The 1980s witnessed an increase in the number of indigenous Kenyans investing in the banking sector. But inadequate capacity, weak internal controls and poor funds management led to market indiscipline. The result was significant distress in the banking sector, with the attendant ramifications on the Kenyan population, problems that persisted into the early part of the 90s.
Highly accommodative policies in the early 90s also lead to runaway inflation, forcing the Central Bank to undertake massive liquidity mop-up operations to reign-in inflation and restore confidence in the financial system. Nevertheless, these challenges presented opportunities for legislative and institutional reforms to improve the effectiveness of the Central Bank.