Compiled by: Joseph Opiyo
The terms money and banking are foundational to economic activities and human resource management. A clear understanding of these concepts allows HR professionals to navigate payroll systems, employee financial welfare programs, and organisational budgeting more effectively. This section defines these terms comprehensively, focusing on their roles within Kenya's economic environment.
Money is a universally accepted medium of exchange that facilitates trade and economic activities. It eliminates the inefficiencies of barter systems by providing a standardized measure of value, making transactions smoother and more predictable. In Kenya, money takes the form of physical currency issued by the Central Bank of Kenya (CBK), as well as digital money used in mobile banking platforms like M-Pesa, which has revolutionized financial inclusion.
Money serves multiple economic functions beyond being a medium of exchange, including acting as a store of value, a unit of account, and a standard of deferred payment. These functions ensure that money maintains its utility over time, allowing individuals and organisations to plan for future expenses, save earnings, and compare prices consistently.
The money supply includes physical currency, demand deposits, and other liquid assets that can be quickly converted into cash. In Kenya, M1 (narrow money) comprises coins, notes, and demand deposits, while M2 (broad money) includes savings and time deposits. HR professionals must understand how fluctuations in money supply impact inflation and wage negotiations.
Money directly affects employee motivation and retention through salary payments, bonuses, and benefits. Understanding inflationary trends helps HR design compensation packages that maintain purchasing power. For instance, county governments in Kenya adjust civil servant salaries to reflect changes in the cost of living, ensuring workforce stability.
Money's acceptance depends on its status as legal tender, backed by government authority, and the trust users place in it. The Kenyan shilling’s stability underpins business confidence, affecting salary disbursements and financial planning within organisations.
Monetary policy, directed by CBK, influences money supply and interest rates, which in turn affect employment levels and wage rates. HR managers must monitor these policies to anticipate labour market fluctuations and adjust recruitment or training budgets accordingly.
Banking refers to the system of institutions that accept deposits, provide credit, and facilitate financial transactions. Banks are crucial intermediaries between savers and borrowers, supporting economic growth and organisational capital needs. In Kenya, the banking sector includes commercial banks, microfinance institutions, and Sacco societies, all playing unique roles in financing employment and enterprise development.
Banks perform several critical functions: accepting deposits, granting loans, facilitating payments, and offering investment products. For HR departments, banks provide payroll services, employee loans, and financial education programs that enhance staff welfare.
Kenya’s financial landscape includes commercial banks such as KCB and Equity Bank, microfinance banks serving small-scale entrepreneurs, and Saccos like Mwalimu Sacco that offer savings and credit services to specific professional groups. HR professionals often collaborate with these institutions to design employee benefit schemes and salary advances.
Banks mobilize savings and allocate funds to productive sectors, creating employment opportunities. For example, banks financing agribusiness cooperatives in Rift Valley contribute to rural employment, which HR managers in agricultural firms must consider when developing labour strategies.
The rise of digital banking platforms such as mobile money and agency banking has transformed access to financial services in Kenya. HR departments leverage these technologies for efficient salary payments and to promote financial inclusion among employees in remote areas.
The Central Bank of Kenya regulates banking operations to ensure financial stability and protect depositors. Compliance with banking regulations affects HR operations, especially in managing employee pension funds and ensuring secure salary transactions.
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Create a free accountThis chapter explored fundamental concepts in economics by defining key terms such as money and banking, establishing a foundation for further understanding. It examined the essential characteristics of money that enable it to serve as a reliable medium of exchange, store of value, and measure of value. The chapter also detailed the primary functions of money in facilitating transactions, promoting economic stability, and supporting trade. In addition, it covered the roles of commercial banks, highlighting their importance in accepting deposits, providing loans, and supporting financial services. The functions of the central bank were discussed, emphasizing its role in regulating the money supply, controlling inflation, and maintaining financial stability. Furthermore, the chapter introduced non-banking financial institutions and their contribution to the financial sector by offering specialized services outside traditional banking. Finally, it addressed how inflation and unemployment are determined, linking these critical economic indicators to the broader financial system.