Capital Markets

Mobile traded M-Akiba bond set to be launched in a month

Treasury Secretary Henry Rotich has said the government will launch the much awaited mobile-traded government securities, M-Akiba bonds, in a months’ time offering an alternative savings option to retail investors.

Mr Rotich told the Business Daily that experts were putting final touches on the platform on which M-Akiba will run.

It will be operated by the Nairobi Securities Exchange (NSE), the Central Depository and Settlement Corporation (CDSC), the Central Bank of Kenya (CBK) and mobile service providers. “Once they are ready we will set the launching date. I understand they need about two weeks for primary dealership infrastructure and another two weeks for secondary trading infrastructure,” Mr Rotich wrote in reply to our questions.

With M-Akiba, banks will come under increased competition for deposits as any Kenyan with a mobile phone and as little as Sh3,000 will be able to invest in government securities. The move comes at a time interest-earning deposit rates are legally attracting 70 per cent of the loan rate.

When launched, individuals will be able to start bidding for the five-year income tax-free bond. Investors will, however, be able to bid up to Sh140,000 daily — the maximum cap for mobile money transfers — during the week it goes on auction.

The government is stepping up to challenge for deposits even as banks rush to reclassify deposit accounts to avoid paying huge interest on client money.
M-Akiba may be lucrative with the current rates at which the Treasury is selling the three month-Treasury bills and bonds at, which are much higher than that offered under the deposit rate in the new banking law.

READ: Treasury fails to launch M-Pesa bond, again

Also read: Why M-Akiba is set to be a game changer

Currently, small savers are forced to put their money in illiquid savings such as chamas where they have to wait for months on end before being paid a lumpsum sometimes without interest.

The Treasury has delayed the mobile phone-based bond for over a year since President Uhuru Kenyatta agreed to a law guiding the sale of the Sh5 billion mini-securities.

Volatile interest rates

Mr Rotich in January said the government would introduce the five-year bond by the end of March, after the planned sale in October last year was derailed by volatile interest rates.

During the latter period, the rate for short-term government paper rose to 22 per cent. However, the Treasury did not shy away from borrowing from banks and pension funds, which are the biggest consumers of government securities.

The timing will be crucial for President Kenyatta who wants to see the cap on interest rates work even as banks threaten to turn to government securities, which are considered less risky than lending to the private sector.

M-Akiba will offer Mr Kenyatta a perfect avenue for liberalising the government paper market and making the process competitive so that treasuries do not continue crowding out private borrowers from banks.

The long-term impact will be gradual loosening of the stranglehold that commercial banks have over Treasury bill and bond auctions now priced highly at over Sh50,000 a unit. It is also expected to increase national savings.

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