savings

POLICIES FAVOURING SAVINGS KEY TO IMPROVING LIQUIDITY
As banks grapple with the liquidity problems, a significant portion of the population remains unbanked or continue to shun the banking system preferring instead to their monies home for ‘safe keeping’. This non-banking culture in turn starves banks of the vital resources or the savings from which advances or loans are often made. Now the question for some time now has been; how do you encourage a culture of savings in environment where there are factors that militate against this? Is it possible to get people flowing in numbers to banks when they are still traumatised by losses incurred during the period of hyperinflation and the collapsing Zimdollar? Evidently there is no easy answer because these questions actually reveal a bigger problem, the lack of confidence in the financial system. During the hyperinflation period banks just like every other business had to constantly increase charges or fees of their banking services to cover for the ever ballooning administrative costs. What was perhaps absurd was the lack of similar zeal to protect their clients’ monies from the ravages of inflation by correspondingly increasing interest earned by these. The result was the loss of value in nominal terms of client deposits and the loss in value in real terms as interest earned if any, was simply too little when compared with the rate of inflation. Naturally this forced the banking public to find or devise ways to cushion themselves from inflation and not surprisingly foreign currency was the most suitable option even though laws at the time prohibited citizens from holding this without approval. Of course now we have what is termed the multi-currency system which is essentially dollarization of the economy, with inflation out of sight and yet even now we still have a sizeable number of transactions taking place outside the banking system. There are obvious risks in transacting in cash and banks continue to promote the use of alternative such as debit cards but clearly there has been some resistance to this message. There are possibly legitimate reasons for this and the major one from the perspective of most clients, the bank charges or fees. There is no doubt this issue played a role in driving people away from banks in the last decade and continues to repel potential clients from returning to some banks. Most people are still poorly paid and according to the consumer watchdog most families survive well below the poverty threshold which is around $500 per month. Therefore people under these sort of conditions people would do everything to minimise costs and certainly very high banks charges relative meagre incomes is certainly a big no no. From these people’s perspective it makes more sense to keep their meagre savings outside banks than to incur high bank charges when they maintain their savings in banks. The other issue keeping people from using the banking system has nothing to do with banks themselves but rather government policy. Conflicting statements continue to come from government officials about the tenure of the multi-currency system we are using.  Only some weeks back the central bank chief called for the return of the so called gold backed Zimdollar because the current regime was impeding the central bank from fully discharging its duties as the country’s monetary authorities. However the return or the talk of the return of the Zimdollar always creates anxieties for most suffered heavily in the last decade before the volatile Zimdollar eventually collapsed. What they thought was their money in banks was simply at the stroke of a pen deemed worthless and many people are still traumatised by this. Of course the treasury has assured people and businesses that the present currency regime will remain in place at least throughout the duration of the Mid Term Plan. However it is such inconsistent announcements which help to fuel many conspiracies around this issue and certainly makes it very difficult to fully restore confidence in the banking system. One of the conspiracy theories is that government wants to return us to the worthless Zimdollar and it is just waiting for the right moment when enough deposits or banking would have been made then it will just announce the return of the Zimdollar and seize all foreign currency. Well this may seem far-fetched but this all comes from the confusion coming from authorities and such confusion helps to create uncertainty which then exacerbates the problems banks are facing. The savings which according to the country’s economic plan for the next 4 years must reach 20% of GDP by 2015 will never be achieved if this uncertainty and lack of confidence in the financial system is allowed to continue. Yet such levels of savings will in normal circumstances help to drive local investment something equally vital if aspirations of a $100 billion economy by 2040 are to be realised. Most importantly local investment is now paramount as foreign direct investment has not been coming hence the need to encourage savings through actually lowering fees or charges to customers. However the government has the biggest responsibility in sorting the mess in the financial system it can do this by having a clear and consistent policy regarding the currency regime and united-ly assure the population about this. Meaning authorities will have to refrain from issuing statements that might otherwise spook people.

Terence Zimwara is an economic analyst contact him tem2ra@yahoo.com  temra-temra.blogspot.com