Deposit insurance is a system established by the Government to protect depositors against the loss of their insured deposits. The role of the banking sector, the financial safety net, and other financial institutions that accept deposits from the public are important in the economy because of their involvement in the payments system, their role as intermediaries between depositors and borrowers, and their function as agents for the transmission of monetary policy. Banks are vulnerable to liquidity and solvency problems because they transform short-term liquid deposits into longer-term, less-liquid loans and investments and they also lend to a wide variety of borrowers whose risk characteristics are not easily anticipated. The importance of banks in the economy, the potential for depositors to suffer losses when banks fail, and the need to mitigate contagion risks, led to the establishment of a DI.
Membership of the Kenya Deposit Insurance Corporation
Membership is compulsory for all institutions licensed to carry on deposit taking business as Commercial Banks, Financial Institutions, Mortgage Finance Companies, Building Societies and Micro Finance Institutions.
All member institutions pay flat-rate contributions based on the level of deposits taken by the institution in the previous twelve months. Currently, the annual premium is assessed at 0.15% of the average total deposit liabilities or Kshs 300,000.00 per member, whichever is higher. It is applied uniformly and assessments are carried out in July and premium payments are expected by August of each year. Late payments attract penalties. At the moment, the law limits premiums to a maximum of 0.4 per cent of the average of a members total deposit liabilities in a twelve month period prior to assessment.
The Funds contributed by member institutions are used to meet the primary obligations of the Corporation in the form of payment of guaranteed sums and/ or provision of financial assistance to eligible insured institutions. The operations of the Corporation are financed from the proceeds of investment such as Treasury Bills (TBs) and Federal Government Bonds. The Corporation does not receive government subvention for its operations .