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FACTORS INFLUENCING SAVINGS MOBILIZATION BY COMMERCIAL BANKS: A CASE STUDY OF COMMERCIAL BANKS IN NAKURU.

BY

CHRIS HUMPHERY RUMENDA C12/60013/08 JOASH SIMIYU WAKOLI C12/60054/08

WINNIE WANJIRU NYANTIKA C12/60051/08

A Management Research Paper submitted in partial fulfilment of the requirements of the award of Bachelor of Commerce (Finance Option), Department of Accounting Finance and Management science.

EGERTON UNIVERSITY

FEBRUARY 2012

DECLARATION We declare that this is our original work and has not been presented anywhere else for a degree award. CHRIS HUMEPHERY RUMENDA Date..............................

Signature.......................................... JOASH SIMIYU WAKOLI Signature......................................... WINNIE WANJIRU NYANTIKA Signature.........................................

Date..............................

Date.................................

DEDICATION We dedicate this to all those interested in finance especially in the banking sector.

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ACKNOWLEDGEMENT We would like to acknowledge God for giving us the strength and life to carry out this research.

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LIST OF ABBREVIATIONS

NBFIs CBK GDP USA DPFB DIS DIC FDIC LDCs IMF IES ROSCA ASCRA ID

Non-Bank Financial Institutions. Central bank of Kenya Gross Domestic Product United States of America Deposit Protection Fund Board. Deposit Insurance Scheme Deposit Insurance Corporation Federal Deposit Insurance Corporation Less Developed Countries International Monetary Fund Inter-temporal Elasticity of Substitution Rotating Savings and Credit Association Accumulating Savings and Credit Association Identity

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ABSTRACT Private savings in Kenya has constantly fluctuated in the recent years. Raising the levels of net savings is therefore absolutely necessary if Kenya is to achieve the targets of long-term growth. The main objective of this study was to assess the factors influencing savings mobilization by commercial banks in Kenya. Descriptive statistics included frequency tabulations; mean and percentages were used to analyze the data. Qualitative analysis was used in analyzing the data gathered from the interviews.

It was found out that the main factors influencing savings in the sampled banks include: High levels of taxation, high levels of minimum balance, low deposit interest rates, poor identification of customer needs, slow economic growth, high bank charges, negative staff attitude and poor responsiveness, low employment opportunities, inadequate bank policy, limited diversity of deposit products, low disposable income and inadequate marketing and bank relationship. A well functioning financial sector contributes to economic growth and to social cohesion. Savings are the principal sources of domestic capital accumulation, which in turn, when combined with health economic and investment policies allow a country to ensure sustained growth and improvements in the standards of living.

Arising from the findings of the study, the following recommendations were made: an exhaustive analysis of the real needs of customers and effective segmentation of customers on the basis of their particular needs should be adopted. Extensive diversification of the range of products and services offered with a view to effectively meet the needs of the population. Banks should design savings products that are accessible, flexible, profitable, liquid, and attractive. Financial institutions should implement internal monitoring and risk management policies in order to guarantee the security of savings deposits. Continuous training and or in-service courses should be mounted for bank staff to equip them with product knowledge and customer care service.

CHAPTER ONE

1.0 INTRODUCTION 1.1 Background of the Study The growth of the output of any economy depends on capital accumulation, and capital accumulation requires investment and an equivalent amount of savings to match it. Two of the most important issues in development economics, and for developing countries, are how to stimulate investment and savings. There is no doubt that the challenge of boosting savings is of great importance if banks were to sustain the desired growth rate and increase in its investment rate, Thirlwall (1994). The most important economic function of a banking system is financial intermediation between savers and borrowers. Mobilization of domestic savings, while providing a safe place for savers to accumulate financial assets, increases the availability of domestic financial resources for investors, Leep (1996). The growth of income is an important determinant of savings. Research shows that the degree of financial deepening clearly matters for savings, and governments have a role to play in providing the proper regulatory and legal framework in which the banking system can operate safely and efficiently. The development of the banking sector in Kenya dates back to the year 1896 when the first commercial bank became operational. Nyamai (1989) identifies the earliest banks in Kenya as National Bank of India (1896) and Standard Bank of South Africa (1916).In other literature on evolution of Central Bank of Kenya, Ndegwa (1986), states that after 1910, the banking industry expanded slowly but steadily. In 1958 there were 9 banks and 3 Non-Bank Financial Institutions (NBFIs). The banks were Barclays Bank (D.C.O) 1926, Nederlandsche Handel Maatschappij which later was named A.B.N. (1952), Bank of India, and Bank of Baroda (1953), Habib Bank (Overseas) Ltd (1956), Ottoman Bank and Commercial Bank of Africa (1958). The earliest NBFIs to be established were Diamond Trust Company (1946), Credit Finance Corporation (1955) and National Industrial Credit Ltd (1959). In terms of mortgage business, Savings and Loans (Kenya)

Ltd was established in 1949 to carry out the business of mortgage lending and was followed by East African Building Society in 1959. The banking sector in Kenya plays a critical role in facilitating financial transactions in terms of both local and international business. Shambe (2003) identifies the significance of the financial sector in Kenya as paramount because banks facilitate financial intermediation between savers and borrowers, execution of the monetary policy and provides smooth avenues for the payment systems. As custodians of savers funds, the institutions that form the banking sector ought to be sound in order to foster confidence in the countrys financial system. To reinforce this significance, statistics provided by Central Bank of Kenya (2003) shows that out of Kshs. 368.4 billion in total liabilities held by the banking sector 80% accounted for savings liabilities. This report observed that the high proportion of deposit liabilities renders banking institutions very vulnerable to changes affecting the level, maturity and structure of deposits. It goes further to state that the safety of depositors funds in the banking system call for efficient management policies and procedures and remains the principle focus of CBK Bank Supervision Department as their safety is the cornerstone of public confidence and financial stability. 1.2 Statement of the Problem The most important economic function of a bank is to enhance mobilization of savings. The mobilization of savings must be accompanied by providing a safe place for both domestic and foreign savers. In recent years several banking institutions have been faced with challenges in their pursuit to increase bank savings. The national development plan (1997-2001) indicated that the major challenges emanates from inadequate identification of customer needs and poor relations marketing. Private savings in Kenya has constantly fluctuated (figure 1 below) in recent years, the fall in real wage and slow growth in employment can also be attributed to the low levels of savings and investments. Raising the levels of net savings is therefore absolutely necessary if Kenyan banks are to achieve the targets of long-term growth.

Figure 1.1: Saving & Investment % GDP (2004)

Source: Market Intelligence (Special Annual Edition 2005) Banks also impose restrictions to savers on opening bank accounts such as minimum deposit requirements resulting in smaller amounts of savings instead of encouraging larger savings deposits. Consequently there is a need to assess the factors influencing savings mobilization by commercial banks. 1.3 Objectives of the Study 1.3.1: General Objective The main objective of this study was to identify and assess the factors influencing savings mobilization in commercial banks. 1.3.3: The specific objectives of the research 1. To establish the requirements for opening the various bank accounts. 2. To assess the extent to which banks policy facilitates the mobilization of savings. 3. To establish the relationship between savings and profitability of the bank. 4. To identify the factors affecting the savings levels of the banks. 5. Seek suggestions for improvement of savings mobilization. 1

1.4 Research Questions The following specific research questions, which are derived from the above objectives, were investigated. 1. What are the requirements for opening a bank account? 2. Do the banks policy instruments facilitate the mobilization of savings? 3. What are the impacts of inadequate savings on the profitability of the bank? 4. What are the internal organizational factors affecting the saving levels of the bank? 5. What are the external organizational factors affecting the saving levels of the bank? 6. What strategies should be used to improve banks savings mobilization?

1.5 Significance of the Study The board of directors and branch managers will use the finding of this study to develop strategies focused on encouraging the mobilization of savings by commercial banks. The directors will also use these findings to develop solutions to the factors influencing the performance of the bank in relation to savings. The study will also contribute to the existing knowledge and provide literature to scholars in the field of savings mobilization with interests on the subject of bank savings. Future researchers will also have the opportunity to use the finding of this study to further research in this area. Public policy makers will use these findings in planning the countrys economic policies. 1.6 Scope of the Study The scope of this study was limited to factors influencing mobilization of savings within the commercial banking sector. The study concentrated on the branches of the banks in Nairobi. Respondents were selected from among top managers, middle and clerical staff of the banks. The scope of the study was chosen to ensure that all data related to the factors affecting mobilization of savings are captured.

CHAPTER TWO

2.0 LITERATURE REVIEW 2.1 Introduction This chapter provides the review of related studies which have been presented by other scholars. It presents the past studies on management challenges facing the banking industry, the types and determinants of domestic savings, research information on the determinants of savings across countries, implications of bank failures to the economy, causality between savings and growth and institutional mechanisms to mobilize savings. 2.2 Theoretical literature review 2.2.1 Absolute Income Hypothesis Keynes introduced a consumption function or short-term savings as when income increases (under the assumption that other factors remain constant), people tend to increase the amount of their expenditures at a lower proportion compared to the increase in income increase, thus savings rate will rise when incomes increase.

2.2.2 Dependency Rate The number of dependants or non-income earners is another important factor, which determines savings behavior. They are burdens on the household causing the rise in household expenditure. On the other hand, income earners tend to save at a higher rate. This implies that if the proportion of income earner population is high, total household savings will also rise. 2.2.3 Life-Cycle Hypothesis

The life-cycle hypothesis relates the age structure to savings behavior. In general, a person has low income at the beginning of life and at retirement age when productivity declines. At middle age, however, income increases while consumption remains constant or increases at a smaller proportion. This implies that in the early years a person is a net borrower, in the middle years of his life, a saver to repay debts and provide for retirement; and in the later years of his life, a dissever.

Figure 1.2: Distribution of Income, Expenditure Income, Expenditure

Expenditure Income

Period Early-age Middle-age Retirement-age

Source: Saving Culture Sophon Rojthamrong 2.2.4 Occupation or Income Source Kaldors hypothesis states that the source of income is also an important factor in determining household savings behaviour. Kaldors divides savers into two groups: profit earners and wage earners. In his study, he finds that the marginal rate of savings for profit earners tends to be higher than that of wage earners. This hypothesis is supported by the empirical studies of Hahn, Kalecki, and Robinson.

2.2.5 Geographical Areas The difference in geographical locations is another important factor because the influential ability, inspiration, and opportunity for people to save are different. The level of consumer market development is also markedly different in urban and rural areas. The study by Gupta, Kelly and Williamson finds that the marginal propensity to save in the urban sector is higher than that in the rural sector.

2.2.6 Education level Education level of household members has both positive and negative impact on savings. Education supports spending discipline, thereby working to increase savings in this respect. On the other hand, education can also raise the not-savings motive as a result of career security and low risk of being unemployed compared with the lower education groups. The latter hypothesis is supported by the study of Narit Chaiyasood.

2.3 Sources of Investment Finance Effective mobilization of domestic and foreign savings for productive investment is a pre-requisite to economic growth and thus the attainment of sustainable development. A country that is able to generate a high savings ratio is able to finance more rapid development and employment generation. The savings rate is thus a key performance indicator of economic growth. The banks ability to transform domestic savings into additional income in the future through capital accumulation is critical to rapid and stable growth (Sessional paper No. 1 of 1994). The main sources of investment finance are private domestic savings. There are however two other sources, government savings and foreign savings which come into the country as grants, lending, or direct foreign equity investment. Any increase of savings from any of these three sources will result in an increase in net capital formation. Private savings in Kenya has constantly fluctuated in the recent years. The fall in real wage and slow growth in employment can also be attributed to the low levels of savings and investments. Raising the levels of net savings is therefore absolutely necessary if Kenya is to achieve the targets of long-term growth (Sessional paper No. 1 of 1994).

In order to industrialize, all potential sources of domestic savings must be harnessed and channeled to investors, both big and small. Domestic savings are the sum of public and private sector savings. Public sector savings arise from budgetary surpluses while private domestic savings on the other hand arise from either the corporate sector retained earnings or household savings. Foreign savings, which are made up of official foreign savings: grants and loans consist of direct foreign investment and external commercial borrowing. The inflow of foreign capital will be sustained through improvement of the investment climate, which involves political stability, developed and well-maintained infrastructure, skilled labour force, well established banking and financial network, efficient civil service that is free of corruption and attractive investment incentives.

2.4 Management Challenges Facing the Banking Industry Causes of bank failure are numerous but mostly related to the performance of a countrys economy which is a key determinant of the soundness of a banking system. The internal environment of banks has also been found to be responsible for bank failure. Gonzalez (1999) observed that there are three broad factors that are always attributed to bank failure. These are market risk, default risk and liquidity risk. Duncan (2003) states that experience of bank savings in the U.S.A. has shown common factors among bank failures, which include managerial weaknesses; poor internal routines and controls; fraud and economic conditions. On the local scene a study by Obiero (2002), on the Kenyan banking sector revealed that the main causes of bank failure in Kenya revolves around ineffective board and management; high incidence of non-performing loans; under capitalization/insolvency; poor lending practices on deposits and persistent violations of the Banking Act. In its own independent study, Central Bank of Kenya (1997) found out that the main causes of past bank failures were interference by shareholders and directors; poor asset quality arising from malpractices in lending practices and mismatch of resources (borrowing short and lending long) leading to liquidity problems and under-capitalization. The management of failed banks and high incidence of non-performing loans were also identified as being responsible for bank failure in Kenya. Bank failure in Kenya can be categorized into two, pre and post liberalization of the economy. According to Central Bank of Kenya (1997), 12 institutions comprising 2 banks and 10 Non-Bank Financial Institutions collapsed prior to liberalization of the banking industry, which commenced after 1991. During this pre-liberalization period, 6

Central Bank of Kenya, working together with the Government was successful in restructuring the operations of 9 institutions into the current Consolidated Bank of Kenya Ltd. It was, however, not successful in the restructuring of Continental Bank of Kenya Ltd and Continental Finance Ltd and both had to be placed under receivership by the official receiver. Central Bank of Kenya and annual reports and financial statements by Deposit Protection Fund Board (2000-2002) showed that in the post-liberalization period, 26 institutions collapsed but Central Bank of Kenya succeeded in restructuring three Banks, namely: City Finance Bank Ltd, Bullion Bank Ltd and Delphis Bank Ltd. United Trustee Finance Ltd was taken over by the official receiver and 22 institution were closed and are currently under liquidation by Deposit Protection Fund Board (DPFB). Bank failures are very costly not to individual savers but to the entire business community and the economy at large. An analysis of the Annual Report and Financial Statements (2003) by Deposit Protection Fund Board shows that a total of Kshs. 16,354 million in deposit liabilities held by 22 failed institutions and currently under liquidation cannot be accessed by depositors. Likewise, only Kshs.4,333 million of total loans held by these institutions at closure have not been recovered. These reflect the quantifiable cost to the depositors.

2.5 Types and Determinants of Domestic Savings There are basically three types of private domestic savings each with their own different determinants, namely voluntary savings; involuntary savings, and forced savings. 7

Voluntary savings relates to the voluntary abstinence from consumption by private individuals out of personal disposable income by companies out of profits. Involuntary savings is brought about through involuntary reductions in consumption. All forms of taxation and schemes for compulsory lending to governments (including national insurance contributions) are forms of involuntary savings. Forced savings is that which comes about as a result of rising prices and the reduction in real consumption that inflation involves if consumers cannot (or do not) defend themselves. Rising prices may reduce real consumption for a number of reasons. Firstly, people may suffer money illusion. Secondly, they may want to keep constant the real value of their money balance holdings, so they accumulate more money and spend less as prices rise (the real balance effect). Thirdly, inflation may redistribute income to those with a higher propensity to save, such as profit earners. Inflation initiated by monetary expansion will certainly redistribute income to the government as the issuer of money. This is the notion of the inflation tax .As Keynes once said (inflation is) a form of taxation that the public finds hard to evade and even the weakest government can enforce when it can enforce nothing else (Keynes, 1923). The empirical evidence across countries (Thirlwall 1974b; Sarel, 1996; Bruno and Easterly, 1998) suggest a positive relation between inflation and growth up to 6-8 percent inflation, and only when inflation exceeds 10 percent do the consequences for growth become seriously detrimental. Voluntary savings depends on the capacity to save and the willingness to save. The capacity to save depends on three main determinants: the level of capital, income and the distribution of income. The willingness to save depends, in turn on: the rate of interest; 8

the existence of financial institutions; the range and availability of financial assets, and the rate of inflation. One of the most important innovations that Keynes made in his General Theory of Employment, Interest and Money (1936) was to link, for the first time consumption (and therefore savings) to the level of income through the concept of consumption (or savings) function. More explicitly, there is a suggestion that the consumption or savings function is non-proportional; that is the rich consume proportionately less, and save proportionately more, of their income. This is broadly the pattern observed across countries (Hussein and Thirlwall, 1999). The savings ratio is lower in poor countries, but does not rise linearly as income increases. It increases at a diminishing rate and then levels off (at approximately 25 percent of national income). Egypts average domestic savings ratio over the period 1967-95 was 13.1% with an average per capita income. On the basis of international cross section evidence, this is a low savings ratio than would be expected on the basis of the level of income alone. Apart from the level of per capita income, another major determinant of the domestic savings ratio is likely to be growth of income, as suggested by the life-cycle hypothesis is that individuals and households attempt to spread out consumption evenly over their lifetime. A typical pattern of behavior would be de-savings in youth, positive savings in middle-age, and de-savings in retirement, the volume of savings of the active household will exceed the de-savings of currently retired household with a lower level of lifetime consumption. The savings ratio will then tend to rise with the rate of growth of income because the higher the growth rate, the greater the gap between the target levels of 9

consumption of the current generation of working households and the de-savings of retired people from a less prosperous generation. Thus, countries with higher growth rates might be expected to have at least higher personal savings ratios than countries with lower growth rates. The exception will be countries where population is not in balanced growth; where, for example, population growth has accelerated or slowed down dramatically changing the balance between active and non-active households (i.e. changing the dependency ratio). For this reason, in testing the life-cycle hypothesis, the growth of population with the expectation that the magnitude and significance of the coefficients will not normally be the same. Another potentially important factor determining the capacity to save is the distribution of income. If the propensity to save by the rich is higher than that of the poor, the aggregate savings ratio will be positively related to the degree of inequality both in the personal distribution of income, and also in the functional distribution between wages and profits on the assumption that the propensity to save out of profits is higher than out of wages. Indeed, movements in the income distribution, both personal and functional, may be an independent explanation of why the savings ratio first rises with the level of per capita income and then levels off. The transformation of countries from traditional agricultural economies through Rostows take-off stage to maturity is bound to be accompanied in the early stages by widening disparities between individuals and a rise in the share of profits in national income. Some individuals are more enterprising, and more adept at accumulating wealth, than others.

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As far as the willingness to save is concerned, it might be expected that the price of present consumption, namely the real rate of interest, will affect savings positively. This classical idea lies behind the financial liberalization programmes in developing countries which seek to raise the real interest rate to market clearing levels in order to maximize savings, investment and growth. In the last twenty years or so there has been extensive testing of the financial liberalization hypothesis, and particularly the impact of interest rates on savings, with mixed and largely inconclusive results. Perhaps this is not surprising for two main reasons. Firstly, the financial liberalization argument largely refers to financial savings, but financial savings is only one component of total savings. When interest rates rise, agents may simply switch between assets, leaving total savings unchanged. Secondly, it is standard theory that any price change in this case, the interest rate has both income and substitution effects. The substitution effect promotes savings, but the income effect reduces savings, and the two effects may cancel each other out. A more important determinant of the willingness to save is likely to be the existence of financial institutions, and the range and availability of financial products to suit savers with different needs/tastes. There is no single measure that can capture these institutional determinants of the willingness to save. The number diversity and distribution (or proximity) of financial institutions serving the different interests of savers could be important. Athukorala (1998), for example, finds the bank density index (population per bank branch a highly significant variable in explaining inter temporal savings behavior in India. Equally, the volume and range of financial assets with different terms and maturity might matter as a measure of financial deepening. Indicators of financial deepening include: The ratio of money to quasi-money, quasi-money to GDP; the growth of money 11

and quasi-money, and quasi-liquid liabilities as a percentage of GDP. Hussein and Thirlwall (1999) take this last measure, and find it statistically robust in explaining differences in the savings ratio across countries. Finally, the rate of inflation can be expected to affect the willingness to save, but the effect is ambiguous. On the one hand, it is natural to expect individuals to avoid the tax if it becomes burdensome in relation to the convenience of holding money. It can be shown (Friedman, 1971) that the yield from the inflation tax will be maximized when the elasticity of the tax base (the level of real money balance holdings) with respect to the rate of inflation is minus unity. Even if private savings does increase, however, total savings may not increase if the government fully consumes the proceeds of the inflation tax. Inflation may also discourage other forms of voluntary savings because its real value is falling. The most likely relation between inflation and the savings ratio is a quadratic showing savings rising with mild inflation and then falling as inflation becomes excessive. 2.6 Research on the Determinants of Savings across Countries Recent research on the determinants of differences in the domestic savings ratio across countries confirms the overwhelming importance of the level of per capita income, the growth of income and financial deepening. Three studies may be mentioned: Edwards (1996): Masson, Bayoumi and Samiei (1998), and Hussein and Thirlwall (1999). Edwards takes panel data (pooled time series and across section data) for 36 countries over the period 1970 to 1992, distinguishing between private and government savings. As explanatory variables, he takes the level of per capita, the growth of income (reflecting the life-cycle hypothesis of savings) various monetary and fiscal variables. The major 12

conclusions highlighted by Edwards are: per capita income growth is an important determinant of private and public savings crowds out private savings, and higher foreign savings is associated with lower domestic savings. Surprisingly per capita is not highlighted as an important determinant of savings performance because its statistical significance is relatively low compared with other variables, but this is because the per capita variable is entered in linear form whereas in practice the relation between per capita and the savings ratio is non-linear, especially when the sample includes high income countries. The study by Masson (1998), recognizes this non-linearity using a quadratic specification, taking panel data for 21 developed countries (1971-93) and 40 less developed countries (1982-93) to explain differences in the ratio of private savings to GDP. Many of the other explanatory variables are similar to those of Edwards, and similar conclusions are reached except much greater importance is given to the level of per capita. Hussein and Thirlwall use panel data for 62 countries over the period 1967-95, distinguishing between the determinants of the capacity to save and the willingness to save. A measure of the personal distributions of income within countries, and the real rate of interest, proved not to be significant as determinants of inter-country difference in the savings ratio. A one percent difference in the quasi-liquid assets ratio is associated with a 0.43 percentage point difference in the savings ratio (all other things equal, of course). As far as inflation is concerned, the savings ratio rises with inflation, but very soon turns negative. Indeed, solving for the rate of inflation that maximizes the savings ratio gives a very low rate of 0.15 percent. Using values of the explanatory variables for Egypt gives a 13

predicted savings ratio of 18.8 percent compared with the actual savings ratio of just over 13 percent. Even when evidence relating to the effect of liberalization on savings investment and growth as we examine some of the major criticisms of the financial liberalization argument. Firstly, the argument refers to financial savings, but financial savings is only one type of savings. Financial savings may increase as interest rates are liberalized, but as mentioned earlier, there may simply be a substitution between financial assets and other assets, leaving total savings unchanged. Most studies of savings in relation to the rate of interest do not distinguish between financial savings and total savings, but where they do, financial savings is shown to be very responsive, while total savings is not. Warman and Thirlwall (1994) in their study of Mexico show the sensitivity of financial savings to the real rate of interest (and also to the interest rate differential between Mexico and the US). This sensitivity has also been found for Egypt over the period 1966-90 (African Development Bank) Report, 1994, Hussein and Mohieldin, 1997). Financial savings is significantly related to the real interest rate lagged one period, (as well as to the level of real income and the inflation differential between Egypt and the US).

As far as total savings is concerned, however, most of the empirical studies and surveys of the results of financial liberalization are extremely cautious in their conclusions. Research by Gupta (1987) on 22 Asian and Latin American countries over the period 1967-76 suggest that there is little support for the hypothesis of financial repression, and that the most important determinant of savings is real income. Giovannini (1983) concludes from his research on eight Asian countries that his results cast serious doubts 14

on the view that the interest elasticity of savings is significantly positive and easy to detect in developing countries. Similarly, a study by two World Bank economists (Cho and Khatkhate 1990) of the financial liberalization experience of five Asian countries concluded that: financial reform, whether comprehensive and sweeping or measured and gradual, does not seem to have made any significant difference to the savings and investment activities in the liberalized countries. It was believed until recently that removal of the repressive policies would boost savings. The survey in this paper of the consequence of reform does not reveal any systematic trend or pattern in regard to savings. It lends support to the conclusion that decisions to save are determined by several factors and the relationship between savings and real interest rates is at best ambiguous. Fry (1995), a leading authority on finance and development and an ardent advocate of financial liberalization, now concedes that what is agreed. is that if an effect (on savings) exists at all, it is relatively small and that positive interest effects are easier to find in Asia than in other parts of the world, but even in Asia the effects appear to have diminished over the past two decades. If financial liberalization does not increase aggregate savings, its positive impact on development must come through a more efficient allocation of resources, which raises the productivity of investment. There is not much evidence on this point, but the World Bank, which devoted its 1989 World Development Report to the topic of financial systems and economic development, claims that in countries with positive real interest rates, the average productivity of investment (as measured by the incremental output-

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capital ratio) was four times higher than in countries with strongly negative real interest rates. A second major criticism of the financial liberalization argument is that the model treats banks simply as savings depositories, with the presumption that the supply of loans from the banking system depends on deposits held by the bank, and if deposits increase, loans will automatically increase. In short the supply of credit is treated as heterogeneously determined. However, if banks have the power to create (which they do), backed by a Central Bank acting as lender of last resort, the supply of loans will depend on the demand for loans, not on the supply of deposits. The supply of loans becomes endogenous. 2.7 Implications of Bank Failures to the Economy It is evident that bank failures can cause a serious financial loss to countries regardless of whatever they are, developed or developing countries. Savings Protection Schemes also called Deposit Insurance Scheme (DIS) is a system to compensate depositors in the event of failure of a credit institution. The Journal of Financial Regulation and Compliance (March 2000) states the following as benefits derived from a deposit insurance scheme:Deposit insurance reduces the chance of a bank panic and attendant contagion effects that a run on one bank can impose on the entire banking system. It contributes to financial stabilization by encouraging confidence in the financial system and by isolating the effects of single bank failure. Deposit insurance also protects small depositors for whom it is not cost effective to obtain sufficient information about the condition of a bank. In the presence of deposit insurance, depositors are more likely to retain a larger proportion of their financial resources within the banking system. This reduces the cost of resources mobilization for institutions and hence the cost of borrowing. In the event of bank failure, explicit limited deposit coverage reduces the outlay of a government or central bank relative to an implicit guarantee bail out. 16

Garcia (2000) identified some forms of DIS as an explicit denial of protection or no protection at all, which is applicable in New Zealand. Other forms include an implicit guarantee; priority for claims of a deposit guarantee as in the case of Australia; explicit guarantee. According to the journal of Financial Regulation and Compliance (March, 2001) elicit deposit insurance is a system in which the government guarantees a payment to depositors in the event of a bank failure. Banks are charged a premium, which is levied usually once or twice a year, and these premiums are held in a fund. The fund is invested either in domestic treasury bills or treasury bills of other countries. The premium rates are either risk based or charged on a flat rate basis. The historical background to savings Federal Deposit Insurance Corporation (FDIC) in the U.S.A and Deposit Insurance Corporation (DIC) of Japan is important because it provides a brief summary on the necessity and evolution of deposit insurance schemes especially in large and vibrant economies of the world. FDIC was established in 1933 and became the first deposit insurance scheme to be established in the world. Its initial mandate, which has evolved over the years, was to fully compensate all depositors, insured and uninsured in the event of a bank failure in addition to facilitating mergers of weak institutions as a way of reducing bank failures. This mandate, however, resulted in excessive risk taking or moral hazards necessitating amendments of the FDIC Act to eliminate or discourage this fraud. The Act was enacted in mid 1980 to provide for risk adjusted premium; application of structured early intervention and resolution to distressed banks; restricted FDIC power to bail out large banks and prohibition of protection of uninsured depositors or creditors.

2.8 Causality between Savings and Growth Traditionally it has always been held that higher savings raises GDP growth by increasing capital accumulation (see for example the classic empirical study by Mankiw, Romer and Weil (1992). However, recently the above view, particularly in connection 17

with the investment growth link, has been challenged by a number of studies which have argued that the comovement of investment ratios and growth rates may be mainly the result of a third crucial factor, namely technological innovation, which drives both output expansion and capital accumulation. More precisely, recent empirical studies cast serious doubts on the hypothesized positive impact of investment on growth by providing robust empirical evidence according to which, although a casual link seems to be apparent, the direction of causation runs from growth to investment and not vice versa (see for example, King and Levine (1994), Benhabib and Jovanavic (1991) and more recently Blomstrom, Lipsey and Zejan (1996)). However, the intrinsic endogeneity of the two makes assessment of the direction of causation extremely difficult. Some authors have attempted to deal with the endogeneity problem of savings and growth using mechanisms such as the use of instrumental variables techniques and causality tests. Carroll and Weil (1993) used detailed household level data to deal with this issue and have concluded that there is evidence suggesting that growth indeed affects private savings positively. Cardenas and Escobar (1998) examine the question of causation for Columbia. They use a first order vector auto regression of the growth rate and the savings rate for the period 1925 1994. They find that changes in national savings and changes in investment are perfectly correlated and that savings Granger cause growth. Indeed Edwards model (1996) found that the coefficient on the rate of growth per capita GDP is significantly positive in a private savings regression and seems to provide some support to the hypothesis that there is a virtuous circle in operation. However, the vast empirical literature suffers from a number of shortcomings including preoccupation with the use of cross section studies and inappropriate econometric techniques.

2.9 Income and Wealth Effects It is commonly held that poor individuals save a smaller fraction of their income than the wealthy because they are closer to the line of subsistence; they have less flexibility in their consumption decisions, as discussed in section 2.7. However, according to the permanent income or life cycle theories, savings should be used to simply smooth 18

consumption over time. As a result it is the time pattern of income that is important here; those with more volatile incomes should have higher savings rates according to these theories. At the same time households, particularly those in developing countries, tend to be credit constrained, and as a result are less able to smooth consumption, so it is likely that consumption (and therefore savings) would respond substantially to changes in income. Gupta (1987) finds that savings responds significantly and positively to temporary income shocks in developing countries. There is also likely to be a strong element of myopia present, as households are less than perfectly able to distinguish between temporary and permanent income shocks, meaning that they will consume more out of current shocks than predicted by consumption smoothing models (Campbell and Deaton (1989). Income growth is also important. If the young anticipate that their income will grow steadily, and are able to borrow against the increase, their de-savings in the early years of the lifecycle may result in a negative relation between savings and growth (Deaton 1989). Inter-temporal optimization models see wealth as a key determinant of consumption or savings; in effect wealth provides a substitute for savings, hence greater wealth is predicted to reduce savings out of current income. Schmidt-Hebbel et al. (1992, p.532) cite evidence from a study by Schmid-Hebbel (1987), which uses five alternative measures of total wealth in an empirical intertemporal consumption model for Chile, and a study by Behrman and Sussangkarn (1989) using household level data on wealth and savings in Thailand. Both studies find that wealth has a strong negative effect on savings. 2.10 Demography Standard lifecycle models state that individuals will have negative savings when they are young and have low income, positive savings during their productive years, and negative savings during their retirement years. The aggregate amount of savings will depend on the relative number of active and retired people in the economy, which will in turn depend on the population growth rate. According to the standard model, individuals consume all the resources available to them over their lifecycle, i.e. do not leave

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bequests. According to this view, aggregate private savings will be affected by the age distribution of the population. The effects of demography on savings can be analysed by extending the two-period lifecycle model discussed in section 2 to a multi-period model. However, Gersovitz (1988) introduces a caveat here. Effectively, the increase in horizon corresponds to an increase in the life expectancy of adults, since the model is of a decision-maker in full control of his initial consumption decision. This should be borne in mind, especially in view of the fact that much of the increase in life expectancy in LDCs has been through decrease in infant mortality rates raising the expectation of life at birth. The importance of demography for savings was touched on in section two, in the discussion about the interface between financial deregulation and household savings. Webb and Zia (1989) used a model based on lifecycle savings to examine the importance of demography, and to see how much aggregate lifecycle savings will change during the demographic transition. Their model necessarily differs from the usual assumptions of steady state populations, and examines the effect of deviations from the steady state occurring during demographic transition. They assume for a given interest rate and growth rate of labour productivity, each household saves (and de-saves) in order to smooth per capita consumption as much as possible. Households start with zero net wealth, and plan to have zero net wealth when the parents die, and that households cannot be net debtors in any period. The use of such a strict liquidity constraint may be unrealistic, but for modeling purposes it is superior to the alternative simplifying assumption that there is no liquidity constraint, and that households can borrow as much as they want to smooth their per capita consumption. The results show that the demographic transition toward stable populations is likely to cause an increase of aggregate savings rates that would be important on a macroeconomic level. They believe that the demographically induced changes of savings rates would be comparable in size to the changes governments could hope to induce by policy changes. Demographic factors are supposed to be important elements of the entire savings process. Doshi (1994), Edwards (1995) as well as Faruqee and Hussain (1995) report strong 20

empirical evidence concerning the significance of demographic factors by estimating reduced-form savings equations in the context of a cross-section approach for a number of developing countries. Strong demographic effects have also been found in Horiokas study on Japanese savingss Horioka (1991) as well as in Kang (1994) concerning Taiwan, Korea and Japan. Demographic changes in East Asia were also found responsible for the high savings rates in the region, according to Higgins and Williamson (1996). Cultural effects are also present in some cases (Carrol, Rhee and Rhee (1994). Jappelli and Pagano (1994) found a significant negative relationship between dependency ratios and savings. Finally, Edwards (1996) finds that the coefficient on the age dependency ratios is significantly negative, indicating that demography plays an important role in explaining differences in private savings across time and countries. 2.11 Macroeconomic Instability and the Terms of Trade According to the Darberger Laursen-Metzler effect, a temporary improvement in the terms of trade is considered to increase the savings rate because it suggests a transitory boost in national income, which will increase national savings. An IMF study (1995) found that changes in the terms of trade have a strong positive effect on savings. However, other studies, for example that undertaken by Lopez-Murphy and Navajas (1998) on Argentina found no correlation between private savings and terms of trade for the period 1970 1995. 2.12 Political Instability Government savings are fundamental component of national savings. There has been an extensive literature detailing the behaviour of governments. Edwards (1996) provides a useful summary of this literature. The incentive of the authorities to increase government savings will depend on two factors. First, the probability that the party in power will still be in power in the subsequent period; if this is low, then an incumbent party has little incentive to save, as the other party will gain the credit from the subsequent increased production of public goods. Thus the higher the degree of political stability, the lower the governments savings. A second determinant of governmental incentives to save is the degree of political polarization in other words the degree of difference in the parties 21

preference. A greater degree of polarization will, in theory, result in lower government savings. In Edwards (1995), separate equations for government savings were estimated for 36 countries over the period 1983 92. The results obtained clearly confirm a priori expectations concerning the role of political instability and uncertainty on public savings. 2.13 Foreign Capital and Savings One of the most controversial parts of the savings literature is the relationship between foreign capital (in particular foreign aid) and domestic savings in the recipient countries. The debate has a history of more than three decades and is still the subject of a continuous disagreement on the aid-effectiveness front. The effect of foreign aid on domestic savings in developing countries has been mainly analysed in terms of the Harrod-Domar growth model and its two-gap versions associated with Hollis Chenery and his associates in the 60s. More recent contributions in the area include Boone (1994) and Obstfeld (1995). Although vast, the empirical literature on the topic, has failed to offer clear answers so far, due to inappropriate econometric methodologies employed in most of the cases, simplistic modeling frameworks and lack of an aid-disaggregating approach. Cassen (1994) and White (1992) assess the relevant literature and Mavrotas (1998) focuses on the aid-dis-aggregation issue. More recently, Reinhart and Talvi (1998) challenged the popular view, based on the experience of the 1990s that domestic and foreign savings are positively related in East Asia and negatively related in Latin America. The authors conclude that the literature offers little empirical basis for the popular view of the 1990s. The estimates of the intertemporal elasticity of substitution (IES) are similar in magnitude in the two regions. Furthermore, the studies that have tested for cultural factors have found little evidence that they are significant. The liquidity constraints, that at first sight will appear to have a greater effect in Latin America, are present in both regions. Finally, the estimate of the degree of substitutability between domestic and foreign savings, obtained through reduced form models, suggest that domestic savings should respond similarly to a surge in capital flow in both Asia and Latin America.

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2.14 Social Security Reforms and Savings Mobilization Reforming social security systems is an important route for mobilizing savings in developing countries. Private savings are affected by the extent and coverage of government run social security systems, in the sense that, individuals perceive that when they retire they are going to receive high benefits from the government, they will tend to reduce the amount saved during their active days. Along the above lines, the development of new institutions in the social security sector (see the example of the Chilean pension system below) could force savings in low income countries with depressed levels of savings. In most countries, pension systems are state run and are unfunded, defined benefit system that operates on a payasyougo basis. There are a number of problems with such systems, such as the lack of a direct relationship between benefit and contributions, which can strain government budgets, and wages taxes that may distort labour markets and encourage tax evasion. It has been suggested by a number of authors, such as Edwards (1996) and Feldstein (1980), that a switch to either fully funded, or at least partially funded schemes would have a beneficial effect on the level of national savings in an economy, as part of a package of financial sector reform. However there has been an increasing empirical literature that has been less conclusive about the abovehypothesized effect. Public pension systems are intended to fulfill two primary objectives: to provide a compulsory savings mechanism and to alleviate poverty among the old. The compulsory savings mechanism forces the individuals who might be myopic with regard to their future needs or who might expect to rely on charity in their old age to save for themselves. In most countries a public pension system is the institution that delivers this service. Unfortunately, there is a contradiction in the objectives of these institutions. A good savings mechanism will have a tight link between the contribution and the benefits received, but the aim of poverty alleviation will divert contributions to benefit the poor. Most pension schemes around the world try to reach both objectives through a single system but they end up doing neither well.

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As a result of these difficulties, most pension reforms have attempted to use a hybrid of these mechanisms. Pension reform programmes have occurred in a number of countries in recent years. Typically such reforms comprise two elements: on the one side, a pillar of fully funded savings based on individual pension accounts, with investments made in a number of public and private long term instruments, and a complementary state-run distributive pillar, to support the elderly poor. Such measures are seen by Arrau and Schmidt-Hebbel (1994) as a radical departure from the conventional pension paradigm in three ways. First, the substitution of a pay-as-you-go scheme by a fully funded arrangement for old age savings. Secondly, more explicit separation of the distributive from the non-distributive aspects. Finally the private management of the collection of contributions, investment of pension fund savings and payment of pension benefits. Such a system is described by Schwarz (1995) in his multi-pillar system has one pillar devoted to providing a savings mechanism and the other to alleviating poverty. 2.15 Institutional Mechanisms to Mobilize Savings Appropriately designed institutions are key to improving the mobilization of savings in developing countries. The poor tend to have limited access to formal financial services, and the lack of competition means that a high price is paid. This commonly takes the form of high interest payments on loans, but in fact the poor frequently pay for the chance to save: the nominal rates received on deposits are frequently low or even zero, meaning that the real interest rates are negative. In the absence of formal financial services, the poor rely on family and friends to provide loans on a reciprocal basis. A high value is placed on financial intermediation, as is evidenced by the informal financial institutions that have grown in developing countries. There exists a group of formal and informal financial institutions around the world that have developed to attend the needs of the smaller savers and investors. Formal state introduced mechanisms traditionally worked on the assumption that the poor did not have the capacity to save, and needed direct credit to enable them to escape the poverty trap. As such, the institutions aimed to help the poor directly, through subsidy, rather than address their financial services needs. The empirical studies that have been reviewed in this section have shown that this is not the case; given the appropriate incentives, even the poorest individuals have savings that could be mobilised. 24

There are two basic types of self-help groups that provide financial mutual aid; they have savings and lending as their primary functions. There are those with rotating funds known as Rotating Savings and Credit Association (ROSCA), and those with non-rotating funds that Bouman (1995) calls Accumulating Savings and Credit Association (ASCRA). These groups have grown up in response to specific needs - there is no uniform type across countries. Both types of institutions are voluntary and autonomous, and have their own objectives, rules and organization pattern. As financial institutions they are self sufficient, self regulating and have their own control mechanisms. They are thus independent of the legal, fiscal and financial authorities of their countries. Their great advantage is their flexibility. This gives them a comparative advantage over formal financial institutions. 2.16 Conceptual Framework In line with the objectives of the study the conceptual framework was based on seven variables comprising; minimum balance requirements, geographical areas, educational level, occupation or income, dependency rate, life cycle hypothesis, legal framework, bank policy. This study was based on the social systems theory as advanced by Getzels (1968). Social systems theory has been used extensively as a conceptual framework for research. Of particular interest to researchers has been how its various sub-systems are organized and constructed. The theory is applied in understanding organizational management. It offers a Wholistic view emphasizing relationship among parts that are helpful in understanding organizations and interpreting organizational events. The bank as a system has, within it, a series of subsystems, which interact with each other and the environment. Each subsystem has to relate to others and to the whole, and keep its own individual identity. Social systems are comprised of interdependent parts, characteristics and activities that contribute to and receive from the whole. When one part is affected, a ripple effect goes throughout the system. Each of these parts (subsystems) for example minimum balance, bank policy, and legal framework will affect the goals of the whole system. In the social systems perspective, the interaction and relationship between all the factors affecting the mobilization of savings, affects effective achievement of the banks deposit 25

goals. Depending on their relationships and the nature of interaction in the environment, the output can either lead to their realization or displacement of the bank savings targets. This is represented under the framework below. Figure 1.3: Conceptual Framework of the Factors Influencing Savings Mobilization Bank policy Geographical Areas Educational Level

Affects

j Banks Deposit levels

Legal and Regulatory Framework Occupation or Income Source

Dependency Rate

j Banks Profitability

Life-Cycle Hypothesis

Independent variable variable Source: Survey Data, 2009

Dependent

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2.17 Summary From the reviewed literature, it is clear that the role of savings in individual and a countrys development cannot be underestimated. An effective and efficient savings mobilisation strategy avails to the financial institutions the necessary resources that are needed for the attainment of individual and bank goals. Previous studies have extensively examined various issues concerning savings mobilisation in both developing and the developed world, but there has not been much study done on the factors influencing savings mobilisation in commercial banks. It is hoped that this study will bridge the existing gap in knowledge and provide concrete information on the factors influencing savings mobilisation.

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CHAPTER THREE 3.0 RESEARCH METHODOLOGY 3.1 Introduction This chapter has been presented under several sub-topics outlining the methodology and procedures that were used to obtain research data. The sub-topics include: the research design, target population, sample size, sampling methods, and data collection methods and data analysis. 3.2 Research Design Survey research design was employed in selecting the banks to assess the factors influencing savings mobilization by the banks. The design was chosen as dictated by the nature of the study, which primarily involves gathering of facts. 3.3 Target Population The population from which the sample for this study was drawn consisted of five banks. Prior to the listing of these banks for sampling a general survey, which involved siting all the banks. The researcher would interview all the five branch managers and randomly selected ten middle managers/supervisors and clerical staff. 3.4 Sample size and sampling methods Purposive sampling was done to select all the 5 branches to be studied. Respondents were selected from among top managers, middle and first line managers and clerical staff to help avail manageable population for the study to ensure representativeness. Bank customers were also sampled out. The researcher interviewed all the 5 branch managers and randomly selected 10 middle/first line managers and clerical staff comprising over 30% of the population in each category.

3.5 Data Collection methods The data collection instruments for this study were questionnaires administered to 10 middle/first line managers and clerical staff, interview schedule for 5 branch managers. These instruments were used to gather data relating to respondents background

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information, perceptions on factors affecting savings mobilization as illustrated in the conceptual framework and views on how to improve on savings mobilization.

3.5.1 The Questionnaire The questionnaires that were administered in the study consisted of both closed and openended items. Closed-ended questions allowed the generation of demographic information while the open ended ones generated specific responses from individuals on the issue of savings mobilization. The questions asked were consistent with the research objectives and questions. The advantage of using this type of items is that they are easy to administer and economical to use in terms of time and money. Moreover, they are easy to analyze. Open-ended questions have the advantage of giving insight into the respondents views and opinions on the subject. In addition, these questions make it possible to use qualitative analysis.

3.5.2 Interview Schedules Interviews were conducted to gather data from branch managers aimed at providing a high degree of objectivity, uniformity and also allow for probing and clarification at the same time. The interview schedules for managers sought background information, their views on factors influencing savings mobilization and suggestions on how the exercise could be improved.

3.5.3 Validity and reliability of research instruments The questionnaires were designed carefully to ensure no ambiguity and that all respondents could understand and respond to all issues in exactly the same way as expected by the research. In addition the instruments were subjected to thorough appraisal and discussion with colleagues, supervisors and other experts both in research and in the field of banking. The instruments were then subjected to a pilot study in one bank in Nairobi other than the ones sampled for the study to test the reliability after which corrections were done as appropriate.

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3.5.4 Administration of research instruments A covering letter requesting the respondents to participate in the study was delivered together with the questionnaires to all the selected respondents. The questionnaires would be collected after a period of one to two weeks personally by the researcher. During that period interviews would also be conducted by the researcher.

3.6 Data Analysis Descriptive statistics, frequencies, percentages, means and qualitative analysis were used in analyzing the data gathered. The responses given by various respondents would be in different forms ranging from the interview schedule responses to closed and open-ended items in the questionnaire.

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CHAPTER FOUR 4.0 DATA ANALYSIS, PRESENTATION AND INTERPRETATION 4.1 Introduction This chapter deals with data analysis and the interpretation of findings. The data analyzed and presented is based on responses to the items in questionnaires and interview schedules. The data presented includes background information of the respondents, views on the mobilization of bank savings and suggestions on how to improve savings mobilization. Descriptive statistics were used in analyzing the findings of this project. Descriptive statistics included frequency tabulations for each item and the calculations for each item and percentages for selected respondents. The percentages were preferred to other methods in analyzing the responses on attitude items of Likert scale in accordance with Best and Kahns argument. The simplest way to describe opinion is to indicate percentage responses for each statement, responses agree, undecided and disagree are preferable to the usual five In order to analyze the structured sections of the questionnaires, content analysis technique was used. The researcher read through the responses in this section as given by the managers, middle managers and customers, and classified them into categories according to the study objectives. Each of the responses given fell under one of the categories. Accordingly, frequencies of responses were filled and the results were tabulated in accordance with Kerlingers (1964) recommendation of counting the number of objects in each category after assigning each to its proper category in this manner the data for these sections were quantified. 31

4.2 Demographic Information In order to fulfill the purpose of this study, the researcher found it paramount to establish the demographic information of the respondents, which forms the basis under which the study could justifiably make inferences. According to the major findings of the study, majority 50 (77%) of the respondents were customers as shown in table 4.1.

Table 4.1: Distribution of Respondents Category Senior managers First line/middle managers Customers Total Source: Survey Data. 2010 Frequency 6 7 50 63 Percentage 10 11 79 100.0

The sample for this study was composed of 63 subjects who included 6 (10%) senior managers, 7 (11%) first line and middle managers and 50 (79%) was customers. The response rate was 100% since respondents were personally contacted at their respective work places.

4.2.1 Age of respondents The study ought to establish the age of respondents. The major findings of the study indicate that (61%) of the middle/line management staff respondents are aged between 20-40 years old as shown in table 4.2 32

Table 4.2: Age of staff respondents Item 20 30 years 31 40 years 41 50 years Total Source: Survey Data. 2010 This implies that most of the respondents are youthful and have the energy and time to concentrate on serving clients and directing saving mobilization. The majority 35(86.0%) of the customers who responded to the questionnaires were between 31-40 years of age as shown in figure 4.1 Frequency 3 5 5 13 Percentage 22 39 39 100.0

Figure 3.1: Age of Customers


The image part with relationship ID rId7 was not found in the file.

Source: Survey Data. 2010 33

This shows that most of the bank customers are in the middle age which is the prime age for capital accumulation and hence steps towards saving should be at full potential. 4.2.2 Gender of respondents Respondents were asked to indicate their gender. Most middle managers and clerical staff were male 5 (71.0%) while only 2 (29%) were female. Table 4.3 shows that out of the 50 customers sampled for the study, the majority 30 (60%) were male while 20 (40%) composed of female.

Table 4 3: Gender of respondents Item Male Female Total Source: Survey Data. 2010 The statistics shows that although men outnumber women as bank customers, the number of women account holders is significantly high indicating a change in trend where men were relied upon to provide all financial needs of the family. This expands the scope for savings mobilization. 20 50 Frequency 30 Percentage 60 40 100.0

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4.3. Requirements for opening the various bank accounts Middle level staff respondents were asked to give their views on the requirements of opening a bank account in their respective banks. All (100%) of the respondents revealed that an individual must possess a national identity card, passport or driving license while 5(72%) of the respondents indicated that minimum bank balance is a requirement. The other requirements are as shown in table 4.4. Table 4 4: Requirements for opening a Bank Account Item Minimum balance Freq / % Freq SA A 0 1 N 2 D 0 SD Total 4 57 5 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0

Percentage 0 Must be a Kenyan Freq 0

14 29 0 0 0 1 1 1

Percentage 0 National ID, passport or driving license Freq 6

14 14 72 0 0 0 1 0 0 1

Percentage 86 Confidence in the bank Freq 3

14 0 1 1

Percentage 44 One must be employed or in business Freq 1

14 14 14 14 0 0 0 0 0 0 6 86

Percentage 14 Source: Survey Data. 2010

It is interesting to note that a significant 4(56%) of the staff respondents do not agree that a customer must have confidence in the bank. This suggests that a customer would choose any bank as longer as he has the other minimum requirements. The findings also 35

suggest that the banks savings mobilization strategies are not sufficiently differentiated for customers to have specific preferences. Asked whether the requirements encourage the mobilization of savings, most staff respondents 6 (86%) agreed while only 1 (14%) disagreed. This shows that bank requirements regarding opening of new bank accounts do not affect the rates of deposits and agrees with the earlier interpretation that not enough is being done to make the savings mobilization efforts in different banks differentiated. Customer respondents were asked to indicate the type of accounts they operate. Most 32 (51.0%) of the customers had opened savings accounts in their respective banks. Most 37 (53%) of the customers also reported that it took over 30 minutes to open an account in their banks as shown in table 4.5. Table 4.5: Type of Accounts Held by Customers and time taken to open them ACCOUNT TYPE Item Current account Savings account Frequency 28 22 Percentage 56 44 TIME TAKEN TO OPEN AN A/C Item 15 min 30 min Over 30 Total 50 100.0 Total Frequency 12 14 24 50 Percentage 24 28 48 100

Source: Survey Data. 2010

The difference between the number of customers operating savings account and those operating current account is not significant. This suggests that either the accounts are not significantly differentiated or the customers are not fully aware of the difference between 36

the two accounts. It is expected that one form of an account should have a significant advantage over the other for a specific group or target customers depending on their socio-economic status. Consequently growth should lead to a customer changing from one to the other. The time it takes to open an account is longer than expected and should be improved. 4.4 The Extent to which the Banks policy instruments facilitate Savings Mobilization The staff respondents were asked to indicate the extent to which they agreed, either to a large extent, moderately, and rarely that banks encourage customers to save. The majority 37(74%) indicated moderate agreement as shown in table 4.6. Table 4.6: Respondents agreement on Extent to which Banks Encourage Savings Item To a large extent Moderately Rarely Total Source: Survey Data. 2009 This shows that middle level staffs are of the opinion that banks encourage savings. However, lack of unanimity by bank professionals suggests incidental support rather than concerted efforts on the part of the banks to encourage savings. Lack of clear policy by banks indicating the steps to be followed to woo potential customers to save surplus money with them may also account for this situation. Frequency 13 37 0 50 Percentage 26.0 74.0 0.0 100.0

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On savings mobilization, senior managers reported that some banks offer unrealistically high interest rates while others offer very low interest rates hence difficult to balance; customers do not appreciate fully the benefits of bank savings while other banks do not have unique products to attract savings. Senior managers also reported that some bank procedures are too bureaucratic as they delay service delivery. 4.4.1: Methods employed to encourage savings Asked to state the methods employed to encourage savings, most 26(52%) of the staff respondents indicate lack of minimum balance is the most common strategy. The other methods are as shown in table 4.7. Table 4.7: Methods of Encouraging Savings Item Less charges High interest rates No minimum balance Professionally trained staff Extensive marketing Total Source: Survey Data. 2010 Again there is no evidence of concerted effort to encourage savings. Extensive marketing is reported by only 15(30%) of the respondents. 4.4.2: Banks savings mobilization policy framework The bank staff respondents were asked whether the bank has a policy framework. Most 10(77%) of the respondents answered in the affirmative. Asked if the policy framework 38 Frequency 3 4 26 2 15 50 Percentage 6.0 8.0 52.0 4.0 30.0 100.0

facilitates the mobilization of savings, the majority 11(85%) said the bank policy framework does not encourage deposits. The distribution of the responses is as shown in table 4.8.

Table 4.8: Respondents Views in Bank Policy Framework DOES THE BANK HAVE A POLICY DOES THE POLICY FRAMEWORK FRAMEWORK? FACILITATE SAVINGS MOBILISATION? Response Yes No Total Frequency 7 0 7 Percentage 100 0 100.0 Response Yes No Total Frequency 7 0 6 Percentage 100 0 100.0

Source: Survey Data. 2010 This is in agreement with the observations above and means that banks should streamline their policies on savings in order to attract more savers. Senior managers reported that bank policy framework favors the mobilization of savings by encouraging low income earners to save, encouraging high interest return to savings, simplified opening of savings procedures and guarding the bank against money laundering. 4.4.3: Banks Instruments to mobilize savings On the bank instruments used to mobilize savings, respondents were asked to list major policy instruments that their respective banks have adopted to mobilize savings. The most 39

common instrument reported is giving loans reported by 20(40%) of the staff respondents. The other instruments reported are shown in table 4.9. Table 4.9: Bank Instruments used to Mobilize Savings Opinion Giving loans Social activities Low bank charges Ease bank requirements Technological advancement Total Source: Survey Data. 2010 It can be observed that there is no common instrument that attracts savings and banks may need to devise one. 4.5: Relationship between savings and profitability Table 4.10 shows the respondents views on the relationship between inadequate savings and the profitability of the bank. Most 9(69%) of the staff respondents say inadequate savings have a high impact on the banks profitability. Asked about the nature of the impact on overall bank performance, the majority 8(62%) said that it would have a negative impact on bank profits/performance. The rest of the responses are as shown in table 4.10. Frequency 5 1 2 2 3 13 Percentage 38 9 15 15 23 100.0

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Table 4.10: Effects of Inadequate Savings on Profits IMPACT OF INADEQUATE SAVINGS ON BANK PROFITABILITY Item Low Average High Total Frequency 1 3 9 13 Percentage 8 23 69 100.0 NATURE OF IMPACT

Response Negative Neutral Positive Total

Percentage Frequency 8 62 1 4 13 8 30 100.0

Source: Survey Data. 2010 This shows that the respondents; first line, middle and clerical staff are aware that savings mobilization is crucial to the banks operations and sustained growth based on its profitability. 4.6 Factors Affecting Savings Levels of the Banks Staff respondents were asked what the extent they agreed with stated factors as influencing savings levels of the banks. The respondents gave their responses on their level of agreement as summarized in table 4.11. The items, which respondents strongly agreed, included: low disposable income 5(71%), high unemployment levels 4(47%), low deposit interest rates 3 (43%)and high bank charges 3(43%). The factors which respondents agreed were: limited diversity of deposit products 2 (29%), high unemployment levels 2(29%), limited range of products 2(29%).

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Table 4.11: Factors Affecting Savings Item Low deposit interest rates Freq/% SA A Freq % high level of taxation Freq % Inadequate bank policy Freq % Limited diversity of deposit products Freq % Limited range of bank products Freq % Stringent government policies Freq % Low disposable income Freq % Negative staff responsiveness High bank charges attitude and poor Freq % Freq % High unemployment levels Freq % Inadequate marketing and bank relationship Freq % Source: Survey Data. 2010 42 3 43 2 29 1 14 1 14 0 0 1 14 5 71 2 29 3 42 4 47 2 29 1 N 2 D 1 SD Total 0 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0 7 100.0 7 100 7 100.0

14 29 14 0 1 1 2 1

14 14 29 14 1 2 0 3 43 1

14 29 0 2 2 1

29 29 14 14 2 0 3 2

29 0 1 2

43 29 3 0

14 29 43 0 0 0 0 0 0 0 2 2 0 0 0 2

29 0 0 0 1 3

42 29 1 2

14 14 29 0 1 0

29 0 0 0 3

14 0 2 0

42 29 0

Using the factors which the bank staff strongly agrees that they affect savings mobilization, it can be noted that inadequate marketing and bank relationship, inadequate bank policy, low disposable income, low deposit interest rates and limited range of bank products are the most serious five factors in the order of seriousness. Four of the five are internal to the bank hence banks have control over them. This indicates a serious challenge on the banks savings mobilization strategies. Customers on their part strongly agreed that the following factors affect the mobilization of savings: low deposit interest rates 28(56%), high levels of taxation 28(56%) and low disposable income 28(56%). Customers also mostly agreed that the following factors influence the mobilization of savings: limited range of products provided by the bank 30(60%), negative staff attitude and poor responsiveness 30(60%) and inadequate marketing 30(60%). The frequencies and percentages for the above responses are summarized in table 4.12.

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Table 4.12: Factors Influencing Savings Mobilization Item Low deposit interest rate Freq/% SA A Freq % High level of taxation Freq % Limited diversity of deposit products Freq % Limited range of bank products Freq % Low disposable income Freq % Negative staff responsiveness High bank charges attitude and poor Freq % Freq % High unemployment levels Freq % Inadequate marketing and bank relationship Freq % Source: Survey Data. 2010 28 56 28 56 22 44 5 10 28 56 6 12 22 44 10 20 3 6 6 N 6 D 5 SD Total 5 50 100.0 50 100.0 50 100.0 50 100.0 50 100.0 50 100.0 50 100.0 50 100.0 50 100.0

12 12 10 10 5 6 6 5

10 12 12 10 6 5 7 10

12 10 14 20 30 7 3 5 10 7 14 3 6

60 14 6 5 7 3

10 14 6 30 10 1 60 7 5 7 2

10 6

10 14 20 12 22 7 5 6

44 14 10 12 30 7 5 5

60 14 10 10

44

Using, the same criteria, that is, selecting the factors with the highest proportion of respondents that strongly agree with, low deposit interest rates, low disposable incomes, limited diversity of deposit products, high bank charges and high levels of taxation are the five most serious factors that affect savings mobilization from the customers point of view. Most of these factors are external to the bank. This suggests that the bank has to address the concerns raised by the bank employees and then lay strategies to deal with external factors reported by the bank customers. Senior managers gave their views on the factors affecting mobilization of savings as: high interest rates, lack of adequate support facilities, socio- economic and cultural factors like some communities and faiths do not encourage savings in banks, political influences and economic degradation that affect production leading to low savings. 4.6.1: Quality of bank services The customer respondents were asked to indicate their assessment of the quality of services they receive from the banks where they operate accounts. Table 4.13 shows customers views on the overall quality of bank services provided by their respective banks. The majority of customers rated the quality of bank services as fair 28(56%) while 10(20%) said the service were very good and only 5(10%) indicated that the bank services were poor. The customers rated the overall impression of their respective banks as good 30(60%) as shown in table 4.13

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Table 4.13: Quality of Bank Services OVERALL QUALITY OF BANK SERVICES Item Very good Good Fair Poor Total Frequency 10 7 28 5 50 Percentage 20 14 56 10 100.0 OVERALL IMPRESSION OF THE BANK Item Very good Good Fair Poor Total Frequency 10 30 7 3 50 Percentage 20 60 14 2 100.0

Source: Survey Data. 2010 This is an indication that banks need to improve the quality of their services if they are to improve savings levels.

4.6.2: Customers assessment of the banks staff and stationery Customers were asked to evaluate the way they relate with bank staff and the state of the stationery used at the bank. The statements which customers agreed with include: Stationery is readily available 30(60%), bank staff understand customers banking needs 32(64%) and bank staff process transactions without error 32(64%). The customers also reported that, bank stationary is not user friendly 35(70%), bank staff do not greet customers on arrival 28(56%), do not seem willing to assist 28(56%) and bank staff are not competent and knowledgeable on specific customer needs 28(56%). The distribution of the responses is as shown in table 4.14.

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Table 4.14: Customers Views on Bank Staff and Stationery Item Is the stationary readily available Response Frequency Percentage Yes No Total Is the stationary user friendly Yes No Total Do bank staff greet you on arrival Yes No Total Do they understand your banking needs Yes No Total Seem willing to assist Yes No Total Process transactions without error Yes No Total Seem competent and knowledgeable Yes No Total Source: Survey Data. 2010 47 30 20 50 15 35 50 22 28 50 32 18 50 22 28 50 32 18 50 22 28 50 60 40 100.0 30 70 100.0 44 56 100.0 64 36 100.0 44 56 100.0 64 36 100.0 44 56 100.0

The above points indicate that although customers are satisfied with certain services provided by the bank, stationery provided need to be tailored to meet customer requirement and be made more user friendly. Bank staffs also need more training on their roles so as to solve customer problems effectively. 4.7 Suggestions for improving saving mobilization First line , middle managers and clerical staff were asked to give their suggestion on how to streamline mobilization of savings and gave suggestions that Banks should diversify the products they offer 5(38%) and opening more branches 4(32%) as the most important strategies. Other suggestions are shown in table 4.15.

Table 4.15: Mechanism to Encourage Savings Item Diversification of products Good company image Opening more branches Customer care Total Source: Survey Data. 2010 Frequency 5 2 4 2 13 Percentage 38 15 32 15 100.0

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According to senior managers, savings could be improved through: Waiving the withdrawal charges and increasing ledger fee per month, encouraging advanced technologies that can accept deposit of cash and cheques, adjusting interest rates paid for deposits, developing diverse innovative products which meet the diverse needs of the society, rewarding savings by offering a wide range of facilities and educating all staff on the products available and on proper customer care practices.

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CHAPTER FIVE 5.0 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 5.1 Introduction The purpose of this study was to investigate the factors influencing mobilization of savings in banks. Using questionnaires and interview schedules, the researcher collected data from senior managers, middle managers, first line managers, clerical staff and customers. Data was then presented and analyzed accordingly. This chapter provides the summary of findings, conclusions, and recommendations and proposes areas for further study. 5.2 Summary of Findings. This section presents the findings of the study sub-divided into five parts: Requirements for opening a bank account; extent to which banks policy instruments facilitates the mobilization of savings; relationship between savings and profitability in an organization; factors affecting savings levels in banks and suggestions for improving savings mobilization. 5.2.1 Requirements for Opening Bank Accounts The respondents indicate that the most common requirements in order to operate bank accounts are National ID, passport or driving license reported by all 7(100%) of the staff respondents; confidence in the bank reported by 3(48%) of the respondents and one must be employed or in business 1(14%). This indicates a general requirement that does not affect choice of bank. On type of accounts operated the customers reported 22(44%) savings while 28(56%) operate current accounts. This indicates that there are no features that specifically attract savings and customers view the two different types of accounts as 50

serving more or less the same purposes. This may be that due to some banks issuing cheque books on savings account resulting in these accounts being operated just like a current account.

5.2.2 Policy Instruments and Mobilization of Savings The study findings indicate that staff respondents see bank policies as negatively affecting saving mobilization 5(71%) showing lack of consistent and equivocal savings mobilization policy in banks. This is in line with the senior managers assertion that bank interest rates on deposit are unrealistic making it difficulty for customers to realize fully the benefits of savings. On methods employed by banks to encourage savings, it emerges that only removal of minimum bank balances is common across the banks reported by 4(57%) of the middle level bank managers and clerical staff. Not surprising, the respondents state that the bank policies do not facilitate savings mobilisation reported by 5(71%) of the staff respondents. The instrument that is seen and used widely by the banks to mobilize savings is giving loans reported by 5(38%) of the bank staff respondents followed by technological advancement reported by only a small proportion 3(23%) of the respondents. This suggests that banks need to come up with policy instruments that encourage customers to save more.

5.2.3 Relationship between Savings and Profitability in an organization The study shows that bank staff 6(86%) are aware that inadequate savings has a high impact on banks profitability and that the nature of the impact is negative 6(86%). This 51

calls for concerted efforts in developing policies and strategies that not only encourage potential customers to save but also to ensure that such savings grow in size with time.

5.2.4 Factors affecting savings levels in banks On factors that affect savings, the staff respondents indicate that low disposable income 5(22%), economic growth 6(26%), low deposit interest rates 2(9%) high government interference 3(13%) and political instability 2(9%) are the most serious five factors in that order. three of the five are internal factors to the banks hence banks have control over them. This indicates a serious challenge on the banks savings mobilization strategies. The customers on their part report low deposit interest rates 28(56%), low disposable incomes 28(56%), limited diversity of deposit products 30(60%), inadequate marketing and bank relationship 30(60%) and high levels of taxation 28(56%) as the five most serious factors that affect savings mobilization.

Both customers and bank staff agree on the following as factors affecting deposit mobilization: low disposable income, low deposit interest rates and limited range of bank products. These factors are both internal and external to the bank. This calls for the bank to address the concerns raised by both the bank employees and customers. Strategies to deal with these concerns need to be put in place in order to mitigate the impediments and raise deposit levels.

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5.2.5 Suggestions for improving saving mobilization The middle level mangers and clerical staff suggests that to encourage savings, the banks should diversify their products reported by 2(50%) and improve customer care 3(75%). Senior managers on their part recommend waiving of withdrawal charges while increasing ledger fee per month, doing away with minimum bank balances, adjusting interest rates paid for deposits, encouraging advanced technologies that can accept deposit of cash and cheques, adjusting interest rates paid for deposits, developing innovative products which meet the diverse needs of the society, rewarding savers by offering a wide range of facilities and educating all staff on the products available and on proper customer care practices.

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5.3 Conclusions A well functioning financial sector contributes to economic growth and to social cohesion. Savings are the principal sources of domestic capital accumulation, which in turn, when combined with health economic and investment policies allow a country to ensure sustained growth and improvements in the standards of living. Domestic savings are vital to the reduction of dependency on external savings, increasing the levels of financial savings and thereby levels of investment in the domestic sphere. The mobilization of savings is significantly important for the financing of credit, making possible investment in micro-enterprises, with effect on overall economic growth through the creation of local employment and reduction in poverty.

A strategy for the mobilization of universal savings plays a key role in the distribution of wealth and in the social and geographic integration. The act of savings is a necessity for every individual, whatever the level of wealth of a country and of its population. At the micro-economic level, savings are fundamental to the ability of individuals to meet basic needs such as housing and education, as well as to cope with unforeseen events and accidents and to ensure an income in old age.

This study has established that the most common requirement for opening a bank account is National ID and a certain minimum account balance followed in that order by some degree of customer confidence in the bank. On policy instruments for savings mobilization, the study has established that the banks do not have policies that out rightly 55

support savings mobilization. The effort most commonly employed is removal of minimum bank balances and giving loans. Inadequate savings is seen to negatively affect banks profitability. Factors that affect deposit levels are inadequate marketing and bank customer relationship; inadequate bank policies; low deposit interest rates as alluded to by staff and limited diversity of bank products and high bank charges reported by customers covering the internal factors to the banks. The external factors include low disposable income and high levels of taxation as reported by customers while staffs see low disposable income as the major external factor affecting savings mobilization. The study shows that the banks should review bank deposit interest rates, withdrawal charges, improve customer care services, and improve technology that facilitates faster customer service while reducing the per unit cost of providing such service. 5.4 Recommendations Arising from the findings of the study, the following recommendations are made: An exhaustive analysis of the real needs of customers and effective segmentation of customers on the basis of their particular needs should be adopted. Extensive diversification of the range of products and services offered with a view to effectively meet the needs of the population.

Banks should design savings products that are accessible, flexible, profitable, liquid, and attractive. Financial institutions should implement internal monitoring and risk management policies in order to guarantee the security of savings deposits. 56

Continuous training and or in-service courses should be mounted for bank staff to equip them with product knowledge and customer care services.

The study also recommends the development and extensive use of technology infrastructure to support the diverse savings services and products. Commercial banks should develop an effective communication policy based on dissemination of the best practices and instruments for the promotion of savings designed to educate customers in the responsible management of their savings. The banks should also increase interest rates on customer deposits payable to customers to encourage longer and bigger savings, reduce bank charges and make service provision increasingly customer friendly. 5.5 Suggestions for Further Research A similar study on savings mobilization should be carried out in the future to find out the impact of savings impediments on bank performance. More research should be carried out on the effects of legal framework on savings mobilization.

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REFERENCES African Development Report 1994: Financial Structures, Reforms and Economic Development in Africa (Abidjan: Africa Development Bank). Arestis P. and P. Demetriades (1997), Financial Development and Economic Growth: Assessing the Evidence, Economic Journal, May. Athukorala P. (1998), Interest Rates, Savings and Investment: Evidence from India, Oxford Development Studies, June. Bruno M. and W. Easterly (1998), Inflation Crises and Long Run Growth, Journal of Monetary Economic, Vol.41. Buffie E. F (1984), Financial Repression, the New Structuralists and Stabilisation Policy in Semi-Industrial Countries, Journal of Development Economics, April. Chellilah R. H. Baas and M. Kelly (1975), Tax Ratios and Tax Effort in Developing Countries, IMF Staff Papers, March. Chenery H. and Strout A. (1966), Foreign Assistance and Economic Development, American Economic Review, September. Cho and Khatkhate D. (1990), Financial Liberalisation: Issues and Evidence, Economic and Political Weekly, May. De Gregorio and P. Guidotti (1995), Financial Development and Economic Growth, World Development, March. Demetriades P. O and Hussein K. A (1996), Does Financial Development Cause Economic Growth? Time Series Evidence from 16 countries, Journal of Development Economics, Vol 51. Dornbusch A. and Relynoso A. (1989), Financial Factors in Economic Development American Economic Review Papers and Proceedings, May.

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Edwards S (1996), Why are Latin Americas Savings Rates so low? An International Comparative Analysis, Journal of Development Economics, Vol.51. Friedman M. (1971), Government Revenue from Inflation, Journal of Political Economy, July/August. Fry M. (1997), In favour of Financial Liberalization, Economic Journal, May.

Fry M. (1995) Money, Interest and Banking in Economic Development (Baltimore: John Hopkins University Press). Giovannini A (1983). The Interest Rate Elasticity of Savings in Developing Countries, World Development, July Greene J. and Villanueva D. (1991). Private Investment in Developing Countries: an Empirical Analysis, IMF Staff Papers No. 1.

Gupta K. L (1987), Aggregate Savings, Financial Intermediation and interest Rates, Review of Economics and Statistics, May. Gurley G and Shaw E. (1960), Money in a theory of Finance (Washington DC: Brookings Institution). Harrod R. (1939), an Essay in Dynamic Theory, Economic Journal, March.

Hussein and A.P Thirlwall (1999), Explaining Difference in the Savings Ratio across Countries: A Panel Data Study. The Journal of Development Studies, October. Keynes J. L (1923), a tract on Monetary Reform (London: Macmillan).

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King R. G and Levine R. (1993), Finance and Growth: Schumpeter might be Right Quarterly Journal of Economics, August. Lewis A. (1955) Theory of Economic Growth (London: George Allen and Unwin)

Masson P. J. Bayoumi and Sami (1998), International Evidence on the Determinants of Private Savings. The World Bank Economic Review, unpublished. Mckinnon R. (1955) Money and Capital in Economic Developed (Washington D.C Brooking Institution) Piancastelli M. (2000) Measuring the Tax effects of developed and developing Countries: A Panel Data Study 1985-95 University of Kent, unpublished. Sarel M. (1996) Nonlinear Effects of Inflation on Economic Growth, IMF Staff Papers, March. Schumpeter J. (1911), the Theory of Economic Development Cambridge, Mass: Harvard University Press) Stiglitz J. and Weiss A. (1981), Credit Rationing in Markets with Perfect Information, American Economic Review, June. Tait A Gratz W. and Eichengreen B. (1979), International Comparisons of Taxation for Selected Developing Countries IMF Staff Papers March. Thirlwall A. P (1974 a) Inflation, Savings and Growth in Developing Economies (London: Macmillan). ____________ (1974b) Inflation and the Savings Ratio Across countries, The Journal of Development Studies, January. _____________ (1999), Growth and Development: with special Reference to Developing Economies (Macmillan 6th edition). Tun W. (1972), Financial Intermediaries and National Savings in Developing Countries New York: Praeger. 60

Warman F. and Thirlwall A. P (1994), Interest Rates, Savings, Investment and Growth in Mexico 1960-90: tests of the Financial Liberalization Hypothesis, The Journal of Development Studies, and July. World Bank (1993), the East Asian Miracle: Economic Growth and Public Policies (Oxford University Press).

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APPENDIX 2: QUESTIONNAIRE FOR MIDDLE AND FIRST LINE MANAGERS AND CLERICAL STAFF

SECTION ONE

BACKGROUND INFORMATION Respond by putting a tick in the bracket provided or by filling the gap where applicable 1. What is your gender? Male 2. What is your age? 20 30 years 31 40 years 41 50 years 51 and above 3. Which bank do you work for? (Optional) ____________________________Bank 4. What is your present designation Female

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Middle manager Supervisor Clerical staff SECTION TWO: Respondents Views on the Factors Impeding Mobilization of Savings in the Bank 1. (a) To what extent does the bank encourage mobilization of savings? Large extent Moderately No at all

(b) Please indicate the methods used/employed by the bank to encourage customers to increase savings deposits i ii. iii. iv. v. ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________

2. Please indicate the extent to which you agree with the following statements on the factors affecting deposit mobilization by ticking the appropriate number against each using the scale given below. 1-Strongly Agree FACTOR Low interest rates High minimum balance Poor identification of customer needs Slow economic growth High bank charges Negative staff attitude and poor responsiveness Low employment opportunities 2-Agree 3-Neutral 1 4-Disagree 2 3 5-Strongly Disagree 4 5

3. a) Does the bank have a policy framework that controls the mobilization of savings Yes No

b) If yes, does it facilitate the mobilization of savings in your bank? Yes Give reasons __________________________________________________________ __________________________________________________________ __________________________________________________________ c) Please list the major policy instruments that the bank has adopted to mobilize savings in your bank i. ii. iii. iv. ________________________________________________________ ________________________________________________________ ________________________________________________________ ________________________________________________________ No

4. What are the overall requirements for opening a bank account in your bank? Please tick the appropriate box using the following scale 1-Strongly Agree 2-Agree 3-Neutral 1 4-Disagree 2 3 5-Strongly Disagree 4 5

FACTOR Minimum balance Must be a Kenyan citizen A national ID, passport or driving license Confidence in the bank One must be employed or in business

5. Do these requirements encourage savings mobilization? Yes No

If No, give reasons _____________________________________________________ ___________________________________________________________________________ _________________________________________________________ 6. a) What impact do inadequate savings have on the profitability of the bank? Low Average Negative High Positive

b) What is the nature of the impact?

7. Below are some suggested internal and external factors impeding the level of savings? Please tick them according to your level of agreement. Tick where appropriate 1-Strongly Agree Item 2-Agree 3-Neutral 4-Disagree 5-Strongly Disagree

Level of Agreement 1 2 3 4

1. Low deposit interest rates 2. High level of taxation 3. Inadequate bank policy framework 4. Limited diversity of deposit products 5. Limited range of bank products 6. Stringent government policies 7. Low disposable income 8. Negative staff attitude and poor responsiveness 9. High bank charges 10. High unemployment levels 11. Inadequate marketing/Bank Relationship

b) Please list other factors i. ii. iii. iv. ______________________________________________________ ______________________________________________________ ______________________________________________________ ______________________________________________________

8. Please indicate in the table below the range of savings products provided by your bank, the minimum balance required to operate each account and whether the requirements encourage or discouraged bank savings Type of savings, indicate type e.g. Pinnacle Savings products 1. 2. 3. 4. 5. Minimum balance Required (Kes) Has this product encouraged savings Yes No

9. Suggest possible ways in which the mobilization of savings can be enhanced to improve the performance of the bank? i. _______________________________________________________________ ii. _______________________________________________________________ iii. _______________________________________________________________ iv. _______________________________________________________________ v. _______________________________________________________________ 7

APPENDIX 3: INTERVIEW SCEDULE FOR SENIOR MANAGERS SECTION ONE BACKGROUND INFORMATION Respond by putting a tick in the bracket provided or by filling the gap where applicable 1. What is your gender? Male 2. What is your age? 20 30 years 31 40 years 41 50 years 51 and above 3. 4. Which bank do you work for? (Optional) _____________________________ Bank How many years have you worked in the bank? 1 5 years 6 10 years 11 15 years 16 and above Female

SECTION TWO: Below are some questions on your views on the factors impeding mobilization of savings in the Bank

1. What are the factors impeding saving mobilization in your bank? i. _____________________________________________________________ ii. _____________________________________________________________ iii. _____________________________________________________________ iv. _____________________________________________________________ 2. Does the bank have a policy framework on saving mobilization Yes No

3. If yes does the banks policy framework favour the mobilization of savings? i. ______________________________________________________________ ii. _____________________________________________________________ iii. _____________________________________________________________ 4. What are the requirements for opening a deposit account in your bank? i. ______________________________________________________________ ii. _____________________________________________________________

iii. ______________________________________________________________

5. What are the impacts of inadequate savings on the profitability of the bank? i. ____________________________________________________________ ii. ____________________________________________________________ iii. ____________________________________________________________ 9

6. What other internal factors affect the level of savings in the bank i. ______________________________________________________________ ii. ______________________________________________________________ iii. ______________________________________________________________ iv. ______________________________________________________________ 7. What are the external factors affecting the level of savings in the bank. i. ______________________________________________________________ ii. ______________________________________________________________ iii. ______________________________________________________________ iv. ______________________________________________________________ 8. Suggest possible ways in which the mobilization of savings can be enhanced to Improve the performance of your bank? i. _______________________________________________________________ ii. _______________________________________________________________ iii. _______________________________________________________________ iv. _______________________________________________________________ 9. a) Does the government encourage savings mobilization in Kenya? Yes b) If yes please list some of the policies i. ii. iii. iv. _________________________________________________________ _________________________________________________________ _________________________________________________________ ________________________________________________________ Thank You 10 No

APPENDIX 4: QUESTIONAIRE FOR CUSTOMERS

SECTION ONE

BACKGROUND INFORMATION Respond by putting a tick in the bracket provided or by filling the gap where applicable 1. What is your gender? Male Female

2.

What is your age? 20 30 years 31 40 years 41 50 years 51 and above

3.

Where do you bank? _______________________ Bank

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4.

What service(s) are you provided with? Please tick Current a/c Savings Fixed Fixed Deposit

Other Specify________________________________________________ 5. How long does it take to open an account 15mins. 30mins. Over 30mins.

SECTION TWO: Customers views on the factors impeding mobilization of savings in the bank 1. The overall quality of the banks service was? Very Good 2. Is the stationery? Readily available User friendly Yes Yes No No Good Fair Poor

3. What is the response of the bank staff? (Please tick yes or no for each item) Item Do they greet you on arrival Do they understand your banking needs Do they seem willing to assist Do they process the transaction without error Do they seem competent and knowledgeable Yes No

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4. What is your overall impression of the bank staff? Very Good Good Fair Poor

5. Below are some suggested internal and external factors impeding the levels of bank savings. Please tick them according to your agreement. Tick where appropriate 1-Strongly Agree 2-Agree 3-Neutral 4-Disagree 5-Strongly Disagree

Item 1 1. Low deposit interest rates 2. High level of taxation 3. Limited diversity of deposit products 4. Limited range of products provided by the bank 5. Low disposable income 6. Negative staff attitude and poor responsiveness 7. High bank charges 8. High unemployment level 9. Inadequate marketing

level of Agreement 2 3 4 5

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6. What other factors would you consider in placing more deposits in the Bank? i. ________________________________________________________________ ii. ________________________________________________________________ iii. ________________________________________________________________ 7. Kindly provide us with your suggestions on how the service can be improved? i. ________________________________________________________________ ii. ________________________________________________________________ iii. ________________________________________________________________ iv. ________________________________________________________________ v. ________________________________________________________________ Thank You

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