Non- bank financial institutions

Business studies study module

These are financial institutions that offer finances for development purposes to individuals and organizations.

These institutions address themselves to the needs of specific sectors in the economy.

They offer the finances inform of either short term or long term loans.

The following are some of the non-bank financial institutions in Kenya

  • Development banks
  • Building societies
  • Finance houses
  • Savings and Credit Co-operative Societies
  • Micro finance organizations
  • Insurance companies
  • Pension Funds’ Organizations
  • Hire Purchase Firms

Housing Finance Companies

They are mainly formed to finance housing activities that is they either put up houses and sell to the individuals or offer mortgage finance to those who wish to put up their own houses. They includes Housing Finance Corporation of Kenya (HFCK), National Housing Corporation (NHC)

  • Development Finance Institutions

These are development banks which are formed mainly to provide medium term and long term finances, especially to the manufacturing sector. They perform the following functions

  • Financing people who wishes to start either commercial of industrial enterprises, as well as the existing enterprises in the above sectors for expansion
  • Offering training services through seminars and workshops to equip the entrepreneurs’ with the relevant skill in industrial and commercial sectors
  • Offer advisory services to those people wanting to start or expand their businesses
  • Acting as guarantors to people wishing to take loan from other lending institutions to help them expand their business

They includes the following Kenya Industrial Estates (KIE), Development Finance Company of Kenya (DFCK), Industrial Development Bank (IDB), Industrial and Commercial Development Corporation (ICDC)

  • Savings and Credit Co-operative societies

These are co-operative societies that are formed to enable members save and obtain loans at most conveniently and favorable conditions. They are formed those engaged in similar activities. They includes: Mwalimu Savings and Credit Co-operative Societies; Afya Savings and Credit societies; Harambee Savings and Credit Societies

  • Insurance companies

These are companies that assist in creating confidence and sense of security to their clients as well as offering financial assistance to their clients. Their functions include;

  • Enable the policy holders to save through their schemes
  • Provide finances to their policy holders in form of loans
  • Offer guarantee services to the policy holders wishing to obtain loans from other non-bank financial institutions
  • Provide advisory services to the policy holders on security matters
  • Provide finances to meet the expenses incases of loans

They includes the following: Stallion Insurance Company; Madison insurance company; Blue shield insurance company

  • Micro Finance Companies

These are financial companies formed to provide small scale and medium size enterprises with finance. They also carry out the following functions

  • Offer advisory services to their clients in matters such as business opportunities available and how to operate them.
  • Encourage the clients to carry out business activities offering loans to them
  • They encourage the savings advancing loans to the individual member of a certain group
  • They supervise, monitor and advise those whom they have given loans

They includes the following: Kenya Women finance Trust (KWFT), Faulu Kenya

  • Agricultural Finance Houses

These are institutions formed to promote the agricultural sector. They carry out the following

  • Giving loans to farmers
  • Offering supervisory and training services to the loaned farmer
  • Offering technical and professional advice to loaned farmer
  • Carry research and come up with better ways and means of agricultural sector
  • Coming up with projects that would open up new areas for agriculture

Differences between commercial banks and non-bank financial institutions

Commercial Banks Non-Bank Financial Institutions
(i)  Offer all types of accounts


(ii)           Provide both short term and medium term finances to their customers

(iii)        Their finance is not restricted to any sector

(iv)         May offer foreign exchange services

(v)            Their finance is mainly for working capital

(vi)         Participate in clearing house as they offer cheque

(vii)      Offer facilities for safe keeping of valuable items such as title deeds

(viii)   Always in direct control of the central bank

(ix)         May offer overdraft facilities to their customers

(i)              Offer only two types of accounts savings and fixed deposit

(ii)           Mainly provide medium term and long term finances

(iii)        Their finance is restricted to a particular sector

(iv)        Do not provide foreign exchange services

(v)           They provide capital for development

(vi)        Do not participate in clearing house since they don’t offer

(vii)      Do not offer facilities for safe keeping of valuable items

(viii)   Not usually in direct control of the central bank

(ix)  Do not offer overdraft facilities to their customers



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