Banks positions itself to inculcate a savings culture among Kenyans even as it eyes the micro credit market
Many Kenyans first learnt how to operate a bank account through Postbank. The bank was synonymous with its yellow passbook that enabled people to regularly save small amounts of money from their farming activities, businesses and formal jobs. Transactions made through the iconic passbook would be meticulously filled in by the bank’s tellers , as many customers recall with a lot of nostalgia.
The passbook’s master stroke was the fact that it could be used to transact in any of Postbank’s branches throughout the country. Surprisingly, that was in an era when commercial banks had not interconnected their branches using technology. Transacting in a branch where one was not a customer was therefore a herculean task. Using the landline, calls had to be made to the customer’s branch in order to verify the details in his or her account, a process that was long and tedious. Not so for Postbank’s customers.
They could freely transact a across branches using the passbook. That way, the bank was able to win many customers at the beginning of their careers or businesses by inculcating a savings culture among them.
The household bank serves customers in the far flung corners of the country and was established way back in 1910. Its mandate is to mobilize savings for national development. “Mobilizing savings is critical because it enables various economies in the world to build wealth,” says Ms. Anne Karanja, Postbank’s Managing Director.
Indeed, Kenya’s economic blueprint, Vision 2030, points out the need to grow the savings level at a high rate, relative to the growth of the Gross Domestic Product (GDP). That way, the country can finance its investment needs as opposed to relying on external borrowing which is very stringent and expensive.
Savings vis-a-vis socio-economic development
Both at the micro and macro levels, savings is a key parameter of economic growth and financial freedom. “Savings and investments lead to wealth creation while helping individuals and organisations to achieve long-term goals and aspirations,” says Ms. Karanja. Some of the genuinely wealthy entrepreneurs in Kenya started from very humble beginnings and their lives were transformed through financial discipline and savings.
Indeed, savings and investment have a correlation with a country’s social economic status. Some of the world’s top countries in gross savings rate are Qatar (56.8%), Luxembourg (53.9%), Burnei (52.3%), China (46%), and Nepal (43.6%). These countries are among the leaders in economic development.
Unfortunately, Kenya’s gross savings rate dropped to 5.6% in 2018 from 8.4% in 2017 while the GDP growth in 2017 and 2018 was 4.9 and 5.8% respectively. “Generally, many Kenyans live beyond their means and they are heavy consumers of luxurious goods,” observes Ms. Karanja adding that most of them therefore rely on credit and they do not save any portion of their incomes. According to her, this is a very worrying trend since a country cannot achieve impressive economic development without increasing its savings rate.
Domestic savings help a country to become less reliant on external funding. By borrowing from the domestic market, governments are able to finance social infrastructure developments (for instance schools hospitals and low cost housing) as well as physical economic development ones (for instance roads, bridges and harbours, airports among others).
Deterrents to savings
“First and foremost at the micro level, it is very important for individuals to have reasonable levels of disposable incomes because one cannot save what he or she does not have,” observes Ms. Karanja. Secondly, consumers should be rational while spending their incomes and at all times strive to live within their means in order to save. “One’s commitment to save is more important that his or her level of income,” she points out. By being frugal, individuals are able to enhance their rate of savings. On the contrary, those who indulge in conspicuous consumption and impulse buying drain their incomes unnecessarily. This is a deterrent to savings and financial freedom. “Unless it is used for investment, credit erodes one’s propensity to save and it should therefore be avoided,” cautions Ms. Karanja.
An unfortunate trend is also emerging in the country whereby citizens from all walks of life have grown a high appetite for consumer credit. Largely driven by technological innovations, it has become very easy and tempting to borrow money via mobile phones albeit at very exorbitant interest rates. Ultimately, this trend has adversely affected the savings levels in the country among many individuals.
It is also important for individuals to budget their income in order to boost their savings levels. “By having a budget, one is able to determine the amount of income he or she will save before distributing the same to other needs,” advises Ms. Karanja.
Finally according to Ms. Karanja, it is important for individuals to set financial goals that they should strive to achieve within a set period of time and then mobilize savings towards that end. Failure to set such goals largely contributes to extravagance, low savings and ultimately, financial ruin.
At the macro level, low interest rates on deposits can discourage savers. In addition, countries with a low per capital income utilize almost all their income in purchasing basic commodities for their citizens leaving them with little or no savings. Moreover, unfavourable tax regimes can discourage people from saving and investing. In this breath, it is important to note that the interest on Postbank’s savings is tax free. This is aimed at encouraging more customers to join the bank as it endeavours to achieve its mandate. Finally, when the rate of inflation is high, the prices of goods and services sky rocket, living consumers with little or no money to save.
Diverse and affordable savings products
Postbank has developed customer driven products and services that encourage savings from an early age to adulthood. To start with, the bank’s flagship product is the Bidii savings account which targets all citizens above eighteen years old, especially the ones at the bottom of the pyramid. Secondly, the Smata account targets children and youth up to 18 years, while Step is for university and college students aged from 18 to 28 years. “Step accounts for over 30% of the accounts we open annually which is a very good indicator of its popularity among the young people,” Ms. Karanja happily notes.
Save As You Earn (SAYE) by the same token is a contractual savings product for employed and self-employed people while M-Chama is a group savings product. Launched in 2018, the flexible and friendly product has made it easy for organized groups to save and withdraw money through the mobile phone platform as opposed to visiting branches. Finally, the premium plus savings account targets high income earners and corporates. “We offer competitive tax-free interest on all our savings accounts,” notes Ms. Karanja.
Diverse delivery channels
In order to offer its products as well as services to its customers efficiently and effectively, Postbank has a network of 98 branches throughout the country. In addition, it has over 600 agents, mobile and internet banking as well as automated teller machines (ATMs). “This has given Kenyans an opportunity to conveniently save with us and given our alternative delivery channels like mobile and internet banking, they do not have to visit our branches unless they are making an important enquiry,” notes Ms. Karanja.
Financial literacy and savings education programmes
In line with its mandate, Postbank regularly rolls out financial literacy and education campaigns targeting organized groups like the disciplined forces (Kenya Defence Forces, the National Police Service and the National Youth Service), teachers, civil servants and farmers among others throughout the country.
According to Ms. Karanja, the operating environment among banks has become very dynamic. “Technological innovations have changed the banking landscape and consequently, customers are demanding products which they can access at the comfort of their offices and homes,” she notes.
Secondly, the bank (which is wholly owned by the government) has a mandate which is a bit restrictive since it cannot offer credit directly to its customers. To overcome this challenge, it has partnered with two lenders in the country. Most importantly, the bank is in the process of reviewing its business model so that it can be aligned to the changing customer preferences and technological advancements. “We would like to start offering micro credit using the mobile phone platform in view of the current market trends,” she observes.
She further notes that the betting craze which is fast spreading throughout the country like fire in a wild bush has eroded the level of savings especially among the youth and some middle aged Kenyans. “The probability of making a windfall through betting is very low and those engaging in it should instead focus on the tried and tested way of growing wealth through savings,” she notes.
The road ahead
“We are looking at entering the credit market even as we continue to inculcate a savings culture among Kenyans,” says Ms. Karanja. She is also optimistic that savings education will be introduced in our curriculum as early as the primary school level, so that it can be inculcated in the minds of learners at an early age. Hopefully, when savings becomes a well entrenched culture among Kenyans, the country shall have a savings level of 30% and above to the GDP, as outlined in Vision 2030.
“I encourage Kenyans to save a certain percentage of their incomes so that they can invest and ultimately become financially independent,” Ms. Karanja concludes.
COUNTRYWIDE PRESENCE: Postbank’s Kisii branch.
Savings tips from Postbank
- Budget/plan your finances;
- Come up with financial goals;
- Keep a financial diary for recording your income and expenditure, while identifying the income leakages;
- Avoid impulse expenditures and immediate gratification;
- Live within your means and avoid borrowing for consumption;
- Save before you consume;
- Save a certain percentage of your income irrespective of how much you might be earning;
- As the savings grow, invest in income generating assets/opportunities;
- Earn your money through legal means.