GEG WP 2017/131 The Political Economy of Basel Adoption in Kenya
Global banking standards have been adopted unevenly by many developing countries even though these standards were not designed with developing countries in mind. This paper assesses the levels of adoption of Basel standards in Kenya. It finds that Kenya is Kenya has adopted most of the Basel I standards, many of the Basel II standards and a few of the Basel III standards. I argue that Kenya is a high adopter of these standards as there were unique circumstances that allowed alignment of donor, government and private sector from 2003 onwards. Kenya’s Basel incorporation is embedded in a government strategy that combines goal of high financial inclusion and Nairobi being international financial hub. The local private banks that were keen to expand into the region viewed adoption of international standards positively. International banks, did not drive adoption, but were early adopters as they had the support of their head offices. The paper shows that while Kenya is a high adopter of standards, enforcement of some components of these standards has been weak but there has been an increased effort at enforcement since 2015.