× Business BUSINESS MOTORING SHIPPING & LOGISTICS DR PESA FINANCIAL STANDARD Digital News Videos Health & Science Lifestyle Opinion Education Columnists Moi Cabinets Arts & Culture Fact Check Podcasts E-Paper Lifestyle & Entertainment Nairobian Entertainment Eve Woman Travelog TV Stations KTN Home KTN News BTV KTN Farmers TV Radio Stations Radio Maisha Spice FM Vybez Radio Enterprise VAS E-Learning Digger Classified Jobs Games Crosswords Sudoku The Standard Group Corporate Contact Us Rate Card Vacancies DCX O.M Portal Corporate Email RMS

How M-Akiba will unlock billions of idle cash into economy

By Mbatau wa Ngai | October 3rd 2015
National Treasury Cabinet Secretary Henry Rotich (left) and Nairobi Securities Exchange Chairman Eddy Njoroge (right) are taken through the process of buying government bonds via M-Akiba by Safaricom Director for Financial Services Betty Mwangi-Thuo. [PHOTO: JONAH ONYANGO/STANDARD]

The Government’s plan to launch M-Akiba bond on October 16, 2015, will mark an important milestone in the country’s evolving financial architecture with far reaching consequences.

First, the launch is expected to give the Treasury access to billions of shillings from small-time savers only a few of whom had banked their money with financial institutions because they pay low interest rates.

Indeed, analysts are unanimous that the M-Akiba bond has the potential to attract billions of previously idle shillings into the economy if the popularity enjoyed by the notorious savings schemes that have conned depositors in the recent past is anything to go by.

Although the Treasury Cabinet Secretary Henry Rotich did not give an indication of how much interest the M-Akiba bond will attract, it may be instructive that the rates for the 180-day and 365-day Treasury Bills have recently hovered above 14 per cent. This is a far cry from the interest rates offered to small-scale savers of about three per cent.

This development will change the way banks go about their business as their days of paying low interest rates for small deposits but charging high rates to borrowers of the same funds are numbered. How commercial banks deal with this challenge will have a huge impact on the country’s business landscape. Businesses that export some of their products, for example, are likely to find it more beneficial to borrow externally thus making it easier for those producing for the local market to get funding.

Second, by giving the Treasury a new source of funding, the M-Akiba bond will give it some wiggle room as it continues to engage with the International Monetary Fund (IMF) whose standard prescription for any budget deficit is increased taxation irrespective of the consequences.

This was apparent earlier last month when the Bretton Woods institution suggested Kenya should consider raising taxes to meet the growing development expenditure. What the IMF either did not know or care is that corporate Kenya and ordinary citizens already consider themselves over taxed.

Surely, the IMF—which has a local resident—cannot have failed to notice that a wide-spectrum of Kenyans were bitterly opposed to an increase in the Value Added Tax (VAT) rate on common consumer items. This would mean that although the opposition to the latest revised excise duty law may be muted, it is still wide-spread. Its imposition of motor vehicles, motor-cycles and fuels is especially injurious to the livelihood of all Kenyans because it ultimately affects the entire economy.

What the IMF, and other so-called friends of Kenya, should do is advice Treasury on how it can widen the tax net to include those who are currently not paying their fair share especially among multinational companies that make billions in profits which they siphon out of the country without paying a cent. Recent revelations that these multinationals hide behind complicated tax procedures and processes devised by the developed countries robs the IMF of its moral authority to lecture developing countries on how to run their fiscal policies.

Unfortunately, for the developing countries, they still have to pay homage to these advisers because they not only need the money they dole out and the goodwill that will give them access to the wider international financial markets. On its part, Treasury may be better advised to hold a round-table meeting with the Kenya Revenue Authority and the Central Bank of Kenya to see how it can break out of the conundrum presented by relatively high-net individuals who refuse to pay taxes.

Leading the pack are land-lords whose taxation is hampered by lack of a database and an address system that separates private homesteads from rented homes. If the past is any guide, KRA’s amnesty to small landlords may fail to raise the targeted Sh3 billion because the defaulters may be afraid of coming out of their hiding places.

Perhaps, Treasury may be persuaded to launch a contest—with good rewards—for the ever-innovative Kenyans to come up with a practical solution to this perennial problem. Who knows, there may be some geniuses out there with the solution. The geniuses may be hibernating in the local private and public universities and may be waiting for just such a challenge.

Share this story
Central Bank of Kenya warns supermarkets against offering sweets for change
The Central Bank of Kenya (CBK) has cautioned supermarkets and retail chains against the issuing of alternative products in the place of currency coins.
Survey: Why 40 pc of workers want to quit their jobs
More than half of 18 to 25 year-olds in the workforce are considering quitting their job. And they are not the only ones.