OPINION: Banks accounts show wealth is in the hands of a few as majority sweat it out

Recent data from the Central Bank of Kenya shows that only 2.65 percent out of 66.3 million bank accounts had more than Ksh.100,000 in 2021.

This is indicative of several things: One, there is a great disparity between the few haves, and many have-nots in Kenyan.

Two, it could be that many Kenyans are living hand to mouth, hence there is nothing left over to save.

Three, we might have a high consumption inclination also known as a “poor saving culture”.

Four, that the majority of Kenyans decided they are done with the banks and so save away from the formal banking system.

The CBK data indicates that these high-quality accounts rose to 1.65 million by December 2021, this is a growth of 4.2 percent.

This is also a reflection of the fact that Kenya Revenue Authority database in 2020 showed that Kenyans earning over Ksh.100,000 accounted for 2.9 percent out of the 2.7 million formal workers captured in income tax evaluations. However, there is no inference or any correlation between these different datasets, unless a study is done.

Economic analysts input

The growth of these high-end accounts at a difficult moment in 2021 in the middle of the Covid-19 pandemic must be also indicative of the changed behaviour of high earners who are employed or run a business.

Total deposits rose by 12.2 percent to Ksh.4.6 trillion in December 2021, from Ksh.4.1 trillion in December 2020.

This growth was surely supported by the utilisation of deposits through digital platforms, which brings to the fore the issue of financial inclusion.

Equity Bank led the group of “big banks” or tier one banks that had the most high-end accounts with 399,641 accounts.

However of importance here is that Equity Bank focuses on the low-income segment of the market, and was followed by KCB with 297,610 accounts, Co-operative Bank with 272,837 accounts, and NCBA with 132,972.

The big banks account for 82.4 percent of the accounts with more than Ksh.100,000. The small banks hold the short end of the stick.

Kenya’s situation in the event of low savings

This data from the CBK could be indicative of different scenarios but there is one scenario that follows this situation as sure as day follows night.

It is well documented that countries with greater rates of savings experience faster economic growth than those with low savings rates.

The accumulation of capital creates greater opportunities for the output and efficiency of an economy.

Indeed, the United Nations Conference on Trade and Development (UNCTAD) “Development and Globalization: Facts and Figures” emphasises that the main factor in increasing national capital is the increase in savings.

Therefore, developing countries should prioritise programs that promote domestic saving, for capital to be invested in the most productive areas of the economy. 

The only way to avoid high indebtedness or strings attached to debts

Development capital for a majority of developing countries (such as Kenya) comes largely from foreign direct investment and debt.

However, the high dependence of developing countries on external debts limits their independence and these countries might face coercive policies in return for external debts.

External debts create instability as witnessed by the fluctuating exchange rates. In most cases, these economies not only perform poorly but are further constrained by debts.

The accumulation of domestic savings can help reduce the vulnerability arising from dependence on foreign financing and provide a sustainable long-term financing base for investments in developing countries.

Turn financial inclusion into financial best practices

Nearly 40% of Kenyans used mobile money to get a loan, the highest globally, a new report shows, highlighting the growing prevalence of app-based borrowing use in the country.

The international association for mobile network operators GSMA shows that 36 percent of Kenyans acquired loans through their phones in 2021.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance – delivered responsibly and sustainably.

As account holders, people are more likely to use other financial services, such as savings, credit, insurance, start and expand businesses, invest in education or health, manage risk, and weather financial shocks can improve the overall quality of their lives.

It is therefore much desired that Kenya should move from access to usage of accounts as the desired next step for account holders who are well informed and use the financial platforms responsibly.

Kenya has used policy reforms, private sector innovation, and a push to open low-cost accounts, including mobile and digitally-enabled payments; but this has only enabled access not uplifting the lives of the majority of account holders.

The CBK regulatory framework should therefore cover the large gap that exists between the interest rate on loans and deposits in Kenya. It should specify clear steps for ensuring transparency in the construction of the interest rates on loans.

This might turn out to be the key that will open the door to more savings in Kenya’s financial institutions.

The CBK just raised the CBR on interest rates from 7 percent to 7.5 percent since 2015 to combat the rising inflation and rest assured the commercial banks, in record time, will react with speed and efficiency to review the commercial bank interest rates to match.

However, the much-intended use of the Credit Reference Bureau (CRB) by the banks to test for creditworthiness was lost, rather it ended up being the place to dump people with bad mobile loans. The time and space are ripe, yes, it can be done.