Paper short abstract:

Using Kenya's Central Bank as a case study, this paper argues that pockets of effectiveness are not divorced from the clientelistic and patrimonial nature of a country's political settlement, but instead represent hybrid modes of governance that fuse legal-rational and patrimonial logics

Paper long abstract:

There is an increasing appreciation that political dynamics play a critical role in determining the prospects for "pockets of effectiveness" (POEs) to emerge and be sustained, specifically through the nature of a country's political settlement. However, there remains an assumption that POEs, whenever they do emerge, are somehow divorced from the patrimonial nature of the political settlement, operating according to a formal and rules-based rationale. This paper challenges such assumptions, arguing that POEs often represent hybrid modes of governance that fuse legal-rational and patrimonial logics. To do so, the paper uses the example of Kenya's Central Bank, specifically its contrasting fortunes under its two most recent governors. During the tenure of Njuguna Ndung'u (2007-2015), indicators of Kenya's financial sector development surged rapidly, overtaking those of many middle-income countries. This, the paper argues, was enabled by Ndung'u's deals-based approach to the sector. Ndung'u understood the clientelist nature of Kenyan banking as well as its role in preserving the political settlement by enabling vital patronage networks. He therefore gave banks leeway in meeting their financial and regulatory obligations, favouring an incremental approach to improved corporate governance, particularly with politically-influential banks. Ndung'u's successor, by contrast, has opted for "big bang" reforms, demanding total compliance with international best-practice regulations. This rules-based approach has been met with fierce resistance by Kenya's banks as well as their political patrons, resulting in a concerted effort to force Patrick Njoroge from office, while also causing instability within the banking sector and undermining the autonomy of the Central Bank.