Regulation of Financial Institutions

Topics: Bank, Economics, Financial regulation Pages: 37 (11784 words) Published: April 1, 2013
1.0 Introduction
This chapter contains the background of the study, statement of the problem, purpose of the study, objective of the study, research questions, and significance of the study, limitations and the scope of the study. 1.1 Background Information

The Ministry of Finance derives its mandate from the Constitution of Kenya, Cap VII Sections 99-103 which provides for proper budgetary and expenditure management of government financial resources. In addition, Parliament, over the years has enacted 49 Acts to which the Ministry of Finance is a custodian thereby adding more responsibilities to the Ministry. The functions of the Ministry of Finance are strategic in several ways. As a main function, the Ministry is charged with the responsibility of formulating financial and economic policies. It is also responsible for developing and maintaining sound fiscal and monetary policies that facilitate socio-economic development. This responsibility makes the Ministry strategic and central to the country's economic management, as all sectors of the economy look upon the Ministry to create an enabling environment in which they can operate effectively and efficiently. The Ministry regulates the financial sector which is central to the development of the country and on which all other sectors depend for investment resources. Another strategic responsibility of the Ministry is the management of revenues, expenditures and borrowing by the government. The Ministry must ensure that it mobilizes adequate resources to support government programs and activities. Consequently, the Ministry has the task of developing sound fiscal policies that ensure sustainable budget deficits. In addition the Ministry must ensure that government expenditure is within the revenue collected to reduce domestic borrowing, which tends to cause negative ripples in economic management. The Ministry is also strategic as far as bilateral and multilateral development financing and technical assistance is concerned. Given the need for support from development partners to enhance the country's economic recovery and poverty reduction efforts, the performance of the Ministry in effectively coordinating this support cannot be underscored. The Ministry must therefore, provide direction in the identification, planning and management of donor support to ensure that it is targeted to those areas of the economy that need it most. The Ministry coordinates government ministries/departments in the preparation of the annual national budget. It is the responsibility of the Ministry to initiate and guide all ministries/departments to prepare their ministerial budgets. | 1.2 Problem Statement

The financial market deals with the purchase and sale of money. It therefore involves obtaining money from those who have more than they need by attracting it either as: deposits through commercial banks; premiums through insurance companies; units or shares through Mutual Funds or shares or bonds through investment banks. The money drawn from the savers is then pooled and allocated throughout the economy by giving it out as loans, common or corporate bonds, treasury bills inter alia. The financial market in Kenya can be said to have two major functions: it allocates money capital through identifying those with surplus funds, attracting the funds into a pool and then distributing them to those who need to spend more than they have. The other function of the financial market is the distribution of the economic risk through the creation and distribution of securities. Entrepreneurs with no money to back up their ideas may be allowed to donate their labour and ideas to those who have capital but no ideas. Principally, financial market in Kenya comprise commercial banks, non-bank financial institutions, mortgage companies, Forex bureaus, development finance institutions, pension schemes, the insurance sector and the stock market. The research focuses on financial market...

References: 1. Mugenda O and Mugenda, A., (2003) Research methods, “quantitative and qualitative approaches” Act Press, Nairobi, Kenya.
3. Howells, P. and Bain, k., (2007) Financial Markets and Institutions, 5th Ed, Prentice Hall, Pearson Education Limited 2007, London, Great Britain.
4. Bodie, Z., Merton, C.R., Cleeton, L.D., (2009) Financial Economics, 2nd Ed, Pearson Education International Inc, Upper Saddle River, New Jersey, US.
5. Mutuku, N., (2009) ‘Financial Sector Regulation: The Way Forward’, Presentation in Institute of Investment Professionals East Africa Seminar.
7. Musau, M., (November 2011) The Story of a Falling Shilling, Management, written by Kenya Institute of Management, Nairobi, Kenya.
8. Banking Survey Kenya (2008)
10. Stephen, G. and Ceahetti, (2008) Money, Banking and Financial markets, 2nd Ed, McGraw- Hill International Education, Brandeis University.
13. Hussein, M.W., ‘It’s Time For Tighter Regulation of Kenya’s Financial Industry’ (2011) Nairobi Law Monthly
P.O Box 112, 00614
Wangige, Kabete.
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