Investors to buy bonds by mobile cash transfers

Phone users could soon buy Treasury bonds through mobile money transfers in a move that would introduce tough competition for depositors’ cash.

Although details are yet to be worked out, it is envisaged that the minimum requirement for a retail investor to buy a bond will be reduced from the current Sh50,000.

The proposal is under discussion between the Treasury, the Capital Markets Authority and the World Bank’s private sector lending affiliate, the International Finance Corporation, which is spearheading securities markets reforms in Africa.

The head of the debt management department at the Treasury, John Murugu, told an African bond markets workshop in Nairobi that the proposal to have retail investors participate in the fixed-income markets through the cellphone was part of the reforms being undertaken to deepen the market and help in raising funds for infrastructure.

He was delivering a keynote speech on behalf of Treasury permanent secretary Joseph Kinyua at the Intercontinental Hotel.
“We have a proposal for retail investors to participate through the mobile phone on the table among the reforms we want to undertake,” said Mr Murugu.

CMA chief executive Stella Kilonzo said that the regulator had engaged with the Treasury on the issue but an application for such a bond was yet to be made.

“I believe we are still at the structuring stage and no application of the sort has been received,” said Mrs Kilonzo.

Alison Herwood, manager for the capital markets and corporate governance joint programme at the World Bank and IFC, said that mobile phone-based bond market development idea was being explored in several countries around the world and had a potentially positive impact to deepen the market.

They were speaking at a two-day conference called to discuss the African bond markets. It was jointly organised by the IFC and Swedish International Development Agency (SIDA).

The introduction of cellphone-based bond market services would be riding on the high number of registered mobile phone users.

According to data from the Communications Commission of Kenya, by end June 2011, mobile phone subscribers were at 25 million, from a population of just below 40 million.

In the April-June quarter of this year, the subscription for money transfer services stood at 17.3 million people with the total number of deposits at Sh48 billion or 16.4 per cent up on the previous quarter.

IFC and the World Bank are running a joint initiative dubbed Efficient Securities Market Institutional Development (ESMID), which focuses on developing non-governmental bond markets to help finance sectors with high development impact such as infrastructure, housing and microfinance.

Mr Murugu said that use of fixed-income securities markets by corporate entities would have the impact of reducing the current interest margin – the spread – of more than 10 per cent in the banking sector in Kenya and other countries.

The high spread is a result of low savings and deposit rates against high lending by banks.