Kenyan banks are faced with a new revenue headache following the introduction of mobile-based infrastructure bond M-Akiba.
The banks, which are already reeling from the effects of interest rates capping, now face huge competition on deposits from the bond, which gives 10 per cent interest a year, above the capped 7 per cent that banks are offering.
Also, M-Akiba incorporated the use of the new mobile banking channel (PesaLink) that banks launched recently, allowing lifting of deposits from accounts into the new savings facility.
The bond also comes at a time when banks have started keeping a tight lid on lending, as well as discouraging interest-earning deposits, in the wake of the new law that came into force in September 2016.
Opinion is divided whether the new venture will eat into the once lucrative bankers’ cake or whether it will create its own niche that will not affect the lenders.
Treasury director of public debt Wahoro Ndoho said M-Akiba presents a more lucrative alternative for those who have deposits sitting in normal savings accounts.
Closed savings accounts
“M-Akiba is priced at 10 per cent. For Wanjiku, the idea that you can get a 10 per cent return makes it the best savings instrument in the market. No savings account will give you 10 per cent now. If anything, most banks closed their savings accounts after the interest rates cap,” Mr Ndoho said.
He said the facility is also being marketed aggressively to savings groups, which are now enabled to transfer money directly into the bond, a move that further widens the deposit leakage from banks into the government bond.
Chamas, as the savings groups are popularly called, have little need for frequent withdrawals and will not be affected by the long wait for interest earnings (twice a year) from the government savings instrument.
Bankers are, however, of the view that M-Akiba is not targeting their deposit shares, owing to its low rate of liquidity as well as its intended target market.
Kenya Bankers Association chairman Habil Olaka said the people targeted by the mobile-based bond are not the same customers banks rely on for fixed deposits.
“The common man being targeted is not the one who would love to keep money for one year to earn some interest in a government bond. They are people who would need cash for paying school fees and other needs. I don’t think the facility will eat into our deposit sources in any way,” Mr Olaka said.
Mr Olaka was pegging his argument on the Sh140,000 daily limit for M-Akiba investors.
The banks themselves are, however, a key pipe in shifting huge deposits through PesaLink mobile service that allows M-Akiba investors to transfer Sh999,999 every day from their accounts into the tax-free and secure bond.
Banks that depend largely on the retail market may feel the most heat should small depositors shift attention to M-Akiba.
Treasury Cabinet Secretary Henry Rotich had also hinted at increasing the daily mobile money limits beyond Sh140,000, meaning M-Pesa and Airtel Money could ship more money away from banks.
It is worth noting that M-Akiba is coming after the revolutionary mobile banking, which provides services such as money transfer, deposit, interest earning savings, and loans. These services were traditionally offered by banks
Treasury says M-Akiba will now be part of the instruments it will be using to borrow funds domestically.
“The government will issue it periodically — either bi-monthly or quarterly, depending on the uptake — and incorporate it into the basket of Treasury infrastructure bonds that are issued periodically. Every infrastructure bond issuance, going forward, will include a portion set aside for Wanjiku — M-Akiba,” Mr Rotich said during the launch.
After reducing loans to the private sector following the law capping rates, banks turned to lending the government, with their share of government debt going up by Sh119 billion between March and May 2017, to cross the Sh1 trillion mark.
But the lenders may now have to contend with a new reality where the same people they have reduced lending to in the past year, standing at four per cent in February compared with 16 per cent a year earlier, will now be lending to the government.
Stanbic Bank economist Jibran Qureishi said the shift to M-Akiba by high net worth individuals may negate the very intention of the bond.
“If individuals begin buying millions, the focus will have shifted to M-Akiba, which is aimed at boosting national savings and giving the common man a chance to invest in bonds.
"Another barrier will be finding liquidity for low deposit holdings in the characteristically less liquid bond market,” Mr Qureishi said.