M-Akiba bond targets ordinary Kenyans

You can now lend your government as little as Sh3,000 through your mobile phone money transfer service.

So juicy is this venture that all you need in addition to your handset is just your national identity number.

The National Treasury is seeking Sh5 billion from individuals — including those in remote areas — through the initiative, which started on Friday, October 16 and is expected to run for three weeks.

The Treasury is using the Treasury Mobile Direct System, M-Akiba, to collect the cash.

REVOLUTIONARY IDEA

Financial expert and the CEO of Rich Management Aly Khan Satchu, said the M-Akiba platform is a revolutionary idea that investors should embrace.

“It is an excellent example of the innovation quotient in our economy,” he told Money. “It is very grassroots-oriented and financially inclusive. It is a perfect example of democratising the markets.”

Relic Capital head of research Paul Maina agrees with Mr Satchu, adding that the new mobile bond trading platform is a channel that will bridge the gap between the Central Bank and the ordinary people.

“Previously, people looking to buy bonds had to get accounts with CBK. The new platform is going to erode this need. It will be a bridge between the CBK and the common man and will facilitate easier trading,” he said.

HOW TO REGISTER

The mobile-traded bond will see your registration, trading and settlement done through your handset. To register, you will dial *889#.

“To purchase the bond, investors will open central depository accounts via their mobile phones without engaging in physical documentation,” said National Treasury cabinet secretary Henry Rotich during the launch of M-Akiba platform on September 28.

This mobile phone-based purchase of the bond is the brainchild of the Nairobi Securities Exchange, the Capital Markets Authority (CMA), Treasury, stockbrokers, investment banks, Central Depository and Settlement Corporation, ICT Authority of Kenya, and the Nairobi International Financial Centre Authority. Interestingly, it comes hot on the heels of the lowering of the minimum amount needed to purchase bonds from Sh50,000 to Sh3,000.

M-AKIBA BOND RETURNS

In the current bond issue, interests earned will be paid out every six months. Upon maturity of the bond, the principal amount you invested and the interests you have earned from the bond will be paid through your mobile.

The current daily limit that you can bid is set at Sh140,000.

“Investors will buy bonds from the minimum amount of Sh3,000 up to the maximum amount of Sh140,000 per day,” Mr Rotich added.

Additionally, investors looking to purchase the bond will be able to continue buying in the subsequent periods up to the date of closure of the issue or when the targeted amount of Sh5 billion will have been achieved.

Investors, who miss out on the bond in the primary issue will have the option of buying it in the secondary market at the NSE.

However, purchase of the bond in the secondary market will be determined by market forces.

“The interest rate (on the bond) will be higher than the interest rates payable on small deposits by commercial banks and other investment channels, and as an infrastructure bond, interest payments to investors will be tax-free,” Mr Rotich added.

Local banks currently offer between two and seven per cent for funds in fixed deposit and savings accounts. This means that Sh3,000 will earn you just Sh60 at a savings account at two per cent interest rate.

The M-Akiba bond will enable you to lend the government money repayable within specified periods. The final interest payment will be lumped together with the principal that you invested, providing you with a guaranteed and more profit than what you would get from your bank.

TREASURY BONDS

This though is not the only move by the government to raise funds.

Last week, for instance, the Central Bank revealed that it is offering a one-year Treasury bond in a bid to raise Sh20 billion.

Funds from this offer are expected to plug a budget deficit. Currently, the government is grappling with a cash crunch and funds from the M-Akiba bond will come in handy.

However, before you invest your hard-earned savings, Mr Maina notes that there are factors you need to bear in mind. First, it will be wise for you to consider how the bond is priced.

“Potential investors should understand that bonds are inversely proportional to the prevailing interest rates. If interest rates go down, prices of bonds increase. If interest rates go up, prices of bonds decrease,” Mr Maina said.

“I don’t see a situation where the government will issue the bond at higher than 14 per cent. It will be too expensive.”

At this rate (14 per cent), an investment of Sh3,000 is set to give investors a return of Sh210 every six months and Sh420 at the end of the year.

TAX FREE BONDS

Currently, all infrastructural bonds are tax-free to encourage their uptake.

However, only about 2 per cent of individual investors in the country are purchasing bonds.

Overall, savings by Kenyans stand at 11 per cent of the Gross Domestic Product against a target of 30 per cent by 2030.

“Most likely, this bond will see behavioural finance at play, where Kenyans will buy in big numbers. However, after six months, they are likely to dump the bond if it is priced at 14 per cent,” said Mr Maina.

“This is because once they receive the first payments of Sh210 at 7 per cent after six months, they are likely to feel that the interest rate is too low and exit, feeling that they can do better on their own. This may overwhelm the market with supply, pushing the price down.”

Nonetheless, according to NSE chairman Eddy Njoroge, the M-Akiba bond “will allow the government to develop a yield curve that will provide a pricing benchmark for various banking products”.

Currently, there are 57 listed government bonds. Since the inception of the government’s bond programme in 2000, a total of over Sh1 trillion has been raised. 

Strikingly, bond earnings are not always high. For instance, data from Kestrel Capital Ltd in May indicated that bond turnover declined in April and May. In May, bond turnover at the bourse dropped by 13 per cent to Sh22 billion from Sh25.3 per cent recorded in April.