A woman recently told me an interesting story that I would like to share with you. It was the story of the kind of bank that she banks with. It is a bank whose operation does not require an operating license, its offices are mobile and banking is only done once a week- typically on Sunday afternoons.
To the woman, her bank is a big success story. This is because she has a great sense of belonging. The fact that everyone is equal in the setting makes her feel special. In addition, being a middle class Kenyan, she has every reason to bank her only Kshs. 5,000 disposable income which can only fall short and never more than that. At her bank, there are usually no ledger charges and account statements are readily available upon request.
You may perhaps be wondering what kind of bank this is. It is a very informal setting founded by a group of people who come together with a common belief, and a common objective. They are usually bound by trust and unlike an investment club, they usually aim at raising money and giving it in lump some to one person for any developmental needs at a particular time.
One would argue that this is the opportunity cost of the formal banking institutions to tap in deposits from the larger population. This has left me wondering, “What really constitutes a good bank?” Is it good public relations, capital stability, excessive marketing, minimal charges or accessibility of funds (ATM)?
To most Kenyans, the concern is not so much in the safety of funds; after all, the central bank has taken every measure to ensure that deposits are well taken care of. Most depositors are concerned about how much of deposits is going to the over the counter deposits.
Considering the saving bracket of most people’s income, it is clear that the amount that most people save is very little to be exposed to such numerous charges characterizing many banks.
Most banks charge as much as Kenya Shillings two hundred and fifty for a checkbook. Transaction costs amount to at least Kshs. 30 per transaction. The market savvy banks have introduced a flat rate of Kshs. 600 to Kshs. 800 per month. To majority of Kenyans, this flat rate may account for 50% of their savings in a month meaning that they will have their savings halved.
Contrary to this however, the savings groups, operating on just trust do not need to charge any extra costs. A member in dire need can borrow from the group kitty at a fixed rate of 10% in most of them. The club does not worry about inflation, they will not peg their rates to the ever changing treasury bills and bonds- it is their hard work that saves the month.
In mid 2003 to early 2004 banks had opted to lower their charges to woo clients to borrow due to increased competition. With the increased appetite by government for funds and their subsequent borrowing, bank’s lending rates increased significantly from 12 % to 22%. Many were expecting this trend to reverse by the year 2006. The signs however do not clearly give an indication of a drop. One of the reasons that can be attributed to this is the new constitutional wrangles that have seen the opposing team win. This will lead to an increased borrowing by the government, meaning that the public thirst for funds may not still be quenched by our 48 banks.
Witty as most small borrowers are, this will imply that the informal sector will continue to thrive, that more and more informal settings will come up to fill the need that banks have been able to stoop low in order to satisfy.
The banks may not have a way out for the Wanjikus, but the Wanjikus truly have their kind of bank- a truly unique model that they can afford to live with.
By Michael Musau
CEO Emerging Africa Capital
Licensed by The Capital Markets Authority as Investment Advisers
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