A novel idea
Kenya has recently become the world’s first country to sell bonds through mobile phones. The M-Akiba bonds, which translates to “mobile savings” in Swahili, began selling on March 23 with the sale slated to go on for three weeks. However, the issue was fully subscribed by April 5th.
The bonds, meant for retail investors, will mature in three years and raised the targeted 150 million shillings (~$1.5 million). It took only 3,000 shillings ($30) to invest in these bonds, followed by purchases in multiples of 500 shillings, and an investor does not require a bank account to invest in the debt issuance. Bond holders enjoy a tax-free interest of 10% on the issue and can trade them on the secondary market as well.
According to information made available by the country’s finance ministry, about 102,000 individuals registered to buy the bond with 5,000 finally investing. The maximum purchase amount by an investor was 1 million shillings.
Using pioneering technology
Kenya has long been a pioneer in mobile payment technology. Its M-Pesa service, which was launched in 2007, allows users with basic mobile phones to make payments and transfer money without the need of a bank account. Safaricom, Vodafone’s local associate, which had launched the M-Pesa platform, also offers savings and lending products.
Apart from allowing bond purchases through M-Pesa and other similar services, coupon payments will also be made via mobile devices.
Objectives of issuing bonds
The Kenyan government wants to broaden its base of raising debt in order to fund its plan for economic growth. Getting retail investors involved in fulfilling its need for higher investment in infrastructure provides the Kenyan government a major untapped source of funding. And with a 10% yield, which is much higher than 7% that individuals receive on their bank deposits, retail investors have lapped up the bonds.
Apart from getting people involved in the nation’s growth, the government expects the move to increase the country’s savings rate. The M-Akiba website noted that “Kenyan savings is at 11% of GDP whereas countries like Qatar are at 60%, while Rwanda and Uganda are at 22% each.”
In the next article, let’s look at Kenya’s debt situation.
