This paper is intended to equip the candidate with the knowledge, skills and attitudes that will enable him/her to make investment decisions based on the analysis of financial markets.

 

 CONTENT

5.1     Market organisation and structure

• Functions of financial systems
• Classifications of assets and markets
• Structure of financial markets
• Major types, subtype and characteristics of securities traded in organised markets: currencies, contracts, commodities and real assets
• Flow of funds and financial systems
• Characteristics of a well-functioning financial system
• Organic theory of financial markets
• Definitive approaches to financial markets
• Automation of security exchanges: Automated trading systems (ATS) and Central Depository System (CDS)
• Internationalisation of financial markets

5.2      Marketing financial services

• Challenges of marketing financial services
• The consumer decision process in financial services
• Categories of financial products and services
• Pricing and advertising of products relating to financial services
• Distribution of financial services; traditional channels of distribution; technology driven delivery channels
• The process of new product introduction in financial services markets
• Segmentation bases within financial markets
• Customer satisfaction with financial services; building financial consumers relationship; consumer retention and loyalty

5.3      Financial markets

• Money markets: purpose, participants, trading; money market instruments(treasury bills, commercial papers, negotiable certificates of deposit)
• Bond markets: purpose, participants; bond market instruments(treasury bonds, municipal bonds, corporate bonds, structured notes, exchange-traded notes)
• Equity markets: purpose, participants, Initial Public Offering(IPO),share offering and repurchases, market orders
• Mortgage markets: purpose, participants, classification, types of residential mortgages, participants, mortgage market instruments
• Foreign exchange markets: purpose, participants; forex market currency pairs
• Derivatives securities markets: futures markets, forward markets, option markets and swap markets, purpose, participants and instruments

5.4     Security market indices

• Security market index
• Calculation and interpretation of an index value, price return and total return
• Choices and issues in index construction and management: different weighting methods used in index construction
• Index rebalancing and reconstitution
• Uses of security market indices
• Types of equity indices: price weighted index, value weighted index, equally weighted index and float adjusted weighted index, global equity indices
• Types of fixed-income indices
• Indices representing alternative investments
• Comparison of indices over time

5.5      Market efficiency

• The concept of market efficiency: definition and assumptions; importance of market efficiency to investment participants
• Market value and intrinsic value
• Factors affecting a market’s efficiency
• Forms of market efficiency: weak form, semi-strong form and strong form; implications of each form of market efficiency for fundamental analysis, technical analysis and the choice between active and passive portfolio management
• Random walk theory and efficient markets
• Tests of market efficiency
• Market anomalies :size effect, P/E ratio effect, day of the week effect (Monday effect), year-end or January effect, return patterns (value line enigma, quarterly earnings surprises), Fama-French value/market value

5.6       Financial intermediation and disintermediation

• Introduction to financial intermediation and disintermediation
• Challenges of financial intermediation and irregularities of markets commercial banks: Islamic banking, internet banking, agency banking, international banking
• Savings and loans associations and co-operative societies
• Foreign exchange bureaus
• Unit trusts and mutual funds
• Insurance companies and pension firms
• Insurance agencies and brokerage firms
• Investment companies
• Investment banks and stock brokerage firms
• Micro-finance institutions and small and medium enterprises (SMEs)
• Syndication by commercial banks on the operations of the capital markets
• Private equity firms
• Financial advisory firms

5.7      Financial markets regulation

• Asymmetric information and financial regulation: government safety net, restrictions on asset holdings, capital requirements.
• Role of government in the financial system; capital markets authority (CMA), central bank, central depository and settlement corporation (CDSC)
• Role of ICIFA in regulating investment and financial analysts
• Financial supervision: chartering and examination, assessment of risk
• Management, disclosure requirements, restrictions on competition
• Financial liberalisation, stratification and rationalisation
• Financial deepening
• Banks runs and panics
• The liquidity crisis

5.8     Informal finance

• Introduction to informal finance
• Sources of informal finance
• Features of informal finance
• Informal investment organisations
• Challenges of informal finance

5.9       Unclaimed Financial Assets Authority and Financial Reporting center

• Objectives
• Functions and powers
• Due diligence requirements

5.10     Emerging issues and trends

 

TOPIC 1                                                                                                                            PAGE NO

1. MARKET ORGANISATION AND STRUCTURE……………………………..6
2. MARKETING FINANCIAL SERVICES…………………………………………32
3. FINANCIAL MARKETS………………………………………………………………55
4. SECURITY MARKET INDICES ………………………………………………….114
5. MARKET EFFICIENCY………………………………………………………………137
6. FINANCIAL INTERMEDIATION AND DISINTERMEDIATION……153
7. FINANCIAL MARKETS REGULATION………………………………….……171
8. INFORMAL FINANCE………………………………………………………………….207
9. UNCLAIMED FINANCIAL ASSETS AUTHORITY AND FINANCIAL

REPORTING CENTER..…217

10. EMERGING ISSUES AND TRENDS ……230

 

 CHAPTER ONE

MARKET ORGANIZATION AND STRUCTURE

A market can be defined as an organizational device, which brings together buyers and sellers. A financial market is a market which financial assets (securities) such as stocks and bonds can be purchased or sold. It brings together the parties willing to trade in a commodity, which constitutes fluids. The respective parties in financial markets are known as demanders of funds (borrowers) and suppliers of fluids (lenders) who come together to trade so as to meet financial needs. The level of economic development of any country will be affected by the ability of the financial markets to move surplus funds from certain economic units, which constitutes individuals and corporate bodies to other economic units in need of additional funds.

Financial market can be divided into three categories: –

1. Capital and money markets.
2. Primary and secondary markets
3. Organized and over the counter

Financial Markets

Financial markets provide a forum in which suppliers of funds and demanders of funds can transact business directly. Whereas the loans and investments of intermediaries are made without the direct knowledge of the suppliers of funds (savers), suppliers in the financial markets know where their funds are being lent or invested. It is important to understand the following distinctions in the market.

Role of financial system and markets

1. Distribution of financial resources of the most productive units i.e. savings are transferred to economic units that have channel of alternative investments (link between buyer and seller)
2. Allocations of saving to real
3. Achieving real output in the economy by mobilizing capital for investment
4. Enable companies to make short term and long term investment and increase liquidity of shares.
5. Provision of investment advice to individuals through financial experts
6. Enable companies to raise short term and long term capital/funds
7. Means of pricing of securities e.g. NSE index shares indicate changes in share
8. Provide investment opportunities i.e. savers can hold financial instruments for investments made.

Primary and secondary market

Primary financial markets are those markets where there is transfer of new financial instruments. Financial instruments constitute assets, which are used in the financial markets. They consists of cash, shares and debt capital both long term and short-term e.g. commercial paper.

The primary financial markets trade is for securities which have not been issued e.g. if a company wants to make an issue of ordinary share capital issue of commercial paper, issues of preference shares, debentures etc., offers and purchase will be through the primary etc.

Secondary markets — the secondary financial markets are for already issued securities. After a thorough issue of new securities in the primary market later trading of the securities will take place in secondary market e.g. if a company is to make public issue of ordinary share capital the issue will take place in primary market. If the initial purchasers wish to dispose of the shares, trading will take place in the secondary market. The only distinction between primary and secondary markets is the form of security being traded but there is no physical separation of the markets.

 

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CHAPTER TWO

MARKETING FINANCIAL SERVICES

We can let market forces to come together and determine how the financial service industry will evolve but nonetheless acknowledging that regulations should step in it necessarily to protect public interest.

Regulations are important in creating a level playing field. The regulators chief function is to assure that financial markets remain competitive enough to provide customers a wide choice of affordable products and services. The financial service industry is supposed to provide funds effectively at reasonable prices.

The Financial services consumer.

It ensures that consumer’s interest is properly taken into account.

Raising awareness and informing consumers’ attention and specific problems of concern to consumers in the area of financial service.

Ensuring adequate representation of consumers’ in development of financial service policy is well done.

Also encouragement of development of financial services expertise should bring about exchange of information and best practice.

Identifying and targeting financial prospects.

 

Identifying through demographic information

1. It’s the use of market research to determine which financial prospect can best perform. Forces on the position in the market/company wants to maintain, expand information/develop these proposed that best suits your company’s needs.
2. Determine the type of business/industries within a particular geographical area in which your company want to do financial business.
3. Find out which businesses are most likely to need the services you provide.
4. It must identify the quality and quantity of potential work in the area and decide if it’s fit into your company’s market and profit strategy.
5. Once the company has a good idea of which prospect are most reliable in types of location, serviceability or any other pertinent aspect the prospect must be fine-tuned.

Development and management of financial products

Financial management is a critical component of selecting the right investment. This involves more effective ways of comparing different types of investments following up total costs and benefits across the portfolio there is modeling and tracking financial implication of cost and benefits accuracy to the company from the sale of its financial products.

Traditional channels of financial distribution.

It’s the informal way of transferring of financial products from a provider to the user which also entails the movement of funds from the service user to the destination user of the firm. Some other time, middlemen would be used to distribute funds.

Intermediaries specialize in performing calculations that they can perform more cheaply than the capital owner.

Technology driven delivery channels

This embraces internet marketing i.e. electronic commerce. It’s done through

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CHAPTER THREE

FINANCIAL MARKETS

A financial market is a market in which people and entities can trade financial securities, commodities and other fungible assets at prices that are determined by pure supply and demand principles. Markets work by placing the two counterparts, buyers and sellers, at one place so they can find each other easily, thus facilitating the deal between them.

Capital market

The capital market aids in rising of capital on a long-term basis, generally over 1 year. It consists of a primary and a secondary market and can be divided into two main subgroups – Bond market and Stock market.

• The Bond market provides financing by accumulating debt through bond issuance and bond trading
• The Stock market provides financing by sharing the ownership of a company through stocks issuing and trading

A primary market, or the so-called “new issue market”, is where securities such as shares and bonds are being created and traded for the first time without using any intermediary such as an exchange in the process. When a private company decides to become a publicly-traded entity, it issues and sells its stocks at a so-called Initial Public Offering. IPOs are a strictly regulated process which is facilitated by investment banks or finance syndicates of securities dealers that set a starting price range and then oversee its sale directly to the investors.

A secondary market, or the so-called “aftermarket” is the place where investors purchase previously issued securities such as stocks, bonds, futures and options from other investors, rather from issuing companies themselves. The secondary market is where the bulk of exchange trading occurs and it is what people are talking about when they refer to the “stock market”. It includes the NYSE, Nasdaq and all other major exchanges.

Some previously issued stocks however are not listed on an exchange, rather traded directly between dealers over the telephone or by computer. These are the so-called over-the-counter traded stocks, or “unlisted stocks”. In general, companies which are traded this way usually don’t meet the requirements for listing on an exchange. Such shares are traded on the Over the Counter Bulletin Board or on the pink sheets and are either offered by companies with a poor credit rating or are penny stocks.

Money market

The money market enables economic units to manage their liquidity positions through lending and borrowing short-term loans, generally under 1 year. It facilitates the interaction between individuals and institutions with temporary surpluses of funds and their counterparts who are experiencing a temporary shortage of funds.

One can borrow money within a quite short period of time via a standard instrument, the so-called “call money”. These are funds borrowed for one day, from 12:00 PM today until 12:00 PM on the next day, after which the loan becomes “on call” and is callable at any time. In some cases, “call money” can be borrowed for a period of up to one week.

Apart from the “call money” market, banks and other financial institutions use the so-called “Interbank market” to borrow funds within a longer period of time, from overnight to several weeks and up to one year. Retail investors and smaller trading parties do not participate on the Interbank market. While some of the trading is performed by banks on account of their clients, most transactions occur in case a bank experiences extra liquidity, a surplus of funds, while another has a shortage of liquidity.

 

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CHAPTER FOUR

SECURITY MARKET INDICES

A stock index or stock market index is a measurement of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments.

Two of the primary criteria of an index are that it is investable and transparent:  the method of its construction should be clear. Many mutual funds and exchange-traded funds attempt to “track” an index with varying degrees of success. The difference between an index fund’s performance and the index is called tracking error.

The primary uses of market indices are to:

1. Gauge market sentiments,
2. Serve as proxies for measuring returns and risk
3. Serve as proxies for asset classes
4. Benchmark active managers, and
5. Model portfolios for index funds and exchange-traded funds.

1. Gauges of Market Sentiment: the original purpose of indices was to get a sense of investor confidence and market sentiment.
2. Return/Risk Proxies: indices play a useful role in the capital asset pricing model as a certain index (like the S&P 500) sets the expected return and risk for the overall market. Beta (systematic risk) can then be calculated for individual securities based on their covariance with the index and alpha (risk-adjusted excess returns) can be calculated for active managers.
3. Asset Class Proxies: Future assumptions regarding the return and risk profiles of certain asset classes are largely centered on how various broad indices have performed in the past.
4. Active Management Benchmarks: indices can also be useful in judging the relative performance of active managers as long as the selected benchmark targets the same markets as the active manager.
5. Model Portfolios: indices dictate the investments and weightings of index funds and exchange-traded funds, which help investors gain passive broad exposure to certain markets – usually at a lower cost than active management.

Price Return and Total Return of an Index

Index Value

The formula for calculating the value of a price return index is as follow:

V_PRI = ∑PiD_i

 

Where:

V_PRI = the value of the price return index

P_i = the unit price of constituent security

D_i = the value of the divisor

 

While the formula for calculating the value of an index may seem somewhat complicated at first glance, it is similar to calculating the value of any other normal portfolio of securities as it involves adding up the values of constituent securities. Index value calculation has just one additional step of dividing the sum of constituent securities’ values by a divisor, which is usually chosen at inception of the index to set a convenient beginning value and then adjusted to offset index value changes unrelated to changes in the prices of constituent securities.

Example 1

An index is made up of two constituent securities, Stock A and Stock B. What beginning divisor must be used to achieve a beginning value of 1,000?

Security	Units	Price/Unit
Stock A	50	10
Stock B	30	100

 

Let’s first calculate the sum of the values of both constituent securities.

Stock A value = 50 × 10 = 500

Stock B value = 30 × 100 = 3,000

Stock A value + Stock B value = 3,500

The divisor must be set such that this figure is adjusted down to 1,000

 

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CHAPTER FIVE

MARKET EFFICIENCY

 

The efficient markets hypothesis (EMH), popularly known as the Random Walk Theory, is the proposition that current stock prices fully reflect available information about the value of the firm, and there is no way to earn excess profits, (more than the market overall), by using this information. It deals with one of the most fundamental and exciting issues in finance – why prices change in security markets and how those changes take place.

 

Many investors try to identify securities that are undervalued, and are expected to increase in value in the future, and particularly those that will increase more than others. Many investors, including investment managers, believe that they can select securities that will outperform the market. They use a variety of forecasting and valuation techniques to aid them in their investment decisions. Obviously, any edge that an investor possesses can be translated into substantial profits. If a manager of a mutual fund with $10 billion in assets can increase the fund’s return, after transaction costs, by 1/10th of 1 percent, this would result in a $10 million gain. The EMH asserts that none of these techniques are effective (i.e., the advantage gained does not exceed the transaction and research costs incurred), and therefore no one can predictably outperform the market.

 

Arguably, no other theory in economics or finance generates more passionate discussion between its challengers and proponents. For example, noted Harvard financial economist

Michael Jensen writes ―there is no other proposition in economics which has more solid empirical evidence supporting it than the Efficient Market Hypothesis, while investment maven Peter Lynch claims ―Efficient markets? That’s a bunch of junk, crazy stuff

 

The efficient markets hypothesis (EMH) suggests that profiting from predicting price movements is very difficult and unlikely. The main engine behind price changes is the arrival of new information. A market is said to be efficient if prices adjust quickly and, on average, without bias, to new information. As a result, the current prices of securities reflect all available information at any given point in time. Consequently, there is no reason to believe that prices are too high or too low. Security prices adjust before an investor has time to trade on and profit from a new a piece of information.

 

The key reason for the existence of an efficient market is the intense competition among investors to profit from any new information. The ability to identify over and underpriced stocks is very valuable (it would allow investors to buy some stocks for less than their true value and sell others for more than they were worth). Consequently, many people spend a significant amount of time and resources in an effort to detect “mis-priced” stocks. Naturally, as more and more analysts compete against each other in their effort to take advantage of over- and under- valued securities, the likelihood of being able to find and exploit such mis-priced securities becomes smaller and smaller. In equilibrium, only a relatively small number of analysts will be able to profit from the detection of mis-priced securities, mostly by chance. For the vast majority of investors, the information analysis payoff would likely not outweigh the transaction costs.

 

The most crucial implication of the EMH can be put in the form of a slogan: Trust market prices! At any point in time, prices of securities in efficient markets reflect all known information available to investors. There is no room for fooling investors, and as a result, all investments in efficient markets are fairly priced, i.e. on average investors get exactly what they pay for. Fair pricing of all securities does not mean that they will all perform similarly, or that even the likelihood of rising or falling in price is the same for all securities. According to capital markets theory, the expected return from a security is primarily a function of its risk. The price of the security reflects the present value of its expected future cash flows, which incorporates many factors such as volatility, liquidity, and risk of bankruptcy

KASNEB MAY 2019 Q3 b)

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CHAPTER SIX

FINANCIAL INTERMEDIATION AND DISINTERMEDIATION

Financial intermediation and Dis-intermediation

Financial intermediation is the process of linking the public and financial markets players. Financial dis-intermediation is the removal of the link. Financial intermediaries (stock brokers) are middle men between investing public on one hand and securities exchange on the other hand. They: –

1. Act on the behalf of the public
2. Provide information to potential shareholders
3. They mediate between savers and investors. Examples of intermediaries are: commercial banks, Sacco’s, credit unions, pension funds, life insurance companies and investment banks among others
4. Give advice to investors and firms
5. They also do valuation funds which need to merge
6. They give defensive tactics in case of forced takeovers
7. Also underwrites securities

 

Depository financial market intermediates firms and accepts market deposits, transfer loans, from buyers to sellers of securities, they avail loans in addition to managing investments and providing advices.

Non-depository financial market intermediaries collect surplus funds and channel them to co- operation and individuals with deficit. They collect fund from many individuals aggregate them and channel them to corporations and individuals that need them.

Challenges of financial intermediation and regularities of markets

This linking process has faced challenges which affect the functioning of the S.E markets e.g.

 

1. There is a failure to mobilize saving for investment in the productive
2. Also the growth of related financial sector such as micro-finances has reduced the players in the market to the funds.
3. The process is also faced by flight of capital which takes place because of local inflation and currency depreciation.
4. The market environment is unpredictable hence difficult to give proper advice to investors.
5. Market regulators such as capital market authority, central bank, retirement benefit authority and insurance regulatory authority have failed to regulate trading in securities hence the public/investors are left in the hands of unqualified intermediaries therefore gaining very little from the transaction

Islamic Banking

Islamic banking, also known as non-interest banking, is a banking system that is based on the principles of Islamic or Sharia law and guided by Islamic economics. Two fundamental principles of Islamic banking are the sharing of profit and loss, and the prohibition of the collection and payment of interest by lenders and investors. Islamic law prohibits collecting interest or “riba.”

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CHAPTER SEVEN

FINANCIAL MARKETS REGULATION

 

FINANCIAL REGULATIONS

 Financial regulations are form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization.

The subject of regulation has been one of the most contentious, with critics arguing that regulations interfere with the efficiency of the market, and advocates arguing that well designed regulations not only make markets more efficient but also help ensure that market outcomes are more equitable.

Reasons/Aims of regulation

Only under certain ideal circumstances individuals, acting on their own, obtain pareto efficient outcomes, that is, situations in which one can be made better off without making another worse off. These individuals involved must be rational and well informed, and must operate in competitive market.

Places that encompass a full range of insurance and credit markets, thus the theory of self-regulation. In the absence of these ideal circumstances, there exist government interventions that can potentially increase societal efficiency and/or equity. Some of the major elements of these interventions are by now well accepted:

1. Antitrust laws, to prevent the creation of monopoly power and /or its abuse;
2. Consumer protection legislation, designed especially to address potential problems of exploitation arising from information asymmetries;
3. And regulations to ensure the safety and soundness of the banking system, which are made necessary by systemic externalities (spillover effects of economic transactions affecting many people who were not parties to the transactions) that can arise when a systemically important institution fails, or is allowed to fail.

 

The current economic crisis e.g., in Kenya, the Nyaga stock brokers, Discount securities limited, Pyramid schemes, collapsing Banks and economies, has highlighted the need for government intervention in the event of the failure of a systematically important institution.

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 CHAPTER EIGHT

INFORMAL FINANCE

Informal finance is a broad concept that encompasses the wide range of financial activities and services that take place beyond the scope of a country’s formalized financial institutions and lie outside financial sector regulations. Informal finance is common in both urban and rural contexts and is usually based on personal relationships and socioeconomic proximity.

In contrast to formal finance, most informal providers focus on one service – savings, credit, money transfers, or insurance rather than offering a bundle of services.

Sources of informal finance

When raising finance for a new company the owners might consider informal sources such as family and friends, credit from suppliers and even own savings.

In modern investments field companies are sourcing finance/funds from either formal institution/organizations such as banks or from informal organization.

1. Own savings – Proprietors of a new company solicit funds from their own savings or selling their own properties to raise capital for the start-up of a new company.
2. Family and friends – Its money borrowed from family and friends or inherited from a family
3. Credit from suppliers – It’s where proprietors acquire the stock on credit and start up the operations.

 

Features of informal finance

1. Not reliable i.e. proprietors may not have enough own saving for the
2. If borrowed from family and friends its interest free or carries low charge compared to bank loans.
3. Repayment is flexible and allows the company to carry on its trade without added concerns of regular interest of capital payments.
4. If it takes longer to pay creditors, the company can fund its operations using that money.
5. The salient issue with this type of financing is that its largely unsecured means of running a business and relies heavily on the goodwill of a new
6. Many business start-ups find it difficult to gain extended credit terms from suppliers who are naturally suspicious of their lack of trading

    

Characteristics of Informal Financial Institutions

• Informal finance is able to tailor contracts to fit the individual dimension, requirements, and tastes of a wide spectrum of lenders and borrowers. Informal financial institutions:
• Operate in the form of self-help organizations
• Provides savings and credit facilities for small farmers in rural areas and for lower- income households and small-scale enterprises in urban areas
• Procedures for informal schemes are usually simple and straight forward; as they emanate from local cultures and customs
• Mobilizes rural savings and small savings from low income urban areas
• Provide their services at times and days which are convenient for their members
• Access to credit is simple, non-bureaucratic, and little based on written documents
• Processing of credit is simple and direct which allows for prompt approval and a minimum delay in disbursement. Rejections are rare, but the level of risk is reflected in the interest rate charged
• Collateral requirements on loans are to local conditions and borrowers capacity. The conditions might be based either on regular contributions or other regular activity to determine the borrowers capacity to repay the loans
• Transactions costs are low compared to those of formal institutions
• Informal groups are conversant to problems of their members and therefore they are able to deal with repayment difficulties of their members in a pragmatic manner which might call for rescheduling of debt
• The informal sector has dense and effective network at the grass roots level for close supervision and monitoring of borrower activity; particularly their cash flows; whether they are members of an informal association or not. This contributes to efficient mobilization of savings and high repayment rates

 

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 CHAPTER NINE

UNCLAIMED FINANCIAL ASSET AUTHORITY AND FINANCIAL REPORTING CENTER

The Unclaimed Financial Assets Authority (UFAA) is an Authority created under the Unclaimed Financial Assets Act, No. 40 of 2011 to administer unclaimed financial assets.  The primary mandate of the Authority is to receive unclaimed financial assets from the holders of such assets, safeguard and re-unite the assets with their rightful owners.

Vision

To be a trusted Institution in the Management of Unclaimed Financial Assets

Mission

To Receive, Safeguard and Re-Unite Unclaimed Assets for Social Prosperity and Economic Development.

Core Values

Trust – We will gain and maintain public confidence by providing relevant and accurate information on unclaimed financial assets.

Integrity – We will safeguard all unclaimed financial assets entrusted to us with honesty and transparency.

Commitment – We will provide services with dedication in a timely, helpful and respectful way.

Professionalism – We will execute our mandate ethically in line with good practices and high standards of service delivery.

KASNEB NOV 2018 Q5 c)

The mandate of the Authority is to:-

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CHAPTER TEN

EMERGING ISSUES AND TRENDS

Emerging trends in the financial industry in Kenya and its impact to Software quality assurance

The financial industry in Kenya is one of the dynamic sectors of the economy; adoption of digital branches, emergence of agency banking, internet banking, adoption of mobile banking and the competition from mobile network operators, just to mention a few new and better ways to transform business using technology.

Heard of Digibank from Stanbic Bank, Kenya? You only need a phone and mobile number to have an account number, how basic is that? I call these changing trends in the market. Imagine a fully digital branch with no human interaction, customers can deposit cash using the bulk note acceptors and withdraw the same amount deposited the next minute in an ATM, interesting?

Heard of EazzyPay from Equity Bank, Kenya? What would you say, ‘they’ say, ‘Eazzy App is your Bank anywhere, anytime’ everything you do at the bank is now on Eazzy App. From sending money to paying for goods and services, accessing Eazzy loans, paying bills, checking the status of your account or saving for your future goals, it is all in your hands.

M-Shwari the super revolution in the banking space, this was a super product from Commercial Bank of Africa that has enabled customers to save and borrow funds from their mobile phones. This was the fastest growth in deposit accounts in the retail banking industry leading CBA to a leading bank in Kenya.

This is the power of software applications, true?

Other trends include:

1. Agency Banking
2. PDQs machines and cards.
3. Bunch note acceptors
4. Kenya Interbank transaction switch
5. Electronic cheques. Customers can electronically instruct the bank to issue a cheque and so eliminate the need to keep a cheque book.
6. Insurance cover. Some banks have introduced insurance cover for customers holding certain amounts of money in their accounts. Under this scheme, people get insurance cover for certain amounts, depending on the amount of money held in their accounts.
7. Credit cards. These enable customers to obtain goods and services on credit.
8. E- Banking. Customers are able to access their accounts through the use of desktop computers in the comfort of their home or office.
9. Package banking. Banks strive to offer more value- added services to their clients without necessarily asking for payment.

How do these trends affect software quality assurance in Kenya?

1. System integration testing

Applications have become more inter-depended, an example is where we need to link MPESA to a core banking system. We would require to independent system to communicate and thus need to ensure the integration works as expected.