Finally, the common man has a chance to invest in government securities which have long been reserved for the elite earners who can afford the Sh50,000 or more that is normally required in such investments.

The mobile-phone based M-Akiba required an investor to put in only Sh3,000 as initial investment. The investor could then add to this in multiples of Sh500, meaning that they can invest Sh3,500 or Sh4,000, Sh4,500 and so on.

The first batch of the securities hit its Sh150 million target and closed on Wednesday while the second portion worth Sh4.85 billion goes on sale in June. There is still a chance to buy the bond.

Currently, if you want to invest in a treasury bond, which is a government security with more than a year in terms of tenor (length of period before maturity or redemption of the initial investment), the minimum amount is Sh50,000 but if you invest in a Treasury bill— which has maximum tenor of 364 days— then you are required to raise at least Sh100,000.

Once invested through M-Akiba, then there is the opportunity to earn 10 per cent on the amount invested.

In the case of the minimum of Sh3,000, then an investor gets Sh300 annually for the next three years, which is the tenor of the bond.

If the investor puts in a million shillings, then they get Sh100,000 in interest earnings.

One of the attractions of the M-Akiba bond is that it is not subject to withholding tax which is imposed on the other government securities including Treasury bills and bonds.

On the T-bills and bonds you pay a withholding tax amounting to 15 per cent on interest earned and the discount given.

Withholding tax is charged before investor’s account is credited so that the responsibility of deducting the amount is on the central bank and then remitting the amount directly to the taxman rather than asking the investor to pay after he or she is paid.

Treasury bills and bonds are typically offered at a discount meaning that what you purchase with a face value of Sh100,000 is normally bought at an actual price of below that figure.

The discount given is then taxed at 15 per cent along with the interest earned every year.

In the case of M-Akiba, the bond is offered at par, meaning what you buy is also the face value of the security and so there is no discount as such in this particular offer apparently to make the process and offer simpler.

For treasury bond with a tenor of 10 years and above, the tax is 10 per cent because there has since 2001 been a government intention to encourage purchasing of long-term securities that not only reduce annual interest payment on the part of the government but also encourage the formation of a yield curve (a set of interest rates depending on the length of the security) that lenders can use to extend long-term credit to borrowers.

Lose 15 per cent

Thus if the common man invests Sh100,000 in the M-Akiba, and gets an interest of Sh10,000 they get the full amount rather than lose 15 per cent or Sh1,500 had they have used the traditional method of purchasing such securities.

The other feature of the M-Akiba bond is that all the transactions, including the reselling after the initial purchase, is to be done through the mobile phone.

That is a game changer not only because it has not been done anywhere in the world but also because it has the potential to make it easier and cheaper for the government to raise funds through securities and could with time be extended to the corporate sector.

Through a broker

The payment of interest is to be done every six months. That is to say that the annual 10 per cent coupon (interest) rate is to be split into two equal instalments, each of five per cent paid every six months. The first payment falls on October 9 this year.

You cannot, however, purchase securities of more than Sh140,000 per day because mobile phone money transfer transactions are capped at this amount.

You access the application module directly by dialling *889# and then following the instructions. The deal is being done with Safaricom and Airtel subscribers only.

Selling of the bond to other people, once a person has invested, is to be done through mobile phones and through an intermediary—the stock broker —as they are the only ones allowed to operate on the Nairobi Securities Exchange.

An individual cannot trade any security directly without going through a broker.

The broker charges 0.1 per cent of the value traded. In the event of a Sh100,000 transaction, then the broker receives Sh100 from the buyer and Sh100 from the seller.

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