Kenyans to trade government bonds from their mobile phones

Kenyans will soon be able to buy fixed-income government bonds from their mobile phones, a move that will deepen access to financial services in east Africa’s biggest economy while also giving Treasury a cheaper source of funding.

Residents will be able to open central bank depository accounts from their phones without visiting a bank or broker, and can then buy government paper for as little as 3,000 shillings ($28), Treasury Secretary Henry Rotich said in an e-mailed statement. Investors could previously spend a minimum of 50,000 shillings.

The product named M-Akiba, derived from the Swahili word for savings, will run on Kenya’s biggest mobile phone company’s mobile-money platform. Safaricom’s M-PESA product, which is a global pioneer in mobile money, enabled cash transfers of 4.18 trillion shillings ($39.8 billion) in the year through to end March 2015.

A 5-billion shilling infrastructure bond to be opened on Oct. 21 will be the inaugural M-Akiba offer, Safaricom said in an e-mailed statement. Kenya’s most recent infrastructure bond was a 12-year paper issued in October 2014 for 15.8 billion shillings. Accepted bids had an average rate of 11.26 percent.

“M-Akiba is a one-of-a-kind initiative and the first such product anywhere in the world,” Treasury Secretary Rotich said.

Deeper Markets
Investors buying bonds through M-Akiba can spend as much as 140,000 shillings and can check statements from their phones. Interest will be paid directly to their mobile wallets semi-annually and secondary trading can take place at the Nairobi Securities Exchange, Rotich said.

“This initiative will increase liquidity and deepen the secondary bond market,” Fred Moturi, head of fixed-income trading at Sterling Capital Ltd. in Nairobi, said by phone. “If the government picks the lower end of yields it could lower the market average.”

Over the years, 98 percent of government bonds are traded by institutional investors and only 2 percent by individual investors. About 11 percent of Kenyans save on a regular basis compared with 22 percent in neighboring Rwanda and Uganda, Safaricom said in its statement.

“It is a matter of trying to make it easier for the common man to access the market without having a bank account,” Alexander Muiruri, head of fixed-income trading at Nairobi-based Kestrel Capital Ltd., said by phone. “It is likely to help bring down rates.”

Source: Bloomberg Business