Chapter 1

Chapter One

Introduction

There have been many discussions, accusations and counteraccusations on how the banking sector in Zimbabwe has short-changed its customers. Both depositors and borrowers have poured their hearts out on how the intermediation role that banks play has failed to support their wealth creation aspirations. Sadly, savers have resorted to safe deposit boxes and mattresses as an alternative to banking. I am obviously excluding those savers that avoid banks because of the illegality of their transactions as this is a subject for another day, month or even another year!

This series will give a banker’s view on the Savings Culture, the importance of savings, how savings are key to support lending growth and the reward for saving through a bank. Finally, the series will attempt to assess why Zimbabweans, both corporates and individuals, have lost the savings culture.

The importance of saving

It is difficult to imagine life without savings. In the broader sense, there is hardly anything significant and sustainable that has been achieved without savings. In the banking sense we think about money, but in the real world many things can be saved to achieve more, we sleep or rest, so we gather fresh energy for the next day. When I grew up, we did not consume all the grain we had harvested as green mealies or Sadza as some would have to be kept for planting for the next season. As the saying goes; “Don’t let the pressure of those who are eating their harvest make you eat your seeds”. This would happen even when sometimes there was not enough food to go around on the day or until the next harvest. The family knew that holding back on current consumption (savings) would achieve a bigger prize in the form of a bumper harvest at the end of the season.

Savings are important at all levels; for example, countries save by creating food reserves that will be relied upon in future years when yields are low. This is why we see all these huge silos in strategic locations to store agricultural output. There are many other forms of savings, with the most liquid being financial, while precious commodities such as gold or oil are other forms of savings.

It is naive for a country or individual to create growth plans without defining how they will mobilize resources to finance the plans. It is equally naïve for any individual to think that grand plans can be actualised without savings, as savings are the lubricant for the investment machine.

As a career banker I have witnessed Governments, Companies and individuals who have attempted to finance their dreams entirely through borrowings. Many of them have realised their folly when they “lose” the assets to the lenders because of failure to service the loans. I have deliberately put the word “lose” in inverted commas because I believe that such entities would never have owned the investments in the first place. Project sponsors can only lose where they have invested their own funds called “equity”. The more equity they invest, the safer they are PUBLIC and the more respect they get even from the lenders. By investing their own savings, they also retain the right to make strategic project decisions without undue influence from lenders.

Many customers have approached the Bank I work for, for funding over the years. One of the key questions I ask is “How much of their own resources they have committed to the project?” I know that once you have committed your own resources, either in the form of money, equipment, time etc., you have something to lose and therefore are likely to fight tooth and nail to make the project a success. So much has been said about the new farmers who, without much investment of their own resources have approached banks for financing. The response from banks has been logical. “Show me what you stand to lose before I can trust you with my depositors’ funds!” This clearly demonstrates that savings are at the center of success.

Key questions for consideration

Accordingly, the questions that Governments, companies and individuals alike must ask themselves before committing to anything sustainable are;

1.  Are our savings strategies aligned to our investment aspirations?

2. What do we stand to lose if this project goes wrong?

3. Why should we persuade someone to invest where we are not confident to risk our own money?

4. Is this project painful? Often “investment pain” is positively correlated with project success.

5. Am I patient enough to see this through? This question tries to establish whether your savings are patient enough to see your investment through. 

In this “Savings Series” we will explore the threads that link savings, investments and lending. We will explore how depositors and borrowers are matched through a banking system to achieve their aspirations. We will also explore how the two are rewarded for the critical roles they play. Finally, we will underscore how Savings are a starting point for any initiative. Finally, the quote from Suze Orman does emphasize the need to persevere for a long-term saver when she wrote “No one’s ever achieved financial fitness with a January resolution that’s abandoned by February”.