Ideas from an eclectic mind: A parachute to financial security

On Wednesday evening last week I chanced upon a radio interview given by Sanjeev Anand, the CEO of one of Rwanda’s leading banks, BPR. The new face BPR was beefed up by the absorption of BRD’s commercial wing in a recent merger spearheaded by Atlas-Mara Group. What made an otherwise run-of-the-mill interview memorable was the revelation of how low the domestic savings in the Rwandan economy are. Sanjeev estimated them to be as low as 1-2 per cent of GDP! He went on to explain that this partly accounts for the high interest rates in our commercial lending sector. Currently these rates range from 16-20 per cent in all the major lending institutions within Rwanda. A country’s saving habits are a function of multiple factors that primarily revolve around history, the economic status quo and expectations of the future. In Rwanda’s case, the recent past was disastrous, the present is better than had been expected and the future promises more prosperity. While this is all great, a bullish outlook for the future has never been a catalyst for saving. When individuals expect things to get better, they are more driven towards consumption which simply means satisfying one’s needs today rather than tomorrow. How then do people achieve financial security without accumulating massive individual savings? We need to look at those we aspire to be for the answers. High net worth individuals A.K.A the wealthy differ from the rest of us by how they relate with money. While the rest of us deploy our muscles both physical and mental to earn an income which we then deploy towards consumption, the wealthy on the other hand use whatever money at their disposal to make more money! When most people hear of the term investment, images of huge sums of money blur their vision. In the simplest of terms, investment means making a given sum of money today to produce a larger sum tomorrow. Hence a thousand francs used to purchase a bunch of matooke on a trip from Rwamagana and sold to a friend in Kigali for two thousand francs qualifies as an investment albeit a small one! With this basic understanding of how investment works we can then appreciate that it is not how much income you earn but how you use it that counts. Financial security revolves around achieving financial goals such as building a home, buying a car, paying children’s school fees and meeting one’s daily expenses among others. Like the egg and chicken riddle, investment is intertwined with saving. You must have something to invest in the first place and for that you need an income. In George Samuel Clason’s 1926 classic book titled “The Richest Man in Babylon”, the lead character Arkad outlines seven cures to a lean purse (poverty). Arkad elaborately narrates that the road to financial security begins with saving precisely a tenth of one’s income. It is these savings that can then be committed towards investment. Closer to home the story of “Abamotari” from Rusizi District clearly illustrates this principle. In 2009, a group of 142 motorcyclists from around Rusizi formed a cooperative called COMORU, which set off to collect Rwf500 daily from every member. The average motorcyclist’s daily income is five thousand francs. By 2012, their membership had ballooned to 467 members and savings were in excess of Rwf30 million and COMORU the co-operative, owned 30 motorcycles on top of the individual members’ motorcycles! They decided to invest in a commercial complex worth Rwf175 million with additional funding from GT Bank. Today, an imposing four storey building stands in Rusizi town fondly referred to as “Inzu y’abamotari”! Looking back, a single “motari” diligently saving Rwf500 per day over seven years would have accumulated just under Rwf1.3 million, an amazing achievement by itself. Not in his wildest dreams however, would he have visualized being a part owner of a four storey building in any part of the world! That is what investment groups can do. By pooling our individual savings, we can achieve things beyond our imagination. The motorcyclists’ story above may seem unique to large groups but even smaller groups can reproduce similar results. In 2008, a group of about sixty middle aged and self-employed individuals resident in Kigali came together to address one problem. They were all tired of renting! They named their co-operative “Giricumbi”. They all made an initial contribution of Rwf200,000 and agreed to make a monthly contribution of Rwf40,000. By 2013, they had cumulatively bought six hectares of land in the Bumbogo area on a hill overlooking the Kigali Free Economic Zone. They proceeded to partition the land into individual plots and roads following a modern estate design. Plots were then allocated by way of a raffle draw. In 2014, each member received a land title for their plot and they were given the option to develop the land privately or subscribe to a group mortgage from a bank that undertook the project with a developer following a uniform house plan. By 2015, each member of co-operative Giricumbi had contributed a cumulative amount of Rwf3.6 million. At the same time, the individual plots were going for Rwf7 to 8 million! Need I say more? Whatever your financial goals are, the recipe is the same. Find a few like-minded individuals; agree on a comfortable amount to save collectively on a regular basis and voila before you know it, your plans will be more than just dreams. Who knows, a few years down the road the next commercial complex in Rwanda may have your name on it! The possibilities are endless! The author is a consultant and trainer specializing in Finance and Strategy. He is based in Kigali.

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Ideas from an eclectic mind: A parachute to financial security