President William Ruto has asked the Central Bank of Kenya (CBK) to bring down the minimum amount you can lend to the government to Kes5,000 from the current Kes50,000 limit on Treasury Bonds.
President Ruto said he has given Central Bank of Kenya Governor Kamau Thugge a month to find a way of bringing down the threshold for investors as part of the strategy to open up investment in government securities to the public.
He was speaking at the launch of the Dhow CSD, a digitized platform for operating an account at CBK for trading bonds and bills. The President said CBK should also incorporate mobile money and credit card settlement to allow diaspora and ordinary Kenyans trade in securities.
Dhow CSD, which automates CBK’s manual bond trading processes, has received a lot of interest enlisting 6,366 accounts since it was set up in August.
Kenya has been keen on opening up the bonds market that has been dominated by banks and pension funds in a bid to make bidding more competitive and bring down borrowing rates.
M-Akiba plagued by low sales
Former President Uhuru Kenyatta piloted M-Akiba, a mobile-based bond that allowed Kenyans to lend as little as Kes3000 to the government. The retail bond paid a coupon rate of 10 percent, with buyers enjoying a tax-free status in line with other infrastructure bonds.
The government raised Kes1.04 billion from five M-Akiba issues from 2017, which attracted a total of 582,572 registrations. However, the bond was plagued with low sales and high overheads. Its redemption was also affected, discouraging subsequent issues.
“At moment we are working on bonds and Treasury Bills above Kes50,000 and Kes100,000, but there is a case for people who wanted to use M-Akiba before. I am persuaded it is possible to reduce denomination to democratize that space so that a person in Moyale may not have Kes50,000 but have Kes5,000. There’s no way we cannot facilitate that person from Moyale or any part of Kenya to transact that Kes5,000. I have seen how we lock out many people by those big numbers,” President Ruto said.
“I know, for instance, user requirements for one to have a bank account in Kenya. Speaking for many Kenyans without a bank account, you need to make it possible for Kenyans without banks but have M-PESA to participate. Look for a way for the diaspora to use VISA or Mastercard or credit card to participate in securities,” he said.
The President added that the other reason he wanted Wanjiku to get access to the bond market was to help ordinary Kenyans make the double digit returns being made by banks.
“I have one other reason, it is completely undemocratic that one person has the opportunity to get 10 percent and others only get two percent,” President Ruto said.
Kenyan authorities hope they can reduce reliance on lenders, who are charging the government very high rates on domestic paper up to 14 percent for just three months; and rewarding savers with very minimal returns on deposits, currently at 3.4 percent.
By driving the competition for local savings, the government hopes banks, which control 44.9 percent of governments securities, will bring down rates.
Higher rate demands by investors
Interest rates across all three tenors of Treasury bills crossed the 14 per-cent mark in last week’s auction, as the government caved in to higher rate demands by investors to cover maturities worth Kes40.9 billion.
In last week’s sale, the government accepted bids above this threshold on all the three tenors, with the 364-day T-bill seeing its yield jump by a percentage point to 14.86 percent.
CBK had hoped that when it announced it had received a notice from the Treasury on plans to cut the domestic borrowing target from Kes586.5 billion to Kes316 billion and given government was ahead of borrowing target, it could reject expensive bids and bring down domestic rates dramatically.
However the government’s needed to raise enough funds to refinance the Kes40.9 billion worth of T-bill maturities indicating the sorry fiscal position of government to that will make it difficult to lower cost of domestic borrowing even as it creates another problem of fast maturing short term papers.