91pc of low income earners save informally

August 12, 2014

, Kenyans walking

NAIROBI, Kenya Aug 12 – A new report indicates that 91 percent of low income earners in Kenya save their money in informally, shying away from banks and other financial service institutions.

The report dubbed Kenya Financial Diaries 2014 shows that low income earners (earning less than $3 a day) hold only 9 percent of their financial assets in formal sectors, opting for informal sectors that include Rotating Saving and Credit Association (ROSCA), table banking and welfare groups.

The report indicates that ROSCA is the most widely successfully used financial device for investment activities however not enough to make a large and lasting impact on a person’s livelihood.

“We observe that many households spend as they earn, matching their incomes to immediate spending particularly from lumpy expenses savings and quickly shuffled to financial devices that provide immediate auxiliary benefits either directly to the saver or to his or her social networks like ROSCA,” said Bankable Frontier Associate Senior Associate Julie Zollmann when presenting the report.

Zollmann said funds in a bank account are used to maintain eligibility for loans.

“Faced with already tight budgets and high levels of uncertainty around their income spending needs, poor households try to create elasticity in their budget by keeping a bit of liquid savings, keeping lines of credit open,” she said.

She said banks are not affordable, not flexible and lack effective price transparency making them unattractive to low income earners.

Also to blame are the losses occurred in formal institutions as well as technology failures with Automated Teller Machines (ATM) during emergencies and late hours.

“Some of the complaints we got include – what is wrong with banks? Are they broke? I need to deposit money urgently and they just tell me the network is down, why is the network down most of the time?” she explained.

According to the study, 7 percent of low income earners suffered a loss from the bank in the last decade with average loss per instant at Sh3,000 and only 9 percent recovered their money.

The study indicates that low income earners in Kenyans have 10 separate income sources that include social support from friends and family.

“Resources received from friends and family were not just large in number but also as a share of total income, in rural areas resources received accounted for 25 percent of income versus6 percent in urban areas,” she said.

Eighty five percent of women receive income from this source while men were less likely to receive money at only 4 percent.

The report says that mobile money has added significantly to banking the low income earners.

The study done by Financial Sector Deepening (FSD) Kenya included 300 households from five areas of the country that include Nairobi, Makueni, Mombasa, Eldoret and Vihiga.


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