Bill broadens State borrowing sources

Efforts to have retail investors participate in government securities have received a boost after the Finance, Trade and Planning Committee of the National Assembly gave green light to a Bill to effect the plan.

The Central Bank of Kenya (Amendment) Bill drafted by Mukurweini MP Kabando wa Kabando seeks to lower the minimum thresholds of Treasury Bills and Bonds and to enable trading through electronic platforms.

It was formally introduced in Parliament in August and the recommendation by the committee that the National Assembly pass it without amendments will be a helpful boost.

“One of the key benefits from the provisions in the Bill is that the topical issue of high interest rates in Kenya will to some extent be addressed,” the committee said in a report tabled in the House this week.

“It is important to note that a Treasury-led study on high interest rates recommended that the implementation of Treasury mobile direct system to enable retail investors to directly participate in government securities to enhance competition,” the committee said.

PLACING ROADBLOCKS
For Treasury Bills, investors or corporate bodies are currently required to have at least Sh100,000 and to have an active Central Depository System account at the Central Bank of Kenya.

They are issued with maturity periods of 91, 182 and 364 days.

With Treasury Bonds, a minimum Sh50,000 is needed, and Sh100,000 for infrastructural bonds, and the maturity period ranges between a year and 30 years.

Whenever the CBK advertises for either the bonds or the bills, it states that the bids must reach it in a specified format before 2pm on the day of the deadline to buy.

Investors are required to pay for the bids in cash, banker’s cheque or Real Time Gross Settlement.

Mr Kabando argues that these rules place roadblocks in the way of Kenyans who could be willing to save their money by investing in government securities, which have a guaranteed, albeit low, return on investment.

BOND INVESTMENT
He seeks to make it easier for the public to invest in these bonds, and basically lend the government money, by having CBK put in place mechanisms to enable participation through electronic means and to lower the investment denominations.

He has in the past argued that in a country where mobile money transfer is used for all manner of payments, it shouldn’t be too hard for the ordinary Kenyan to save their money by lending to the government.

The committee discovered that in 2013, Sh1.05 trillion of the government’s Sh1.08 trillion domestic debt was in Treasury Bills and Bonds.

When asked for its input by the committee, the Central Bank is reported to have said that it is progressively automating its systems to allow for online access to government securities.

MOBILE BANKING

One project dubbed Treasury Mobile Direct, which will enable internet and mobile banking, is in the final rollout, it said.

This would eventually enable investors to make low-volume payments through mobile money transfer channels and get updates on the status of their investments.

CBK argued that these changes wouldn’t require an amendment of the CBK Act but the Finance Committee disagreed and recommended the approval of the Bill without amendments.