Is M-Akiba worth it for the ordinary Kenyan?

When the Treasury came up with the idea of borrowing money from ordinary Kenyans, it had three goals. It wanted to access cheap money while growing the country’s savings culture and opening lucrative Government bonds to the mwananchi.

The first M-Akiba bond has largely been a success in achieving these goals. More than 100,000 investors registered their interest in putting their money in Government debt, with the Treasury raising the Sh150 million target ahead of scheduled timelines.

Even bigger

However, just 5,000 Kenyans — or one in every 20 of those who registered on the M-Akiba platform –—actively invested in the bond. This is an indication that it was largely bought by individuals who know their way around bond markets. Nonetheless, its debut created a buzz and increased people’s knowledge of the markets.

As a result, the Treasury, which is preparing an even bigger offer of the mobile phone-based bond, expects to increase the number of registered investors to three million before it offers Sh4.85 billion in June.

The just concluded tax-free special offer attracted a cross-section of Kenyans who invested between Sh3,000 and Sh1 million over 13 days. According to Treasury data, the average M-Akiba investment was Sh20,000.

So what returns can the ordinary investor expect?

Working with the average investment of Sh20,000, the annual return of 10 per cent will be Sh2,000 after 12 months, and Sh6,000 over the three-year period.

The interest will be paid after every six months, which means that the average investor will receive Sh1,000 in October and another Sh1,000 in April 2018.

Those who invested the minimum Sh3,000 will collect Sh900 in interest after three years.

However, from these amounts, investors will be required to pay stock brokerage fees and mobile money transaction fees, which have been estimated at about 1 per cent.

Almost guaranteed

While the returns might appear dismal, the investment is risk free and the returns are almost guaranteed given that the Government is unlikely to default on payment of its debts.

Investing in the bond is a good option if you’re worried about risk, but there are other options available in the market that offer higher returns, though at a higher risk. These include the stock market, where investors can make much more over a three-year period, but markets tumble and investments can be wiped out.

If you spent Sh20,000 buying 2,000 shares of the KenolKobil stock at the start of last year at the Nairobi Securities Exchange (NSE), for instance, the value of your investment would have gone up 46 per cent in a year’s time.

According to an annual NSE report, the stock was one of the major gainers last year, going up from Sh9.50 at the start of 2016 to Sh14 in December the same year.

This means the Sh20,000 would have grown by Sh8,000 if you sold your shares in December, with an additional Sh600 earned in dividends at the rate of 30 cents per share.

On the flipside, if you put your money in a stock like Uchumi, your investment would have been wiped out by more than half. Uchumi’s share price in January 2016 was about Sh11, but this went down more than 63 per cent to Sh4 in December 2016. This means your Sh20,000 would have been reduced to Sh7,400.

Such gains and erosions in investments are highly unlikely with Government bonds.