ROLE OF BANKS IN CREATING WEALTH

Role of banks

Today I want to talk about the role of banks in creating wealth. I was told that there are two types of bank customers in this world; those who save and those who borrow to invest. What kind of customer are you? Saving or borrowing? When you save, you move closer to your dreams but when you borrow and invest in a project or business, you move closest to your dreams. In wealth creation, saving is referred to as step 1 towards wealth creation and accumulation while borrowing (which mainly comes after saving for some time) becomes step 2. Saving alone will not create any significant wealth. In fact, when you face retrenchment, you will start draining the few coins you have saved and end up with your initial position. However, if you invest, you will create a cash-flow reservoir where you will be receiving dividends (in case of shares, unit trusts or bonds) or rent (in case of owning a rental property).  Investing is like owning a cow, where you will get unending cash from milk and you remain with your cow for long. Believe me, you will never lack milk. It is only the proven way to disengage from the yokes of employers. The truth is that banks encourage ordinary people to save so that they can loan the rich to complete their projects. The rich work smart by creating personal relationship with banks and hence, they can access any loan to advance their wealth.

Figure 1: Outside one of Equity bank branch in Kenya 

“At its core, banking is not simply about profit, but about personal relationship” – Felix Rohatyn, American investment banker and author of Dealings: A Political and Financial Life

Banking industry plays a major role in the society. It is so crucial in any country's economy and if it fails, the entire economy might collapse. This was witnessed in the global financial crisis that occurred in years 2007-09, which started in US. Many businesses collapsed due to fall of the banking industry. You have seen banks close or move under receivership and many citizens lose millions of cash, where others start to wallow in abject poverty. The same industry makes kings and queens by giving loans to people who develop businesses and finance other mega-projects. Make a bank a friend and you will never regret. Create a healthy relationship by building your credit worthiness/ score and they will not fail you. However, borrow when you are expanding/ investing.

As I have come down outlining to you where you can take a loan to venture and where you should reconsider while thinking of a loan, this precisely shows that you can use banks to achieve your goals faster.  People say that their properties have been auctioned due to failing of repayment of loans.  It happens more often BUT let me give you a hint on how to circumvent this.  Bankers are people will always consider you if you decide to visit them and tell them about your situation. They will always listen. After all, you are a member there.  For instance, your agreement was to pay KES.15, 000 a month. Then in the midst of your paying period, let’s say after 3 months, for other reasons like economic issues or emergency cases at home, tell them you will make KES. 7,000. They will understand and if this persists, they will recalculate your loan to harmonize the books.  After all, loans can be repaid in a longer time like 5 -7 years. So, make sure to run on shoulders of giants.

*** NOTE: Many of big projects are financed by loans.  ***