Kenya on Monday launched the world’s first Treasury bond to be offered exclusively via mobile phone and slashed the minimum investment level in government debt, in a bid to stimulate public participation in the capital markets, raise money cheaply and boost the national savings rate.
The Ks5bn ($48m) five-year retail M-Akiba infrastructure bond is based on Kenya’s innovative M-Pesa mobile money system, which allows mobile phone subscribers to send and save money and pay bills with a few clicks on their phone.
All 21m Kenyans with a mobile money account will be able to buy the bond in increments as small as Ks3,000 ($28.85) and trade it on the secondary market from anywhere. Previously they had to register at one of the central bank’s four offices, fill in numerous forms and spend at least Ks50,000.
Kenya, east Africa’s largest economy, raised $2bn last year in its first eurobond issuance amid strong global demand for African government debt. But conditions have changed dramatically since then as investors shy away from emerging markets. The Kenyan central bank has raised interest rates 300 basis points to 11.5 per cent since May to defend the shilling, which has weakened 14 per cent this year against the dollar.
The Kenyan government debt yield curve is currently inverted, with one-year bonds offering almost 16 per cent and 10-year bonds just above 14 per cent, as investors fret about the medium-to-long-term outlook.
Henry Rotich, the finance minister, admitted the retail infrastructure bond would help keep government borrowing costs down as the government seeks to raise some Ks220bn this year.
“Obviously our strategy is to get cheap sources of funds so we’re looking at all answers for funding,” he said, adding that the yield on the M-Akiba bond, which will debut in the middle of next month, would be higher than commercial banks’ savings rates but lower than the market rate on government debt.
Officials say there could be further issuances on a quarterly basis, if the initial offering is successful.
The government said key motivations for the M-Akiba bond were to boost public savings and participation in the capital markets — Akiba means savings in Swahili. Retail participation in the Kenyan bond market is only 2 per cent, while the national savings rate is 11 per cent of gross domestic product — half that of neighbouring Uganda and Rwanda.
Aly-Khan Satchu, a Nairobi-based investment analyst, said he expected the initiative to work. “What’s proven is that the mobile phone is a very effective channel [in Kenya] and there’s enough money floating around under the mattress or in the mobile money system that will find this attractive.”
Evans Osano, a markets specialist at the World Bank, which has been advising the government on the scheme, said the yield would not have to be that high for people investing the minimum to be attracted. “If you’re investing Ks3,000 you’ll be lucky to get any interest at a bank,” he said. “You’ll probably be paying the bank to hold your money so this bond should appeal.”
The government is also tapping Kenyans’ national pride in its marketing of the M-Akiba bond by giving it the slogan “Save money. Make money. Build Kenya.”
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