|Microenterprise Financial Services: K-REP's Move Towards Mobilising Voluntary Savings (K-REP, 1996, 74 p.)|
This study evolved as a result of a previous study (Oketch et al 1995) on assessment of the prospects and options for K-REP to mobilise voluntary informal sector savings in Kenya. That was borne out of the realisation that the reasons for low institutional deposits were largely influenced by the structure of existing services and institutions. This study therefore aimed at establishing the kind of products K-REP bank should start with, determine the current deposit and withdrawal patterns, identify the appropriate method and style of delivering K-REPs savings product, examine the location issue with a view to recommending the best location for K-REP bank branches, find out the peoples perception about the proposed K-REP bank, and determine the approximate amount of deposits to be made.
The study was carried out in ten Districts; Meru, Embu and Machakos Districts of Eastern Province, Uasin Gishu, Trans Nzoia, Kajiado and Nakuru in Rift Valley, Kisumu in Nyanza, Nyeri in Central and Nairobi. A total of 1133 respondents (815 micro entrepreneurs and 318 non entrepreneurs) were interviewed during this study. The respondents were both rural and urban based and were selected using the random walk method.
The main method of data collection in this study was the use of a structured questionnaire. Two kinds of structured questionnaires were used; one was for the business people and the other for the non business. The primary data was statistically analysed. The primary data was supplemented by secondary data from published literature on the new world of microenterprise finance.
The following were the major findings of the study:
· The majority of the respondents (91.7 per cent entrepreneurs and 86.4 per cent non entrepreneurs) expressed their willingness to open an account with the K-REP bank, once it is operational.
· Almost all K-REPs clients (97.8 per cent) would open an account with the K-REP bank. 88.7 per cent of entrepreneurs who are not K-REPs clients were willing to open an account with the K-REP bank.
· An analysis based on the actual number of men and women interviewed, revealed that women more than men would open an account with the K-REP bank. Out of all the women microentrepreneurs, 93.1 per cent would open an account with K-REP as opposed to 90.9 men. And 89.2 per cent of the male non entrepreneurs would open an account with K-REP as opposed to 81.4 per cent female.
· The main consideration for those who would open an account with the K-REP bank is the possibility of accessing credit. Other considerations are a low minimum opening balance, proximity of the bank to the clientele, good public image of the bank staff, fast services and favourable interest rates on deposits.
· For those respondents who would open an account with the K-REP bank, the majority (56.1 per cent) said they would be making deposits once per month while 27.2 per cent said they would be making them two to three times per month. 49 per cent of the respondents said they would be making withdrawals once per month, while 21.3 per cent said they would be making them two to three times per month.
· The deposit and withdrawal intervals show that most of the respondents will be making them monthly. While 74.0 per cent of the respondents will be making their deposits monthly, 62.9 per cent will be making their withdrawals monthly. It was also observed that 4.7 per cent of the respondents would be depositing daily and 19.5 per cent will be depositing weekly. 31.8 per cent of the respondents would be making withdrawals yearly.
· Whereas the majority of the respondents (56.8 per cent) will be making deposits of up to Kshs. 1,000 each time, 13.6 and 11.5 per cent will be making deposits of between Kshs. 2,001 to 4,000 and 4,001 to 8,000 respectively. But 0.4 per cent of the respondents would be making deposits of more than Kshs. 100,000.
· In a major shift from the existing operations of banks, there is a strong feeling among the people that K-REPs bank will need to work on all days of the week except Sundays. Most of the respondents (59.0 per cent) want the banks opening hour on weekdays to be between 8 and 8.59 a.m. and close between 4 and 5 p.m. (34.8 per cent). On Saturdays, they (45.6 per cent) would like it to open between 8 and 9 a.m. while 46.7 per cent would like it to open between 9 and 10 a.m. While 34.9 per cent of the respondents felt the bank should be closing on Saturdays between 4 and 5 p.m., 31.8 per cent felt that it should be closing between 3 and 4 p.m.
· Most of the respondents would like the bank to be located near their business premises, offices or residences. Indeed, most of them (68.6 per cent) did not want the bank to be located more than two kilometres away. Other considerations in choosing the site of the bank were security, and accessibility (served well with public transport network).
· The savings account is the most widely used type of account (82.9 per cent), followed by the current (15.2 per cent), and finally the fixed account.
· The savings account is preferred by most people because of its low minimum opening balance, interest paid on deposits and easy account opening procedure, while the current account is preferred because of its unlimited liquidity, chequing facilities and fast services. The interest paid on deposits entices those who use the fixed account.
· Deposits into the bank are mostly made once per month (52.6 per cent), 23 per cent make them twice per month. But the time intervals of deposits showed that 61.8 per cent make them monthly, 31.5 per cent make them weekly. When compared to the time intervals when withdrawals are made (59.7 and 31.1 per cent monthly and yearly respectively), it becomes clear that those who deposit outnumber those who are withdrawing.
· The current account holders deposit more money than those with saving accounts. Most of those with savings account (24 per cent) make deposits ranging from Kshs. 2,001 to Kshs. 4,000 per month, whereas, 20.2 per cent of those with current accounts deposit between 30,000 to 60,000 shillings per month.
· Interest on deposits is not a very powerful incentive for savers. The time taken to receive service, the distance to the bank, the minimum balance for opening an account and finally, the good attitude of the bank staff (in that order) are the most powerful.
In view of the above observations, the following are the recommendations of this study;
· K-REP, needs a mix of deposit instruments to meet varied local demands. Judging from the deposit and withdrawal patterns and intervals, K-REP will need to start by introducing semi-liquid and fully liquid instruments. The earlier will be one where the depositors can make as many deposits but the withdrawals are restricted to a few times in a month, while in the latter, they will be making deposits and withdrawals as many times as they wish. Later on K-REP can introduce the time deposit instrument.
· The K-REP bank should have its branches established closer to the people so long as there are significant business activities and sufficient transactions. It is suggested that they begin with the current area offices as branches and the field offices as service posts with mobile posts being established in outlying areas.
· The banking services should be offered from a very secure place. There is also need to cultivate a feeling of confidence among the depositors that they are not dealing with an unreliable institution.
· The banking services should be offered in such a way that they are not seen to be inconveniencing the saver in any way. The opening and closing hours of the bank plus the days on which it is open have to be adjusted so that it operates slightly longer than the existing banks.
· Already, even before she becomes a bank, K-REP is giving credit. But as she transforms herself into a banking institution, she will need to consider the issue of having a low minimum balance for opening an account, offering fast services, good public image of the bank and favourable interest on deposits. All those are incentives to savers.
· K-REP will need to exercise flexibility on the management of the account. One of the critical issues she will have to look at and which we are suggesting she should do away with is the issue of limiting withdrawals. Unlimited withdrawals act as an incentive to savers.
· In a nutshell, K-REP should offer a set of deposit tools for voluntary savings that provides the saver with convenience, security, liquidity, and returns.
As K-REP moves towards mobilising voluntary savings, those are some of the key issues she will have to look at very critically.