Mobile banking offers the best tool to drive national savings for growth

Over the last decade, the telecommunication and finance sectors have been key differentiators that have powered the growth of the Kenyan economy.

The massive investment in technologies that sit at the heart of these two industries not only created hundreds of thousands of jobs, and new wealth, but it has also empowered an entire generation of young Kenyan millennials who today cannot imagine living in a world that is not connected to the Internet or queuing on a line for an entire day just to check their bank balances.

Our best bet then is that bringing these two industries to work together in a complementary role could fast track Kenya’s rise up the league tables of industrialised middle-income countries.  

With the recent rebasing of Kenya’s gross domestic product having put the country on middle income country bracket, what is critical now is to ensure that our prosperity lifts the fortunes of every single citizen.

This will only be possible if we ensure the availability of tools for every citizen to participate in wealth creation and evenly distribute economic growth.

One quick way is to offer the public an easy and convenient way to access financial services to be able to save and borrow to invest.

This calls for innovation in the way the country finances growth, and mobilises resources to fund capital investment. More people need to save more – in a broader way than we are currently doing – so as to generate enough investments to power growth. It is easy to see why.

Recently, the government initiated the road annuity programme which aims to double tarmacked roads from 14,000 kilometres in the next three to five years. The project is expected to create nearly 137,000 direct jobs and is estimated to cost over Sh300 billion.

The annuity programme means that government expects private sector to step in to finance the project. Financial institutions are the natural choice.

Unfortunately, as it is today, the financial sector would struggle to finance such a project, which would mean a need to syndicate the loan to foreign funding.

The road annuity is just but one project that needs massive funding if Kenya is to experience an accelerated social and economic transformation.

The list includes the second phase of standard gauge railway, leasing of medical equipment, financing of one million irrigation programme, modernising of security system and education.

The list is endless and there is a need for the government not to compete with small businesses for financing from banks.

Unlike most of developed countries where over 90 per cent of the population have access to formal financial services, thus making it easy to save, only about a third of the Kenya population have such access.

Other democracies such as Singapore have used the law to force their population to save – a minimum of 40 per cent of their wage shared equally with employers.

Pooled savings are then channelled into bank loans, providing long-term finance to power growth.

The East Asian economies, which were famous for their high levels of investments in physical capital and economic growth from the early 1960s to date, have been characterised by high gross domestic savings of over 30 per cent of GDP.  

Unfortunately, Kenya’s gross national savings is low- at 11.1 per cent of GDP in 2009- and does not measure up to our peers in sub-Sahara Africa at 20.3 per cent.

The challenge in Kenya and one that must be addressed then is the question of locked up savings, which is not available for lending and also earn little or no return to owners.

Locked savings, which means money retained in alternative assets such cattle, jewelry or simply cash under the mattress, is largely driven by two factors: lack of access to financial market and savers lack of faith in the institutions taking their money.

To unlock wealth and get it flowing into formal bank accounts we believe that the mobile phone offers the best solution that can both convince people that their money is in safe hands as well as reduce the cost that banks incur to reach customers by building and maintaining expensive branches.

We believe that KCB M-Pesa account which is our latest product borne out of the partnership between Safaricom and KCB will offer the twin solution.

Already the seed of success has been sown and sprouted. Since 2007, M-Pesa has been able to offer over 12.8 million users convenience in moving money.

The trust earned is demonstrated with the fact that M-Pesa is currently moving a quarter of the country’s wealth every year. In 2014, KCB moved Sh7.8 trillion or 1.5 times the size of the Kenyan economy. This is a demonstration of trust Kenyans have in the bank.

Harnessing this partnership is bound to super-charge the cashlite economy and brings full-scale mobile banking and commerce to the masses.

The success of this has already borne fruits in current partnership between M-Pesa and CBA where 4.5 million savers have deposited about Sh5 billion and borrowing close to Sh2 billion in under three years. 

The idea then is to dramatically scale up this success ensuring that every single Kenya has a tool to enable them participate in growth by first saving and then accessing credit which is critical in funding growth.

Mr Oigara is the CEO of KCB Group.