Government to Launch M-AKIBA Bond

According to the Treasury Cabinet Secretary, the government is planning to launch a mobile-phone traded bond dubbed “M-Akiba Bond” which had been postponed in October 2015. The operators for the M-Akiba Bond platform will be:

1. The Nairobi Securities Exchange (NSE)
2. The Central Depository and Settlement Corporation (CDSC),
3. The Central Bank of Kenya (CBK),
4. A selected mobile service provider.

With the minimum investible amount set at 3,000 shillings and the maximum daily bid amount set at 140,000 shillings, a larger number of investors will be able to participate in investments in government securities, thus putting pressure on banks as investors will prefer government securities whose yields are currently higher than deposit rates offered by banks, and even higher than the cap-introduced deposit rate of 70.0 percent of the base rate, currently equal to 6.2 percent assuming the KBRR is the base or 7.4 percent assuming the CBR is the base. This will also be a cheaper way of the government to fund its budget and shall have access to a broader set of investors.

The M-Akiba Bond platform presents an unprecedented form of competition for retail and SME-focused banks that they will have to counter before the launch or face a decline in their customer deposits as more people prefer to place their money with the government.

With a minimum subscription amount of 3,000 shillings, the offering is targeted at retail investors, however the government has not put in place plans aimed at educating the public on the offering, and the lower end of the market is largely made up of net borrowers seeking capital, so it remains to be seen if the attractive government rates will spur savings.

Currency

The Kenya Shilling was stable against the dollar at 101.3 shillings, on account of foreign inflows from the horticulture industry that were matched by dollar demand from retail importers and international market traders. On a year to date basis, the shilling has appreciated by 1.0% against the dollar.

Despite the expected pressure due to both local and international uncertainties, shilling is expected to remain stable since Central Bank can utilize the foreign exchange reserves, which currently stands at 5.2 months of import cover, to support the currency in case of adverse forex market movement.

Read more in the Cytonn Report.