HF calls for saving incentives

July 16, 2009
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, NAIROBI, Kenya, Jul 16 – A player in the mortgage industry is blaming Kenya’s low saving culture to lack of adequate incentives to encourage more people to save.

Statistics from Central Bank of Kenya indicate that the country’s Gross National Savings stands at a mere 14.8 percent of the country’s Gross Domestic Product (GDP).

Housing Finance Managing Director Frank Ireri further attributed the low saving culture to lack of access to financial services, complexity of financial products and lack of investor education.

“A lot of people look at the (money) they have and say if they put it in a savings account they might get returns of one to 1.5 percent, if lucky. They therefore opt to put their money into a Treasury Bill or buy something that will appreciate in the near future,” Mr Ireri noted.

He observed that very few people view growing savings through an account as an option, something Housing Finance was working to change.

On the other hand, Mr Ireri noted that the government needed to fast track any initiatives that could improve this culture citing the currently stalled legislative proposal that should see individuals use their pension savings to secure a mortgage.

“Last year we worked with the Retirement Benefits Authority (RBA) on the proposed amendment that should allow this to happen and were happy that 80 percent of our proposals were taken in, however the process is yet to get complete,” he said.

Mr Ireri was speaking during the launch of a new savings account by the mortgage firm intended to offer a bridge between savings and mortgage. He says the ‘Cross Over’ account will target the mass market and the Diaspora and will offer preferential interest rates of up to 10 percent and mortgage interest rate discounts of up to two percent for individuals applying for a mortgage.

The Mortgage boss says the new account is designed to encourage more people to want to save through simpler saving and offering fairer and better incentives in financial education.

“When we got the additional capital through the rights issue last year it gave us the muscle to increase our lending and deposit taking by up to Sh28 billion,” Mr Ireri explained.

“This account will be one of those products that will fit that ability to raise up to Sh28 billion so we expect it to play a key role in mobilising savings especially from other institutions.”

The product will be housed by the retail arm of the business.

“The product is envisioned to have features that will entice individuals to not only save but also start working towards buying a home,” he said.

Cross Over Account holders will benefit from 100 percent mortgage financing once they achieve the minimum deposit for mortgage and a waiver of up to 25 percent of the commitment fees.

He went on to explain that a Cross Over account customer will still retain their savings balance as an investment when they take up a mortgage.

“Buying a home requires more than just money for a down payment. You also have to be committed to taking control of your finances,” said Mr Ireri. “The account enables customers to withdrawal once every three months; thus helping them to manage funds better. This facilitates maximum growth of savings and increases interest rates on deposits.”

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