any firm (in this case a bank) needs to answer two fundamental questions; (i) What makes an industry attractive? (ii) What positions within an industry lead to superior performance? Answering these two questions is vital for any firm, which needs to compete competitively. This article makes a clear discussion of the banking industry in kenya and how the Porters Five Forces can be used as a tool of analysis for profitability.

The Banking Industry of Kenya
The industry has various key players. These to include; Fully fledged banks (commercial and non Commercial), Regional Unit Banks, Financial Institutions, Regional Financial Institutions, Regional Unit Financial Institutions and Bureaux de Change.

Fully-fledged Banks.
A bank is an institution authorized to receive money on current account subject to withdrawal by cheque. It can offer various products and services including loans, letter of credits, guarantee, etc both locally and internationally.

Regional Unit Banks.
A regional unit bank is an institution authorized or licensed to operate as a regional unit bank. The institution may receive money on current account subject to withdrawal by cheque. Since it is a regional unit, it has no mandate to open branches in other regions.

Financial Institutions
A financial institution is an institution licensed bycentral Bank of kenya and authorized to engage in banking business not involving the receipt of money on current account subject to withdrawal by cheque.

Bureaux de Change Operators
These are institutions registered by the central Bank of Kenya and entrusted with the task of changing money over the counter..

Mobile service providers
This are entities which are mobile services and now have reverted to money transfer services.

Other Players in the Industry
There are other players, who can also be offering a challenge to the banking sector of kenya. These to include some micro finance institutions which offer various products which are either similar or substitute of what the banks are offering. The example for these includes organizations like; safaricom, SACCOS and various NGOs. To some extent even some passenger transporters and currier companies are providing some substitute products to some customers (E.g A passengers’ transporter: 4GS Express Service, offering money transfer service to various parts of the country in Kenya by charging a reasonable transfer fee = 3% of the amount to be transferred) The availability of the various players makes the industry so competitive and dynamic. This calls for a need for each individual player to operate competitively in order to sustain its business. The players in the industry need to make a...
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