Why Treasury failed to hit M-Akiba target

National Treasury Cabinet Secretary Henry Rotich (centre), Nairobi Securities Exchange Chairman Samuel Kimani (left) Central Depository’s Rose Mambo and Capital Markets Authority Chief Executive Paul Muthaura during the launch of M-Akiba on June 30, this year. [File, Standard]

It took the Government 21 months of planning before launching what was billed as the world’s first mobile-traded retail bond, M-Akiba bond.

The idea was simple: get any Kenyan in possession of a mobile phone to lend Government as little as Sh3,000 to help fund infrastructure projects.

In return, the Government promised a 10 per cent interest payable twice a year and pay back the principal upon maturity in 2020.

“It is a complicated product. We needed to get it right and we had to involve many brains,” National Treasury CS Henry Rotich said during the bond’s launch.

But data from Communication Authority of Kenya made it look easy. With over 38.98 million mobile subscribers in Kenya, the initial plan to issue a Sh5 billion bond would mean that if only 1.7 million Kenyans or 4.4 per cent of total subscribers bought the minimum Sh3,000, the bond would net Sh5.1 billion.

Hit target

Despite the Sh150 million limited edition exciting Kenyans, the Government’s move to raise Sh1 billion has hit a snag - failing to hit even a quarter of the target.

At the close of the extension offer on Friday midnight, Treasury had only raised Sh247 million or just 24. 7 per cent of the targeted amount.

When the bond was rolled out in March backed by Treasury, Central Bank of Kenya (CBK), Nairobi Securities Exchange (NSE), Central Depository and Settlement Corporation (CDSC), Safaricom and Airtel, it was hailed as a milestone for the country.

“Kenya will continue being a hotbed of innovation. If this isn’t transformational, I don’t know what else is,” said CBK Governor Dr Patrick Njoroge as the selling of the bond went live.

The Government had just slashed by 17 times the minimum one requires to buy Government-issued bonds. Initially, at a minimum of Sh50,000, only banks and deep-pocketed individuals ran the show.

It also ended the long wait for the bond that was to take off in October 2015 only for erratic interest rates to scuttle the idea.

At the time, interest rates had risen to 22 per cent for short-term Government papers, making the bond unattractive.

During the launch, a Treasury bill was averaging between seven and 10 per cent interest rate while banks were offering seven per cent on interest-bearing deposits.

“We have added three percentage points so that we give you (investors) the opportunity to decide if you want your money to lie idle in the bank or give to us to develop Kenya,”  said CS Rotich.

By then, the Government was only launching a limited edition of Sh150 million out of the Sh5 billion it wanted to test the waters.

Out of the 102,632 people registered on the M-Akiba mobile phone bond platform, only 5.5 per cent of them actually invested in the inaugural digital paper, helping it hit target ahead of schedule.

This time round, however, Treasury failed to woo Kenyans into buying the Sh1 billion bond that was offered with a green shoe of Sh3.85 billion.

President Uhuru Kenyatta was supposed to be the high-profile guest at the bond’s launch on the last day of the 2016-17 financial year but was conspicuously missing. “We all know the mood in the country and the tight schedule of President Uhuru Kenyatta, otherwise he would have been here for the launch,” noted Rotich. The mobile-traded bond has failed to strike a chord with investors despite being fronted as a mwananchi product.

Out of the Sh1 billion target, only Sh112.5 million was collected in 23 days, prompting Treasury to extend the sale by seven weeks, which came to a close on Friday mid night.

Last week, a source within National Treasury said a key official instrumental in promoting the bond sale got frustrated and opted out of a WhatsApp group that had been formed to formulate marketing strategy and update key players on progress.

Political project

From the onset, Treasury had struggled to convince Kenyans the bond was not a political project but a product meant to promote a saving culture.

Sources told Financial Standard the launch was to be part of Jubilee Party’s manifesto launch only for it to run into last-minute hiccups, forcing the postponement.

Despite the bond being touted as geared at promoting a saving culture while helping Government to fund infrastructure, inadequate advertisement by the National Treasury contributed to it coming a cropper.

Apart from the banner at Treasury building and random media adverts to publicise the bond, key players - CDSC, NSE and banks - kept a low profile when it came to publicising it.

Such marketing blunders left Treasury frustrated.

A month to the close of the bond sale saw Treasury blame key parties for taking a back seat. By then, only Sh174 million had been realised.

“Upon advice from the Auditor General that the Government is not good at selling bonds and that this should be left to the private sector, Treasury okayed NSE and CDSC to publicise and sell the bond and in return get 1.5 per cent of the sum issued,” a source told Financial Standard.

The blame game intensified, with the parties involved differing over the amount each party was to spend. NSE in its financial release showed that it had spent Sh4.8 million to launch the bond.

“We have even put people in Huduma centres to market the bond and we are meeting with investors to ensure the uptake picks up,” NSE Chief Executive Geoffrey Odundo told Financial Standard last month when we inquired what the bourse was doing to promote the bond.

Financial Standard, however, established that there were no marketers at Huduma centres, with the information desk at the GPO Huduma Centre saying a contingent from Treasury only went there once in July and never showed up again.

A day after the bond offer was extended by seven weeks, Director-General for Public Debt Management at National Treasury Wohoro Ndohho admitted the marketing blunders.

“We did not meet our target in the sprint since being an innovative product, it was obvious only early adopters would respond quickly. The Government is not good at sprinting but has more muscles for a marathon,” he said.

Court ruling

The bond may also have come at a time when politics had taken centre-stage throughout the sale period.

Its extension was meant to ensure that after the August 8 elections, more Kenyans would buy into it, though the Supreme Court ruling annulling the presidential poll dealt it another blow.

“The season is difficult to message anything else apart from elections. The targeted investor is pre-occupied with politics at the moment,” Mr Ndohho said after the sale period was extended.

Rotich’s advice to Kenyans to weigh between putting money in banks to earn seven per cent interest or to lend to the Government and get a 10 per cent return may have served as an eye-opener to banks.

The banks, already reeling from the effects of interest rates capping, became aware that the success of the bond would have meant two things: that Kenyans would withdraw deposits and give it to the Government, and the State would in turn stop issuing its paper that are popular among lenders.

In the wake of a cap on interest rates, banks with huge deposit bases would have benefited from selling Government securities (T-bills and T-bonds), which don’t carry the risk of default as opposed to commercial loans.

Currently, non-performing loans ratio stand at 9.91 per cent and banks have become cautious when lending.

Ndohho said M-Akiba’s success hinges on Treasury making it a permanent means of raising money. This, he noted, would save the Government billions of shillings since ordinary Government paper is being sold at up to 13.5 per cent compared to 10 per cent for the M-Akiba bond.

With this calculation, it would mean that raising Sh5 billion via an M-Akiba bond would save the Government in the region of Sh175 million.

Banks have also been accused of conflict of interest.

Despite 26 banks having signed up to their shared switch, PesaLink, which was to allow customers buy up to Sh999,999 worthy of bonds daily as opposed to telecos’ Sh140,000, lenders dragged their feet in making this popular.

Only three banks made the service available to customers in the initial offer while the number rose to 18 during the extension period.

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