Tough times push Kenyans to choose survival over saving

A trader hawks farm produce in Nyeri town. (Photo: Kibata Kihu/Standard)

A trader hawks farm produce in Nyeri town. (Photo: Kibata Kihu/Standard)

John Kibati sells second-hand clothes in the sprawling Gikomba Market in Nairobi. In a month, he earns Sh20,000 on average. The 35-year-old father and husband said this is not enough to consistently replenish his stock, feed his family and educate his two children.

Yet, he needs to set aside a fraction of his income for the unexpected. Without health insurance or pension, Mr Kibati’s biggest fear is an uncertain future.

He has been longing to expand his business and shore up his income, but efforts towards this goal have always fallen short. “Whenever I start saving so that I can expand my business, something comes up and I use all the money,” said Kibati.

If it is not a fire destroying his stockpile of mitumba, it is his wife who needs to go to hospital, or one of his children being sent home from school over lack of fees, or his landlord demanding overdue rent. “I want to save, but I just can’t carry through the whole thing,” he said with resignation.

For long, it has been easier to castigate people like Kibati for having a poor savings culture. However, the latest 2016 FinAccess Household Survey paints a grim picture of a large population of Kenyans who are forced to choose between saving for an unknown future and living through the day. With low income and a tough economic environment characterised by unpredictable shocks, saving, if at all done, has been for the day-to-day survival.


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The survey by Central Bank of Kenya, Kenya National Bureau of Statistics and Financial Sector Deepening (FSD), showed that 75 per cent of Kenyans earn less than Sh15,000 a month. More than a quarter of these people rake in a monthly income of between Sh3,000 and Sh7,000, just enough to put in their stomachs and not bank accounts.

One in three of such Kenyans said that they “sometimes” go without food even as another 6.1 per cent “often” go without food. According to the survey, close to a third of Kenyans wake up with one goal in mind: of putting food on the table. However, a slightly higher fraction (31.5 per cent) think educating themselves or family is the most important goal. The survey found that the need to put food on the table increases as one gets older even as the need for education diminishes. So, for those aged 55 years and above, nothing is as important as putting food on the table.

Three out of ten Kenyans earn their daily bread by farming, especially in the rural areas. Another 19 per cent eke a living by doing casual work. Both these groups have no pension, health insurance or any other form of retirement benefits. In fact, when the rains fail or prices of goods and services skyrocket, as it often does, it becomes a matter of life and death for these Kenyans. In such circumstances savings become a distant luxury.

Marginal propensity

Most of these households have experienced two kinds of shocks in the past two years, according to the survey: drought for the rural folks (33 per cent) and increased prices of basic items for urban households (24 percent). Other shocks include death of a family member, large medical costs due to a family member’s ill health, theft/fire/or loss of property and loss of income for the main wage earner.

And 42.5 per cent of the households have primarily dealt with these shocks by dipping into their savings. Use of saving as a primary coping strategy against these shockwaves was more prevalent among households in urban areas (46 per cent) than in rural areas (40 per cent). For those who did not use their savings, they would rather seek help from friends and relatives (29 per cent) but very few would cut back on expenses (2.5 per cent) or borrow from a financial institution (1.6 per cent).

“The simple rule is: You can’t save what you do not have. Marginal propensity to save is directly related to income,” says XN Iraki, a lecturer at the University of Nairobi.


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Not only are people opting out of savings because of hardship, few that are saving are doing it mostly for survival. Almost half of Kenyan households (49 per cent) are saving in order to meet day-to-day household needs, another 39 per cent for such emergencies as burial. Less than 20 per cent of Kenyans save for development purposes with 6.3 per cent of them doing it to start a new business, 6.2 per cent to expand their business, 5.9 per cent to improve a house and 5.2 per cent to purchase land.

“Poorer countries save less than rich ones (just like households) because a greater share of their income goes to meeting basic needs such as shelter, clothing, and food. Richer countries also have an increasingly large group of retirees who tend to stash money aside,” noted World Bank’s economist Wolfgang Fengler in a past article. Mr Fengler noted that individuals or countries become richer by saving. Unfortunately, Kenya is lagging behind as far as mobilisation of savings is concerned.

According to the World Bank, since 1977 Kenya’s gross domestic savings as a fraction of the gross domestic product (GDP) has declined sharply from 20.1 per cent to 7.9 per cent in 2015. Even poor Chad (21.1 per cent) and the war-torn Congo Democratic Republic (10.2 per cent) are doing better than East Africa’s economic giant.

Fengler explained that in most of Africa, saving rates are relatively low, around 17 per cent of gross domestic product. “Kenya is no exception and in fact it saves less than many of its peers (around 13-14 per cent of GDP over the last five years). This is half of the average for all low-income countries (26 per cent of GDP). By contrast, neighbouring Uganda and Tanzania have already crossed the 20 per cent mark even though their per capita income is significantly lower,” said Fengler.

According to the Kenya Deposit Insurance Corporation (KDIC), by 2016 more than nine in 10 account holders in the country held less than Sh100,000 in their bank accounts. KDIC further stated that 96 per cent of Kenya’s 31 million bank accounts held deposits that can be withdrawn at any time. A study in the American Economic Review found that the reason for the poor saving culture is not only because most Kenyans are “too poor to save” but also due to “self-control problems.”

Dr Iraki explains that saving goes beyond one’s earning capacity. “Saving is determined by our economic culture. Do we live for today or are we willing to sacrifice our good life today for a better life tomorrow?” asked Iraki. Perhaps it is time Kenyans lived for tomorrow as much as they live for today. This is a culture that needs to be cultivated, for starters, by the Government addressing the issue of social security among some vulnerable as people as Kibati.

“Kenya’s social security system is partly to blame because most Kenyans, particularly those in the middle class, often find they have extra pressures like school fees for siblings, hospital expenses, and harambees, which eat into their incomes and affect their ability to save,” said Development economist Anzetse Were in an article in The Standard.


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Moreover, financial providers need to come up with the right products for Kenyans of all income groups. Retirement Benefits Authority’s Sh20 for the informal sector goes a long way in securing the future for a group of people who have been left out of most retirement benefits scheme.

Save on their phones

There is also a need to come up with innovative platforms of mobilising savings. Mobile phones, rather than banks, are becoming popular saving platforms with a lot of Kenyans (71.4 per cent) having a mobile financial service (MFS) compared to 38.4 per cent with bank accounts. MFS are accessible and convenient.

Most Kenyans tend to use bank accounts only to process their salaries. The survey found that 22 per cent of bank accounts are being opened and later left dormant, with most people (39 per cent) giving loss of income as their main reason.

Some MFS also have started offering savings and loans through a partnership between traditional banks as KCB and Commercial Bank of Africa (CBA) and Safaricom’s M-Pesa.

Today, Kenyans can save on their phones on M-Shwari and KCB M-Pesa for CBA and KCB respectively.

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