Monopoly and competition: the Kenyan commercial banks at the end of the colonial period (1954–1963)

Abstract

The article analyses the competition between commercial banks in colonial Kenya for the control of government accounts and their attempts to end the monopoly of the National Bank of India acting as the government bank. Banking institutions in colonial Kenya have been categorised by the current investigations on economic and business history as immobile, conservative institutions involved in collusion. However, using unexplored archival material, this article challenges the existing literature showing the limits of collusive practices, the dynamic competition between commercial banks in a time of economic and financial expansion and the important role of the colonial government in shaping the rivalry. The study’s objective is to reconsider the performance of financial institutions during the colonial era and their influence over the government. In doing so, this investigation concludes that the absence of consistent legislation over the banks and the British government’s limited influence in the colony allowed local interests to prevail over the objectives of Barclays DCO, altering the expansion process of the banks during the final years of colonial rule.

Keywords:

• Banking history
• business history
• Kenya
• colony
• government
• financial
• Africa
• competition
• monopoly

Acknowledgments

I would like to thank the History Department from the University of Warwick for its support in this research, especially David Anderson and Daniel Branch. I also need to express my gratitude to all the team working in the Kenya National Archives, to Rosie Chew from Barclays Bank Group Archives and David Luck from the London Metropolitan Archives. Finally, I like to thank the anonymous peer reviewers and journal’s editor, their comments were vital improving the quality of this article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on Contributor

Christian Velasco is currently an Early Career Fellow at the Institute of Advanced Studies, The University of Warwick where have been teaching different seminars in the History Department since 2017. He has been member of the Faculty of Economics of the National Autonomous University of Mexico as teaching fellow in economic History. His research focuses on saving and business history of Africa.

Notes

1 The article will refer to East Africa as the current territory of Kenya, Uganda and Tanzania (former Tanganyika and Zanzibar).

2 TNA CO 822/2773, Notes of Meeting: Bank Interest Rates in East Africa, Marked as Secret. Colonial Office, London, 26th September 1960.

3 Ibid.

4 The British Banking system during the interwar period was controlled throughout cartelisation by the ‘Big Five’ (Barclays Bank, Midland Bank, Lloyds Bank, National Provincial Bank, and Westminster Bank). For an analysis of the levels of concentration, see Forrest & Rodrik-Bali (1982).

5 For a survey of theoretical and empirical research that relates institutions and financial development.

6 A similar situation occurred in the British financial system, see Hatton (2004).

7 The concentration on banking services was the norm in the rest of Africa, for West Africa see: Austin and Uche (2007). For a case of study in Algeria, see Hubert (2009). And for the Portuguese and Dutch African banking systems, Nuno an Hubert (2015).

8 Kenya was named the East Africa Protectorate until 1921, when it changed its status and name to Colony of Kenya. For a discussion of the legal differences and similarities and a chronology of this process see Chamberlain (1998) and Finley (1976).

9 The Crown advocates were the only specialist advisers in the Colonial Office before 1926, their mission was to provide technical guidance to colonies (Kirk-Greene, 2000, pp. 38-39).

10 Kenya National Archives (KNA) AG/48/77, ‘Letter from the Crown Advocate’s Office in Mombasa to Discuss the Introduction of the Bank Ordinance, 23 November 1906’.

11 The ‘palatial’ offices described by the Superintendent today host the Kenyan National Archive. KNA AD/35/5, ‘Letter to J.F.G. Troughton, Nairobi Financial Secretariat to Discuss the New Interest Rates of the NBI, 9th April 1946’.

12 KNA AD/35/4, ‘Circular No. 12 from the Treasurer About the Government Banking Accounts in Eldoret and Kakamega, 11th May 1936’.

13 KNA PC/NA/3/10/143, Bank Remittances, Letter from F.D. Hislop, District Commissioner North Kavirondo, to the Provincial Commissioner, 24th March 1945.

14 KNA AD/35/2, ‘Letter from the Superintendent of the National Bank of India to the Acting Secretary to the Treasury to Discuss the Transfer of the Education Accounts in Nyanza and the Western Region, 3rd June 1955’.

15 KNA PC/NZA/2/19/120, ‘Letter to the Provincial Commissioner in Nyanza Province from National Bank of India Manager in Kisumu to Discuss the District Education Board Accounts of North Kavirondo, 4th October 1947’.

16 KNA PC/NZA/2/19/120, ‘North Kavirondo Local Native Council Account, Letter from the National Bank of India Manager to the Provincial Commissioner in Nyanza, 7th January 1947’.

17 However, the collusion existed as denounced by Barclays Bank, see next section of the article.

18 KNA AD/35/2, ‘Letter from the Local Director of Education to Discuss the Demand of the National Bank of India to Control the Accounts of the Education Accounts in North Nyanza and Western Region, 8th June 1955’.

19 KNA AD/35/2, ‘Letter from K.W.S. Mackenzie, Secretary of the Treasury in Nairobi, to the Superintendent of the National Bank of India East African Branches Discussing the Educational Boards Accounts, 24th June 1955’.

20 This had been noted in 1946 by the Chief Secretary to Kenya, KNA PC/NZA/2/19/120, ‘Letter to the Provincial Commissioner in Ksumu from the Chief Secretary to Discuss the Appoint of the Bankers to the Native Councils, 21st February 1946’.

21 KNA AD/35/2, ‘Letter from the Superintendent of East African Branches of the Standard Bank to Sir. Joseph Byre, Governor of the Colony and Protectorate of Kenya, Related to the Share of Governmental Business in the Colony, 6th August 1931’.

22 Ibid.

23 KNA AD/35/2, ‘Banking Business of the Government, Letter from the Treasurer, H.H. Rushton, to the Colonial Secretary, 19th August 1931’.

24 John Lonsdale and Anthony Low were the first to label this post-war transformation in East Africa as ‘the second colonial occupation’. However, expenditure was high even in Victorian times despite the small size of the colonial government, see Gardner (2012).

25 The development of the Highlands was considered by the colonial government as the fastest way to develop the colonial economy.

26 For an analysis of the industrialisation policies and a recount of the struggle between public and private sectors in Kenya.

27 Despite attempts to establish a Central Bank for the East African Federation this never occurred, Tanzania, Kenya and Uganda, established their own central banks, see: Central Bank of Kenya (1976) and World Bank, (1967). However, the absence of a central bank and the use of commercial institutions to cover their functions in the colonies was the norm in pre-independent Africa. For a broader analysis of the characteristics and role of these institutions throughout the French, Dutch and British colonies, see Nuno and Hubert (2015).

28 Barclays Group Archives (BGA) 30/04/1/0080-3570, ‘Memorandum: Government Banking Business-East Africa, 13 October 1954’.

29 Ibid.

30 BGA 12B/07/2/0011-1013, ‘Memorandum on Local Director’s Visit to Kisii, South Nyanza - Thursday, 28th October 1954’.

31 BGA 12B/07/2/0011-1013, ‘Memorandum for the Central Board: Branch Expansion in Kisii, 25th November, 1954’.

32 BGA 30/04/1/0080-3570, ‘Letter to Macdona from Whitcombe, Local Director Barclays About the Recent Comments of Sir. Andrew Cohen to Share the Government Business in East Africa, 18th October 1955’.

33 BGA 30/04/1/0080-3570, ‘Government Business-East Africa, Letter to Mr. Galsworthy from E.V. Whitcombe, Local Director Barclays DCO, 20th September 1956’.

34 BGA 30/04/1/0080-3570, ‘Memorandum: Government Banking Business-East Africa, 13th October 1954’.

35 BGA 30/04/1/0080-3570. ‘Letter to Twining, 27th March, 1955’.

36 BGA 30/04/1/0080-3570. ‘Letter to Macdona from Whitcombe, Local Director Barclays, About the Comments of Sir. Andrew Cohen to Share the Government Business in East Africa, 18th October 1955’.

37 BGA 30/04/1/0080-3570, ‘Government Business, Letter to Macdona from Whitcombe, Local Director Barclays DCO, 9th January 1957’.

38 BGA 30/04/1/0080-3570, ‘Letter to Macdona from Whitcombe, Local Director Barclays, Informing the Latest Developments in Regard to Government Business, 29th March 1956’.

39 Among them was the paymaster general account with the greatest bulk of governmental money, KNA AD/35/2, ‘Agreement between the Government and the National Bank of India, Agenda for the Conference on the Loan Program, 1957’.

40 BGA 30/04/1/0080-3570, Letter to Macdona from Whitcombe, Local Director Barclays, informing about the latest developments in regard of the Government Business, 29th March 1956.

41 KNA AD/35/7, ‘Agreement with the National Bank of India, Limited as to Transaction of the Banking Business of the Government, 7th April 1910’.

42 KNA AD/35/2, ‘Letter from the Secretary to the Treasury, J.H. Butter, to Attorney General Discussing the Agreement between the Government and the National Bank of India Limited, 28th November 1956’.

43 KNA AD/35/2, ‘Letter from the Senior Crown Counsel, H.G. Sherrin, to the Secretary of the Treasury to Discuss the Agreement between the Government and the National Bank of India Ltd, 1st December 1956’.

44 KNA AD/35/2, ‘Letter to the Superintendent of the National Bank of India of the East Africa Branches from Mackenzie, Secretary of the Treasury, About the Opening of New Accounts in the Territory, 11th July 1957’.

45 KNA AD/35/2, ‘Letter from K.W.S. Mackenzie, Secretary of the Treasury in Nairobi, to Discuss the Terms of the Agreement of the National Bank of India with the Colonial Authorities as Governmental Bankers, 11th May 1957’.

46 KNA AD/35/2, ‘Letter Sent to the Superintendent of the National Bank of India in East Africa from K.W.S. Mackenzie, Secretary to the Treasury in Nairobi, Regarding Changes in Relation to the Governmental Bank, 10th April 1957’.

47 BGA 12B/07/3/0011-1075, ‘Kenya Government Accounts, Letter to the Local Director of Barclays Bank D.C.O., Nairobi, 11th May to 3 July 1957’.

48 KNA AD/35/2, ‘Letter from the Superintendent of the National Bank of India in East Africa to Secretary of the Treasury in Nairobi Accepting the New Agreement of the Governmental Accounts in the Colony, 1st May 1957’.

49 KNA AD/35/2, ‘Letter Sent to the Local Director of the Barclays DCO, Whitcombe, from the Secretary of the Treasury in Nairobi, K.W.S. Mackenzie, About the Governmental Business in Fort Hall, 9th August 1957’.

50 BGA 12B/07/3/0011-1075, ‘Government Business, Letter from the Local Director to the Minister of Finance, 11th May 1957’.

51 Ibid.

52 This is an example of what the economic and social sciences literature calls the principal-agent problem. For a synthesis of the theory, see: Shapiro (2005). For an example of its applications in the colonial governments, see: Adams (1996).

53 KNA AD/35/2, ‘London Brief. Agreement Between the Government and the National Bank of India, 1957’.

54 BGA 12B/07/3/0011-1075, ‘Letter to the General Managers: Branch Expansion, 24th January 1956’.

55 London Metropolitan Archives, CLC/B/207/ST03/03/02/002, Letter from Sir. E.L. Hall-Patch from the SBSA to Ridley to discuss the consequences of a possible merge of the bank, London, 16th May 1961.

56 BGA 12B/07/2/0011-1013, ‘Unremunerative Branches, Letter from the R.G.V. Smith to the Barclays DCO Local Director in Nairobi, 5th June 1963’.

57 The NBI merged its operations with the Grindlays Bank ltd in 1958 and changed its name to National and Grindlays Bank one year later: National Overseas and Grindlays Bank Limited, ‘Report of the Directors and Balance Sheet for the Year Ended 31st December 1957’ (London: 1958).

58 National and Grindalys Bank Limited, ‘Report and Accounts for the Year Ended 31st December 1970’ (London, 1971).

59 BGA 30/04/1/0080-3583, Letter from Sir Frederic Seebom, Chairman Barclays DCO, to discuss the proposal to merge their business with the SBSA (marked as private), Nakuru, 8th April 1970.

60 BGA 30/04/1/0080-3583, Extract from Central Board Minutes 24th June 1971.

61 BGA 08/07/1/0156-0129, Report on Mr. Tuke’s Visit to Africa (Kenya, Zambia, Rhodesia, and South Africa) - August/September 1971.