The Deposit Insurance System should have readily available funds to ensure prompt reimbursement of depositors’ claims. Responsibility for paying the cost of deposit insurance is borne by banks. Funding for the deposit insurance system is provided on a “Pay-before-the-risk basis”. On this basis, banks pay annual premiums to KDIC to build a Deposit Insurance Fund which is utilized when one of them fails and protected deposits have to be re-imbursed.

The premium rate for each bank is determined annually based on the average deposit holding of the bank. The minimum premium however is KES 300,000 per year and the Maximum premium that a bank can pay is 0.4% of its average deposits for a year. Currently, KDIC uses a Risk-Based Premium Assessment model where banks pay a base rate of 0.15% plus a risk-adjusted rate, i.e. base rate + risk rate. The Risk-Based Premium Assessment system is designed to provide incentives to banks that have effective risk management systems, who then pay lower rates of premium. 

The Deposit Insurance System is premised on protecting small, vulnerable and unsophisticated depositors, who hold most of the deposit accounts. This category of depositors lacks the skills and resources to monitor the performance of a bank and thus make an informed decision about which bank is prudently managed. Their decision is guided more by the products and services offered by the bank as opposed to the bank’s risk profile. Most of them earn low or no interest on their deposits held by the banks.

On the other hand, the Deposit Insurance System can cause moral hazard by increasing risk-taking behaviour by banks. Moral hazard is the incentive to take on greater risk as a result of being protected from the consequences of risk-taking. Since insured depositors face no risk of loss and have little incentive to withdraw funds, risks and embedded losses can sometimes build over time at banks funded largely by insured deposits.

Therefore, a deposit insurance system must consider both the financial stability benefits of more coverage and the possible implications for increased risk-taking in the banking system. The coverage limit must strike a balance between depositor protection and market discipline. The limit should also be reviewed from time to time to align it with the objectives of the deposit insurance system. 

KDIC’s current deposit coverage limit is KES 500,000. The limit was first set as KES 100,000 in 1989 when the Deposit Protection Fund was established. This limit was revised in 2020 from KES 100,000 to KES 500,000 to address economic changes and align it with the objectives of KDIC, of promoting public confidence and contributing to financial stability. This limit covers up to 99% of all the accounts held in our banks. This protected amount is payable upon the bank being placed under liquidation.

To fulfill this mandate, the Corporation provides a Deposit Insurance Scheme for member institutions to cater for limited coverage of deposits as provided for by law. The Corporation increased the coverage limit from Ksh 100,000 to Ksh 500,000 with effect from 1st July 2020.

The following Commercial Banks and Microfinance Banks are members of the Deposit Insurance Scheme. 

Failed Member Institutions