Commercial banks can do more to encourage a savings culture

For the last five years, our Gross Domestic Savings/GDP ratio has been consistently negative, varying between the range of -1 percent and -3 percent of GDP, the Ministry of Finance recently revealed. Apparently, the Economic Development and Poverty Reduction Strategy (EDPRS) has set a target of achieving a gross national savings at 18 percent of Gross Domestic Product to attain a gross national investment target of 30 percent of GDP. As a result, the government recently launched an ambitious strategy that seeks to promote a savings culture among Rwandans. This includes putting in place a National savings mobilization strategy to increase domestic savings up to the level necessary to match the required level of investment in the country, enhancing the Umurenge SACCO model and developing a comprehensive social security policy. While the government is doing its part, financial institutions and specifically commercial banks can do more to supplement these efforts. Despite the upsurge of banks in the economy in recent years, only 20 percent of the population uses them. Most of their financial products target the upper and middle class, ignoring the lower income earners who are actually the majority of our population. For instance, most banks prefer to provide finance to construction companies that are largely urban based. This is in comparison to agricultural projects that have the potential of boosting the income of the poor who currently have nothing to save. Since savings is a major characteristic associated with “modern man”; many of those deprived of these services are usually forced to develop unorthodox saving facilities such as loan associations and meeting groups. Unfortunately, the latter only encourages a ‘black market’ economy - all of which slow down the growth of capital formation that can promote the savings culture, needed for economic growth and development. Most savings, especially in the rural setting are probably not efficiently mobilized as a result of factors, which amongst others, include commercial bank branch distribution. Banks outreach is a major restraining factor in the effective and efficient mobilization of domestic savings because proximity to bank facilities will reduce transportation costs, risk and the inconveniences involved in such transactions. Capital mobilized from domestic sources is very fundamental for a country’s development not only because it has a low cost, but also due to the fact that it is durable and permanent. Therefore, to permit an efficient and sustainable mobilization of savings in general and rural savings in particular, bank outreach is rural areas is critical. Banks should also do more to sensitize the rural population about the benefits of banking. Whereas the capacity to save is influenced by the level of per capita; the willingness to save on the other hand depends more on the country’s financial system through variables such as inflation but more importantly the level of financial deepening. The number, proximity and diversity of financial institutions (willingness to save factor) serving the various needs of savers play a dominant influence over the ancient factor of the capacity to save. The author is a journalist with The New Times bernanamata@gmail.com