President William Ruto is pushing for the return of Uhuru-era government micro bonds that were sold via mobile phones to expand the pool of low-income Kenyans who can invest in Treasury securities.
The President today said that only a small privileged pool of elite and wealthy Kenyans buys government bonds under the current Central Bank of Kenya (CBK) government debt programme.
Low income earners are scared off and locked out by the minimum investment of Sh50,000, he said.
Consequently, Ruto has challenged the CBK to consider the relaunch of the bond called previously known as M-Akiba.
He reckons the revamped bond that should be accessible via mobile money and from as low as Sh5,000 will broaden sources of borrowing beyond banks and other financial institutions for the Kenya Kwanza administration, but also deepen financial inclusion for low-income groups.
Under the previous phone based bond, investors could buy the bond for as little as Sh3,000, earning a tax-free interest of 10 per cent. They would also be able to trade it on the secondary market.
“There is space to democratise the Treasury bills better. I am making a case with what we wanted to do for M-Akiba before," Ruto said when he launched a new CBK-backed mobile and web trading platform yesterday.
The platform enables Kenyans locally and in the Diaspora to invest via telephone in government securities.
"The M-Akiba did not go very far because it had many challenges. I am persuaded that it is possible for us to reduce the denomination and I want the team to work on this denomination that can democratise that space,” said Ruto
“We need a bit of democratising that space and reducing the denomination of available instruments. I have seen us lock out many people sometimes just by working with big numbers.”
The President said the State-backed Financial Inclusion Fund, also known as the Hustler Fund, had demonstrated that low-income groups can participate in gainful economic activity if given a chance.
“If anybody underestimated the people in the small economy, you have to think again,” he said, while pointing out that Nairobi County alone had borrowed over Sh5 billion from the Hustler Fund out of the country’s total of Sh35 billion in under eight months.
“We need to open space for those people who are borrowing to buy government paper.”
The M-Akiba bond was offered on Safaricom's M-Pesa, allowing users without have bank accounts to buy Treasury bonds.
Both bond purchases and coupon payments were made through phone.
The new CBK system dubbed DhowCSD is expected to deepen the debt markets by enhancing efficiency and transparency in purchase of Treasury securities.
It, for instance, cuts the amount of time it takes to buy the government debt from 14 days to five minutes, with Ruto saying the platform should have capabilities for Kenyans in the Diaspora without a bank account to participate in the debt market.
The system represents further expansion by the banking regulator into an area that has traditionally been the province of banks.
Analysts say the new bond buying system will help the government boost access to financing.
It will, however, also see banks take a massive hit in billions of income as it bypasses banks in dealings of government instruments, a key income stream for lenders.
The system, whose construction was supported by the World Bank and the National Bank of Georgia, has been in operation since July 31 this year, said CBK Governor Kamau Thugge.
"The rollout is a great milestone, as it will not only enhance the operational efficiency of the government domestic debt programme, but also support the deepening of the domestic capital market," added National Treasury Secretary Njuguna Ndung'u.
International Monetary Fund managing director Kristalina Georgieva earlier called on Kenya to reform its debt market.
"If you know that for some time you’re not going to have access to international markets, make sure that your domestic market functions well to secure finance to build this protection," she told The Standard earlier this year.
"It’s not really magic, the vibrancy of the market, Kenya is not actually doing badly but there are other countries that are doing better. South Africa, for instance, has a more vibrant domestic market."