July 18, 2024

Banking Trends in Kenya: Why 5 Million Accounts Closed and Where People Are Saving




Kenya’s recent banking trends are marked by the closure of 5 million accounts, largely due to economic challenges, including job losses and financial instability. In response, many Kenyans are turning to alternative savings methods, such as mobile wallets and ‘chamas,’ informal savings groups, as well as innovative options like the mshwari lock savings account.

Traditional banking, including kcb bank accounts and cooperative bank accounts, has seen a decline, while the flexibility and accessibility offered by mobile wallets and ‘chamas’ have become increasingly attractive in the face of economic uncertainty.

The shift in financial behavior reflects a growing need for adaptability and financial resilience in changing economic conditions. The closure of 5.66 million bank accounts, especially those with balances below Ksh100,000, is linked to these challenges, leading savers to explore more accessible and flexible alternatives.

Data from the Central Bank of Kenya’s Financial Sector Stability Report (2023) underscores this shift, indicating a significant decrease in the number of deposit accounts. The decline highlights the impact of the evolving economic landscape and the emergence of alternative financial instruments. 

These changes have reshaped the savings and investment landscape in Kenya, breaking the decade-long trend of deposit account growth.

Furthermore, maintaining low bank balances can strain a bank’s liquidity buffers and funding base. When banks hold insufficient balances, they have limited cash reserves to handle customer withdrawals or financial shocks. This can lead to liquidity crises, forcing banks to borrow at higher costs or sell assets rapidly, which can erode investor confidence and undermine financial stability. 

Striking a balance between profitability and maintaining adequate liquidity buffers, as emphasized by Kenya Bankers Association Chief Executive Habil Olaka, is essential.

Kenya’s Micro and Small Enterprises (MSEs) are embracing alternative savings methods over traditional banks and saccos, according to the MSEs Tracker Survey. The survey reveals a preference for mobile wallets, ‘chamas,’ and innovative options like the MShwari Lock Savings Account. 

These choices offer convenience, accessibility, and tailored financial solutions, reflecting a significant shift in the financial landscape towards inclusivity and user-friendliness.

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The MSEs Tracker Survey also indicates variations in savings preferences based on gender and geography. Female-owned businesses favor ‘chamas’ more, while males are inclined towards traditional bank accounts. Urban MSEs prefer mobile wallets and bank savings, while rural MSEs rely more on ‘chamas’ and other informal methods.

In the context of deposit insurance, the Kenya Deposit Insurance Corporation (KDIC) currently provides 15 percent coverage for bank depositors. However, the International Association of Deposit Insurance (IADI) recommends a 20 percent coverage level for enhanced depositor protection. 

The gap between the current 15 percent and the recommended 20 percent coverage suggests that depositors in Kenya may need to consider additional safeguards for their savings in case of bank failures.

Given the evolving banking trends and varying deposit insurance levels, it’s essential to reevaluate your savings and banking choices. Explore a diverse range of financial strategies, including kcb bank accounts, cooperative bank accounts, mobile wallets, ‘chamas,’ and innovative offerings like the mshwari lock savings account and equity savings account. 

Staying informed and diversifying your financial portfolio will help you adapt to Kenya’s changing economic landscape and secure your financial future.