As minister for finance and economic planning, Amb. Claver Gatete is right to be concerned about the low savings rate in the country, now at just 13.3 per cent. His recent call to Rwandans to save money in formal finance institutions ought to be taken seriously. Amb. Gatete rightly pointed out that it is from savings that commercial banks collect money they lend businesspeople to trade, manufactures to produce goods we consume daily, and individuals to build houses or pay for things we need for personal development. Unlike foreign sources, local savings provide banks with cheaper working capital. That is why countries with higher rates of savings sometimes have lower interest rates because banks have access to cheaper cash which they also lend cheaply. The very first benefit from domestic savings is that the private sector is able to access cheaper loans. Remember, the private sector is the engine that powers growth in any economy. When interest rates are lower, Rwandan businesses looking for credit to expand will borrow more. And when they borrow and invest wisely, they create more jobs for young people. When the youth get good paying jobs, they will earn money and spend on goods and services. As consumption increases, producers of goods and services will invest in more production and hence more jobs, further increase in savings from extra incomes and above all, tax revenues will grow. With more revenue available, the government will have a big resource envelop to fund social programmes and build infrastructure. That leads to the second and broader benefit: economic growth. At individual level, it is quite obvious that if you spend all your earnings to the last coin, you will certainly never invest. And when you don’t invest, you cannot develop – meaning you condemn yourself to perpetual poverty, especially at old age. Saving, however, does not mean keeping money in commercial banks alone. Some people have saved in form of investment in land, real estate, livestock (cattle, goats and pigs. This is apparently driven by fear of exposing one’s savings to inflation because most of the time, the interest rates paid by banks on savings fall far below the rate of inflation. That is where banks have their work cut out as they move out to attract savers. It is not enough to open a bank branch in the village to get farmers open accounts and start saving money. They must be told, in clear words and figures, why they should keep their money in the bank and not buy a cow or a goat. Old perceptions about banks as institutions where the rich (people with excess cash) keep their money still persist. People who cannot read and write have been kept away from banking halls by the cumbersome paperwork. Others have been kept away by hidden charges. Last month, I walked into a local commercial bank with a branch in Nyabugogo. As I stepped in, I heard a lady with a heavy American accent in a furious exchange with teller. She was demanding an explanation why her account had been debited $3 (three dollars). She insisted that all the known bank charges had been accounted for, but she didn’t understand why she was being charged extra three dollars. Banks will, therefore, need to come up with simplified and clear processes. That is why Umurenge Saccos are doing well in mobilising savings. In Saccos (savings and credit cooperatives), there is little or no paperwork to intimidate less literate customers. Members know and trust each other. The rules of the game are clearly explained to each member. Official figures show that Saccos have been able to collect over Rwf35 billion in savings in since 2010. That is a clear indication that billions of Francs remain stashed away under mattresses. The writer is a journalist with The New Times
