A Meta-Analysis on Solutions to Credit Crunch in Kenya: Lessons from Other Countries
Keywords:
Credit Crunch, Solutions to Credit CrunchAbstract
Purpose: The current study, based on the lessons from other countries, seeks to establish the gaps that need to be filled and establish the trends in the solutions to credit crunch. The study therefore seeks to find the best course of action that Kenya can adopt as a solution to credit crunch.
Methodology: The study adopted a desktop literature review method (desk study). This involved an in-depth review of studies related to credit crunch and the solutions adopted drawing evidence from several countries globally and regionally. The research was focused on acquiring theoretical and empirical knowledge/evidence about the solutions to credit crunch. Various databases (Google, Scopus, Science direct, Ebsco, Sage journals, Google scholar, Emerald insight among others) were sought and filtration done based on the key words of the study. The main Key words were ‘Credit crunch’ and ‘Solutions/interventions to credit crunch’. After an in-depth search into the top key words, the researcher arrived at 23 articles that were suitable for analysis. Analysis was done using Excel where the study presented the findings in form of figure and Tables.
Results: In a credit crisis, actions by central banks via public liquidity injections to banks may not reach the real side of the economy if banks do not have enough capital, prefer to hoard liquidity or to invest in safer assets such as government debt. The study likewise finds that lowering of interest rates and well as fiscal policies are good measures to be adopted by the governments in order to cushion the economy from the breakdown. However the study discourages the raising of the prices that is the interest rates since them discourage investors and thus plunge the economy deeper into the credit crunch. Direct injection of money into the economy was noted as a way to heal chronic failures in the market especially when the money supply is very low and the banks fail due to limited assets.
Unique contribution to theory, practice and policy: The study concludes that the Kenyan government and the Central Bank of Kenya needs to strengthen its fiscal and monetary policies and instruments in order to manage its economy and safeguard it against credit crisis. Thus, the involvement of the government in the affairs of the economy is very Key but the government needs to proceed with caution since the economy is a free market. Since increase in interest rates were found to negatively impact on credit crunch by constricting liquidity, the government need to address the interest rate capping since in the long run it is not a solution to inflation as well as credit crisis.
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