Let’s get on with it; give Wanjiku too an opportunity to buy Treasury bills
Members of the public queue to open CDS accounts ahead of the Safaricom IPO deadline for buying shares on April 25, 2008. PHOTO | HEZRON NJOROGE
What you need to know:
- If, as a small saver, you deposit Sh200,000 in your savings account with a commercial bank today, you will be paid only 1.5 per cent interest. Yet the prevailing interest rate on the Treasury bill right now is at 8.2 per cent.
- What the numbers don’t tell you is that billions are saved in M-Pesa accounts mainly for cash-flow convenience.
I commend Mukurweini MP Kabando wa Kabando, for an initiative he has started in Parliament which I consider very timely. He has introduced a Bill seeking to amend the Central Bank of Kenya Act to force the institution to start selling Treasury bills and bonds to “Wanjiku”.
And, how does he want to achieve this? Two things: First, he proposes that Treasury bills be sold in very small denominations.
Secondly, he proposes that the Bank introduces technology that will make it possible for Wanjiku to access these instruments through the mobile phone.
Currently the minimum amount on the Treasury bill is Sh100,000, while the minimum on a Treasury bond is Sh50,000.
And, opening a CDS account to enable you to transact is a complete nightmare. If, as a small saver, you deposit Sh200,000 in your savings account with a commercial bank today, you will be paid only 1.5 per cent interest.
Yet the prevailing interest rate on the Treasury bill right now is at 8.2 per cent. Thus, if Mr Kabando’s proposal is to be effected today, the low-income savers will be earning the 8.2 per cent.
Indeed, the prevailing arrangement right now is blatantly unfair to Wanjiku.
EVERY KENYAN WITH A MOBILE PHONE
Commercial banks, the biggest investors in both Treasury bills and bonds, simply mobilise savings from Wanjiku by paying her almost zero interest on current and savings accounts, and then use the same money to buy Treasury bills at 8.2 per cent.
Let every Kenyan with a mobile phone be allowed to invest in government paper. After all, in the world we live in today – that of M-shwari and M-Pesa – what Mr Kabando has proposed should not be technologically impossible to achieve.
I hope that the move will bring the denominations down to a level where the village shopkeeper, the mitumba trader and mama mboga can access the government’s securities market.
Billions of shillings lie idle in this sector with Wanjiku being forced to invest in illiquid types of savings such as chamas where you have to wait for months for your lump-sum to come by.
If you doubt the amounts the small saver is capable of mobilising and whether a market of small retail traders in government securities is feasible in our circumstances, ask the management of the Commercial Bank of Africa to share with you M-shwari’s monthly volumes. The numbers run into billions of shillings.
Many small traders are forced to keep their hard-earned savings in M-Pesa. Granted, most of the numbers you see in M-pesa volumes are money transfers. What the numbers don’t tell you is that billions are saved in M-Pesa accounts mainly for cash-flow convenience.
Mr Kabando’s amendment Bill is not driven by mere populism. As a matter of fact, there is a sense in which his move can be interpreted as an attempt to pre-empt what the Central Bank has already started.
BANKS DOMINATE THE AUCTIONS
A few months ago, the Bank put out an advert in the newspapers inviting IT consultants to come up with a solution to effect some of the suggestions Mr Kabando has proposed.
What Mr Kabando has done will achieve two things. First, it will not only give the proposed changes the force of law, but also give the idea a new sense of urgency. These ideas have been under discussion for years.
Secondly, it will allow Parliament to focus on a critical aspect of economic policy. Currently, 53 per cent of Treasury bills and bonds are held by commercial banks. They dominate the auctions and are in a position where they can dictate terms.
If we open up government debt to Wanjiku, the long-term impact will be a gradual loosening of the stranglehold banks have over Treasury bill and bond auctions and gradual reduction of interest rates.
Lastly, a piece of advice for Mr Kabando: perhaps this is the opportunity to transfer government debt operations from the Central Bank to the Treasury.
Our Central Bank is badly conflicted right now. It is in charge of monetary policy, and at the same time borrows money from the market as a government agent.
Include this in the amendment. The bureaucrats at the Treasury have been talking about it for too long. It must be enforced through the law.
