The sale of the mobile-based M-Akiba Treasury bond starts on Thursday, ending a one-and-a-half-year wait for small retail investors to invest in government debt.
M-Akiba, whose proceeds are earmarked for infrastructure development, will pay investors tax free interest of 10 per cent, setting the stage for competition between the government, banks and saccos for cash deposits.
The prospectus for the Sh5 billion three year bond — which is being issued by the Central Depository & Settlement Corporation on behalf of Treasury — says that the initial tranche is for Sh150 million.
The minimum amount per investor has been set at Sh3,000 and additional amounts in multiples of Sh100.
The bond is open for registered mobile users on the Safaricom and Airtel networks, with interest paid every six months through the same platforms. It will be on sale between Thursday and April 10, and will thereafter be listed on the stock exchange.
“The bond will be listed on the Nairobi Securities Exchange and will be traded on the secondary market via mobile phones commencing April 11,” reads the prospectus.
If successful, the sale of the bond will likely shake up the financial services, where cash depositors holding small sums have been keeping their money in low interest earning accounts in banks or in their mobile money wallets.
These investors have previously been locked out of lending to the government due to high minimum purchase amounts of Sh100,000 and Sh50,000 on Treasury Bills and Bonds respectively.
Sources at the Treasury said the government plans to issue the balance of Sh4.85 billion in the second or third quarter of the year.
The success of this bond is likely to see the government raise the amount it targets in future M-Akiba issues, making the mobile bond an influencing factor in pricing of deposits among different players in the money markets.
Under the law, banks offer a minimum of seven per cent for deposit earning accounts, although they also have the option of offering customers transaction accounts that do not pay interest.
Small savers are also forced to put their money in illiquid options such as chamas where they have to wait for months on end before being paid a lump sum, mostly without interest.
The mobile bond will also allow the State to lower its cost of debt, which is an issue of concern at a time when the public debt to GDP ratio had hit 50 per cent.
The prevailing rates on a five year bond on the yield curve stand at about 13 per cent, with the most recent infrastructure bond issued last month fetching a rate of 13.55 per cent in the primary sale.
M-Akiba has been in the works since October 2015, with its launch being postponed multiple times as the Treasury worked out modalities of trading it on the secondary market at the Nairobi Securities Exchange.