It is safe to keep your money in the bank, it is protected against loss

Wells Fargo van waits to collect money from Equity Bank. [File, Standard]

Saving money is crucial towards achieving financial security and essential to personal financial planning.

The concept of banking dates back to 2000 BC in Assyria, India and later in the Greek and Roman Empires, evolving through time to the present-day financial systems. The concept has been built around lending to traders, borrowing and deposit-taking. Hence money not intended for immediate use was stored in the bank for safekeeping and accountability.

Having savings in the bank enables individuals to meet their needs between income cycles, plan their budget and set aside funds for emergencies or long-term investments. Banks usually pool deposits together and lend to individuals or organisations that need loans for various purposes such as working capital, student loans, vehicle financing, or purchasing property and other high-value assets, otherwise known as intermediation.

On this account, the proportion of Kenya's population with access to formal financial services rose to 84 per cent in 2021 from 75 per cent in 2016, driven largely by more use of mobile technology, according to the Central Bank of Kenya Financial Access Household Survey 2021.

However, a section of Kenya's population remains unbanked or lack a savings product. Bank account usage has been declining, especially among those aged below 55 years, with a majority of respondents citing lack of money to save, no regular income and high cost of operating bank accounts as the main reasons they have not used a bank account in the last 12 months.

However, keeping money in hidden crevices, tins or the roof of the house or shops, predisposes one to various risks of loss, while denying one the conveniences of banking services. Occasionally, a banking institution may experience challenges brought about by economic shocks, geo-political conflict, liquidity constraints, declining deposits, low capital reserves or non-adherence to regulations. When closure and liquidation of a bank as the last resort is imminent, depositors get anxious and stressed over the safety of their money.

In this case, deposit insurance schemes such the Kenya Deposit Insurance Corporation (KDIC) step in to cushion depositors and find a resolution mechanism in the shortest time possible. The KDIC being the sole and exclusive resolution authority for banks, endeavours to bring stability in the banking sector and build confidence among depositors.

KDIC's strategy employs sound risk management measures for member institutions as well as timely resolution of failed banks. As it does this, KDIC recovers debts owed to institutions under liquidation so that regular payouts are made to depositors.

Kenya's banking sector has been stable in the recent past due to stringent oversight by CBK as the supervisory authority and deployment of deliberate preventive measures taken by KDIC and the other regulators. There are 37 commercial banks, one mortgage institution and 14 microfinance banks that are insured by KDIC. In 2020 KDIC increased the insured coverage level from Sh100,000 to Sh500,000 per depositor. In the unfortunate event of a bank failing, KDIC working with the other relevant regulators will seek to resolve it as a going concern using the various resolution options within its powers as mandated by its Act.

In situations where these options fail to work and the bank is placed under liquidation, depositors are reimbursed their protected deposits up to a maximum limit within seven days of lodging their claims. KDIC will host the Kenya Depositors Insurance Week on 15th and 16th November 2023 at the Kenyatta International Convention Centre to create awareness about depositors' protection.

The banks insured by KDIC will be exhibiting their products, while KDIC will be there to engage members of the public regarding bank deposits insurance, encouraging Kenyans to keep their money in their banks of choice.