Riding on the success story of how mobile money transfer service is revolutionizing business, Kenya plans to start selling government bonds and securities to citizens via handsets. PHOTO | FILE
Have you heard about trading in bonds? Do you know how you can make wealth by investing in bonds and allowing your money to yield interest without necessarily playing gamble with it? Are you averse to the complex procedure and the huge capital needed to start meaningful trade in the capital market?
Well, if you have any of these concerns then a new frontier of investment coming soon in the market could be tailor-made just for you.
Riding on the success story of how mobile money transfer service is revolutionizing business, Kenya plans to start selling government bonds and securities to citizens via handsets. And in order to draw millions of investors, the entry sum has also been lowered to just Sh3,000 from Sh50,000.
Buoyed by over 19 million mobile money users in the country, the government will be looking to raise funds from local investors and also encourage the population to save for assured returns over the medium- to long-term.
The initiative dubbed M-Akiba will allow investors to buy government bonds and securities from the comfort of their handsets.
MIDDLE CLASS
National Treasury Cabinet secretary Henry Rotich has said that plans are underway to launch the service from July. The plan is set to change the investment landscape in the country whose middle class population is growing fast.
“We are developing the Treasury mobile direct programme, which we expect to launch in July 2015. The launch of M-Akiba bond will allow Kenyans to purchase government securities directly from the comfort of their mobile phones with a minimum investment of only Sh3,000 compared to the current minimum of Sh50,000,” Mr Henry Rotich said during his 2015/2016 national budget presentation.
It is, however, still not clear if the government is going to enable this service via an app or USSD platform. Plans to launch this service began in 2012 through a collaboration between the Central Bank of Kenya and the World Bank.
According to the plan, potential investors will only need a mobile phone line and subscription to a mobile money transfer service, which will enable telcos to open an electronic account with the Central Securities Depository (CDSC) or the CBK on their behalf.
The government hopes to increase its capital base and at the same time help potential investors that were previously locked out of investing in government debt, be able to do so.
ASSURED RETURNS
UAP Investments General Manager Peter Ng’eno agrees. He says the opportunity is huge for a population that has largely remained locked out of investing in government securities.
“One thing the government has to do though is to ensure that people are sufficiently educated on this type of investment for its take up to be successful. For a long time, Kenyans have believed in buying land as the best way of making assured returns,” Mr Ng’eno said.
Treasury Bonds will enable mobile phone users to lend the government money repayable within specified periods as the state agrees to pay you an interest of say 10 per cent per annum to compensate you for this opportunity cost.
The final interest is lumped together with the initial capital invested hence an assured profit for the investor.
Investment analysts agree that information about Treasury Bonds in Kenya is scarce and generally complicated.
The government uses these opportunities to borrow from citizens to finance certain expenditures such as infrastructure, development projects among similar others.
Investors then simply become lenders to the government with the loan being advanced referred to as bonds.
The period one can lend the government depends on the intended use of the funds with some lasting between one and 30 years. This period is usually referred as the tenor of the bond.
“The interest rate at which a bond will yield is referred to as the coupon. If you invested in a three-year bond with a coupon rate of 10 per cent, the payments to you will be paid semi–annually and the final one will come with the final interest lumped together. This is the most assured investment without any risks,” Mr Ngeno told Money.
CDS ACCOUNT
The government has, however, not set the target amount of funds it hopes to raise from the scheme but the investors will have an opportunity for the first time to buy government bonds at less than Sh50,000.
Currently, those who want to invest in a bond have to open an account with the Central Bank of Kenya (referred to as CDS account) and then fill in a separate application form for the bonds they wish to buy.
The government advertises any bond it is issuing in the daily newspapers as well as on the Central Bank website. Bonds are safe investments but they are not a get-rich-quick scheme where your money would double overnight.
The last two-year bond was issued early this month and its coupon was left to be determined by market forces as a result of its open bidding. Another one issued in February was couponed at 12.8 per cent. An amount of Sh50,000 kept in a savings account would hardly give you such a return over one-year period.
SAVINGS CULTURE
Old Mutual Securities research analyst Erick Munywoki believes the initiative will increase the savings culture in which Kenya which has been generally poor. He, however, says the government may have to lower the coupons when many people begin investing in the government debt.
“I think for a long time the entry level in this line of investment has been a barrier and this may see most investors opt to take up the T-bills to invest. The only challenge with our market now is that we are loan-driven to an extent that most people only save because they expect to borrow, a lot of education needs to be done first for this to be successful,” Mr Munywoki said.
No comments:
Post a Comment