in the 21st Century

Transformation of Kenya’s Banking Sector, 2000–2012 41
Figure 11: Contribution of sectors of the economy to GDP in 2000, 2005 and
2012
30
25
28.4
23.8
25.9
20
Percent of GDP
15
10
10.3
10.5
9.2
5
3.5
3.4
5.2
0
Agriculture sector Manufacturing sector Financial sector
2000 2005 2012
Source: Kenya Economic Survey (various years).
Figure 12 shows the change in structure of lending to different sectors of
the economy. Though agriculture still represents 25.9% of GDP, lending to
agriculture as a percentage of total lending dropped from 8.7% in 2000 to
4.9% in 2012. Furthermore, lending to manufacturing dropped from 21.4%
in 2000 to 13.5% in 2012. The main growth in credit is reflected in lending to
households, which increased from 3.3% in 2000 to 24.6% in 2012. It should
be noted that in developing countries, not all lending to households should
be considered as ‘consumption’ or unproductive lending. It is known that
people leverage their borrowing (whether from banks, microfinance institutions
or SACCOs) to invest in productive areas, including agriculture and small
enterprises (Johnson, 2004). A more detailed analysis from both the demand
and supply side would be needed to classify what proportion of household
lending is used for consumption versus productive activities. However, overall
the analysis does raise concerns that the changing structure of lending does
not reflect the overall goals of the country.
Overall, this section shows that the banking sector has deepened, and has
become less concentrated and more stable since 2000. Furthermore, financial
access has increased significantly. The section also shows that lending to key
sectors of the economy, including agriculture and manufacturing, has been
decreasing. This raises the question of the extent to which the financial sector
can assist in structurally transforming the Kenyan economy as envisioned in
the Vision 2030 goals.