House passes Bill seeking to lower threshold for securities

Parliament has passed a Bill that could compel the Central Bank of Kenya to lower the minimum investable amounts in government securities if President Uhuru Kenyatta signs it into law.

The Central Bank of Kenya (Amendment) Bill 2014 by MP Kabando wa Kabando seeks “lower minimum investment denominations” in T-bills and bonds.

Failure to specify the minimum investment threshold means CBK will have discretion in setting the figures.

The current minimum investment in T-bills, with maturities of less than one year, is Sh100,000. An investor needs at least Sh50,000 to buy a government bond whose maturity ranges between one and 30 years.

Additional investments in both cases is in multiples of Sh50,000.

Mr Kabando sponsored the Bill arguing that the current thresholds have made it hard for ordinary Kenyans to buy government paper which offer safe and regular income in the form of interest payments.

Banks, insurers, and pension funds are major investors in government bonds, holding about 90 per cent of the Sh953 billion sovereign debt as of November 2014.

Most retail investors have used money market funds run by insurers and other asset managers to gain exposure to the government debt market.

The Bill also provides that the debt be sold through electronic means, potentially allowing retail investors to buy the securities through mobile phones.

T-Bills and bonds are currently bought directly from CBK and through appointed agents including banks and stock brokers.

Treasury Secretary Henry Rotich has however argued against legislating on the minimum investable sums, saying that plans are underway to achieve the same objective administratively.

“You don’t need to change any laws in order to reduce the amounts for subscription. It will be done administratively. It was one of the recommendations to lower interest rates,” Mr Rotich told the Business Daily in a recent interview.

CBK said it is implementing electronic trading, adding that the adoption of the Treasury Mobile Direct (TMD) system will allow investors to make low value payments on mobile platforms when trading in securities.

It remains to be seen whether the bank will change the current investable minimum amounts in government securities.

A low threshold could draw in a large number of retail investors, adding to the difficulty of maintaining the national debt register.

The biggest challenge for small investors however lies in the illiquid nature of government bonds. Unlike quoted equities which can easily be sold to local and foreign investors, bonds of lower values have no ready buyers.