Financial System Analysis: Setting up a Bank in Kenya

This report analyzes the feasibility of establishing an international bank in Kenya, a rapidly expanding East African country. It addresses potential challenges such as adapting to a new environment, language barriers, and cultural differences. The report delves into Kenya's cultural landscape, including its diverse ethnic tribes, common traditions, and the Kenyan education and legal systems. It examines the country's mixed economic system, international trade, and involvement in regional integration. The report also assesses the private sector's contribution to the economy and government interventions. Furthermore, it explores the advantages of an online presence for the bank, financing options, foreign exchange requirements, and the potential for investment in other developing countries. The report concludes with an overall assessment of the financial risks, shareholder benefits, and strategic recommendations for success, including the importance of an online presence and the use of financial instruments like futures, options, and swaps. The report emphasizes that the Kenyan economy is promising, and in the next few years, the returns would be good.

Running head: INTERNATIONAL FINANCIAL SYSTEM 1
International Financial System
Name
Institution

INTERNATIONAL FINANCIAL SYSTEM 2
INTERNATIONAL FINANCIAL SYSTEM
Kenya is a third world country in East Africa that is expanding financially and thus a
good country to set up the bank in order to serve the many upcoming businesses. Some of the
challenges that I might face in this new environment are:
I will have a hard time adapting. I might find it had to adapt to the country because of the
differences in time zones. Thus, my body will have a hard time adjusting to the new time zone.
Another challenge that I might face is the language barrier. Kenya is a country with many ethnic
languages thus communicating might be a problem in cases where some of the citizens do not
speak or understand English (Fehrenbacher, Schneider & Weber, 2017).
In addition, navigating around in the city will be a challenge. I have never been to Kenya
before hence I am not familiar with the place. Therefore, navigating to places will be difficult at
first because am not familiar with the area.
Also, the local cuisine offered in the country may not be what I like or what I am used to.
Thus finding what to eat on a daily basis in order to get what I enjoy may be challenging.
Lastly, the local environment in Kenya is quiet and not busy. This is not what I am used
to. The huge change in environment will prove hard to adjust to and will take time.
Kenya is a country that is rich in culture and it is their way of life. The country has 42
ethnic tribes all which have different cultures. The most common culture that tourists travel to go
and see is the Maasai culture. The Maasai are an ethnic tribe that is known for diversity in
culture. One that is worldly recognized is the dressing in local African artier. The artier is
colorful clothing with rich African graphics and some even have beads embedded. Another huge
culture is the eating of roasted meat ‘nyamachoma’ and ‘ugali’ which are both local delicacies
that do not miss in occasions or events.

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Kenya is also known for its art and artifacts. The different ethnic groups craft artifacts
manually and these include wood and soapstone sculptures, Maasai beaded jewelry and Khangas
which are a local type of clothing. The Kenyan education system is 2-6-3-3-3 which is 2years of
pre-primary education, 6 years of primary education, 3 of junior secondary School, 3 of Senior
Secondary and then the last three for tertiary school (University). The country values education
and view it as important for the success of an individual and also a nurturing tool in their
behavior.
Most Kenyans are involved in farming from the planting of crops to rearing of animals.
Therefore, most of the food in their country is from their farms and not from industries. They
value farming and in each family household, they have a farm where they grow their own crops
and rear their own animals such as cows for milk. They have a diverse market in farming and
even export the surplus produce.
The Kenyan legal system consists of a mix of Kenyan written law, English Common
Law, and elements of the tribal and Islamic law. The legal system is very similar to that found in
European or Western countries and this is due to colonization by the British. The country is a
republic state where the president is the head of state, head of government and they have a multi-
party system. The president is elected for a five-year term by the people. Elections are therefore
held after every five years.
The Kenya private sector contributes highly to the country’s economy with a contribution
of 80% to the overall GDP. The government does intervene in the private sector by forming the
Private Sector Development strategy whose main aim is to ensure that the private sector remains
afloat. The country has a high number of unemployed people prompting the government to
intervene in the private sector to ensure that it is providing jobs to them. In addition, the country

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faces poverty due to lack of sources of income. Thus, the government ensures that the private
sectors can create jobs to eliminate this.
This will affect my institution since I will have to undergo a lot of legal frameworks
before setting up the bank. The government will want to ensure that am not taking away from
their economy but rather boosting it. Going through the legal frameworks will cause a delay in
establishing the bank thus will take a longer time to pick up. This leads to the slower growth of
the company.
Kenya has a mixed economic system which includes private freedom and centralized
economic planning and government regulation. This system allows for freedom in the market
without interference by the government. After independence in 1963, Kenya’s economic growth
was rapid due to public investment and smallholder agricultural corporation. However, between
1974 and 1990 the growth declined and this was due to the massive intrusion of the private
sector by the government (Junguito & Vargas-Herrera, 2017). This went on until 1993 when the
government decided to take a step by taking a series of economic measures to ensure the growth
of the economy. One of this was to have a free market free of governmental intrusion except for
key areas such as transportation. Thus use of the mixed economic system (Middleton &
Kershaw, 2017).
Kenya is involved in international trade through the exportation and importation of
goods. Kenya is an agricultural country and thus the surplus agricultural products are exported to
other countries (Middleton & Kershaw, 2017). Agricultural products are also the main form of
export in the country and contribute largely to the economy of the country. The agricultural
products include tea, coffee, cut flowers, and sugarcane (Miller, 2018). They also import goods

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that they need such as machinery and transportation products from countries like China
(Kawarazuka, Béné & Prain, 2017).
The Kenyan government gets involved in trade issues by setting up of policies that allow
people to export and import goods smoothly. Some of these policies are reducing tax tariffs,
importation and exportation of legal goods and maximum security of goods (Ndung'u, 2017).
This will help my financial institution since the safety of my goods in and out of the country is
assured by the government (Fehrenbacher, Schneider & Weber, 2017).
Yes, my presence in Kenya will help me in investing in other developing countries
because I will have a deeper understanding of the economic situations in developing countries.
Therefore when I decide to invest in another developing country, I will be aware of the steps to
take in order to profit.
Kenya is involved in regional integration by being a member of various integration
institutions such as Common Market for Eastern and Southern Africa (COMESA), East African
Community (EAC) and Inter-Governmental Authority on Development (IGAD).
I chose Kenya to open my office because it has the highest economy in East Africa and is
also the best. Out of the three countries in East Africa, Kenya is the one with a promising growth
in the economy thus a good choice to set up the bank (Fan, Amalia & Gao, 2018).
My overall assessment would be that opening an office there is a good investment
because the economy of the country is promising and in the next few years, the returns would be
good (Brooks, Sangiorgi, Hillenbrand & Money, 2018). The Kenyan economy is growing with
more businesses being set up locally and also international companies setting up industries in the
area. Therefore it is a promising economic environment (Wójcik, MacDonald-Korth & Zhao,
2017).

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Yes, the financial risks are worth taking since they can be overcome.
Yes, it will be beneficial to the shareholders because the returns will be huge.
The best type of presence that will ensure I achieve my objectives is to have an online
presence. Majority of Kenyans have access to the internet and spend large amounts of time
online on sites such as Facebook and Instagram. Using these platforms to market the bank will
be highly beneficial in acquiring clients (Jedwab, Kerby & Moradi, 2017). Therefore, having an
online presence will ensure that I reach as many people as possible (Amutabi, 2017).
The plant will be financed by investors who will become the shareholders.
The foreign exchange requirements I would recommend are
1. Future: involves the exchange of one currency for another at a specified date in
future at a future exchange rate
2. Options: is where the seller of an option grants the buyer the right to purchase or sell
the seller a designated instrument
3. Swaps: this is a trade between two parties whereby they exchange currencies for a
pre-determined length of time which is then reversed at a pre-agreed upon future date
The interest rates in Kenya at times are high. With high-interest rates, exchange rates also
increase due to foreign capital attracted. This has a negative effect on my bank.

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