Treasury moves M-Akiba from NSE to Central Bank

By on October 9, 2021 0

By JAMES ANYANZWA

The Kenya National Treasury has moved the issuance of its mobile government bond program, known as M-Akiba, to the Central Bank, away from the Nairobi Securities Exchange and the Central Depository and Settlement Corporation. .

This is after the initial retail bond failed due to poor timing, misunderstanding of the product, and poor customer service practices that led to an underwriting.

The latest policy change aims to boost the performance of the debt instrument, which was launched in June 2017 to deepen the Treasury bond market and promote financial inclusion.

“We want M-Akiba to be run by our tax agent, which is really our intention. We want them to be the main issuer of this instrument. The Central Bank of Kenya (CBK) has better infrastructure, it has better capacity and it fits well in the context of financial inclusion, which the bank is also supporting ”, Haron Sirima, Managing Director of government debt to Trésor, told The EastAfrican in an interview last week.

“We haven’t given up on it, but we’ve learned a number of lessons. The CBK would be the most appropriate entity to approach as the main issuer of government securities, ”he added.

Initial provision

Advertising

As part of the original agreement, the Central Depository and Settlement Corporation (CDSC) was responsible for being an issuing and paying agent for M-Akiba on behalf of the government, while the NSE was responsible for facilitating the online trading of obligations through its systems. as well as providing customer service support through a hotline.

“M-Akiba was issued by NSE and CDSC on a pilot basis. Given the positive response we have received from this instrument, we felt that it would be more appropriate for it to be issued by the CBK, ”Sirma said.

The Treasury pays the CBK 1.5% or up to Ksh3 billion ($ 27.27 million) in fees for each amount of debt raised in the domestic market through Treasury bills and bonds. When the bond was launched, the goal was for the proposed Ksh billion ($ 9.09 million) to be sold. He even allowed a green shoe option to expand it up to Ksh 3.8 billion ($ 34.54 million).

Although over 300,000 people signed up on the M-Akiba platform at the initial launch, only 5,988 bought the bonds, for a total of Ksh 247.75 million ($ 2.25 million), or less than a quarter of what was offered.

“The objective of this debt instrument is to deepen financial inclusion. So you don’t look at its success in terms of the amount of money you raise, but rather the coverage or the number of people who have subscribed to the instrument, ”Sirma said.

More Kenyans are expected to participate in government bonds by investing a minimum of Ksh3,000 ($ 27), which is considerably less than the Ksh50,000 ($ 454.54) required to invest in government bonds. other Treasury bills and bonds.

The cost of buying and selling a treasury bill in the secondary market on a phone is estimated to be 0.335% of the transaction value, excluding mobile money transfer fees for loading or withdrawing money. of the mobile wallet.

In comparison, the cost of trading conventional government bonds is 0.0384% of the value of the transaction. This includes the brokerage commission (0.024%), the levy on CDSC bonds (0.002%), the levy on the bonds of the Capital Markets Authority (0.0015%), the levy on the bonds of the Fund. ‘investor compensation (0.004%), the levy on NSE bonds (0.0035%) and VAT on the brokerage commission (0.00336 percent).

At the regional level, the Dar es Salaam Stock Exchange seeks to engage the Ministry of Finance and Planning in the development of micro-savings products.

In 2019, Uganda announced that Cabinet had approved trading of government securities via cellphones to boost citizens’ savings and investment and boost economic growth.

The Kenya National Treasury has decided to transfer to the Central Bank the issuance of its mobile government bond program known as M-Akiba, away from the Nairobi Securities Exchange (NSE) and the Central Depository and Settlement Corporation (CDSC).

This is after the initial flop largely triggered by bad timing, misunderstanding of the product and poor customer service practices leading to massive underwriting of the first retail bond.

The EastAfrican has learned that the latest policy change is intended to boost the performance of the debt instrument which was launched in June 2017 to deepen the treasury bond market and promote financial inclusion.

“We want M-Akiba to be led by our tax agent (CBK), which is really our intention. We want them to be the main issuer of this instrument. The CBK has better infrastructure, it has better capacity and it fits well in the context of financial inclusion which the bank also supports, ”said Haron Sirima, Director of Public Debt Management at the National Treasury. . in an interview last week.

“We haven’t given up on it but we have learned a number of lessons and I think again that this is really where CBK would be the most appropriate entity to turn to as a primary issuer of securities. public, ”added Dr Sirma.

As part of the original agreement, the CDSC was responsible for being an issuing and paying agent for M-Akiba bonds on behalf of the government, while the NSE was responsible for facilitating the online trading of bonds through its systems and to also provide customer service. support via a hotline.

“M-Akiba was issued by NSE and CDSC on a pilot basis and given the positive response we received from this instrument, we felt that it would be more appropriate for it to be issued by CBK as principal issuer of government securities, ”said Sirma

The National Treasury pays the CBK 1.5% or up to 3 billion shillings ($ 27.27 million) in fees for every amount of debt raised in the domestic market through treasury bills and bonds .

According to a survey conducted by Financial Sector Deepening (FSD) Kenya, the number of retail clients purchasing M-Akiba bonds was found to be low despite the enthusiasm and interest aroused in testing and launching the bond on June 30, 2017.

The bond was launched with great fanfare and with high hopes that the proposed Ksh 1 billion ($ 9.09 million) would also be sold and even allowed a green shoe option to expand it up to 3, Ksh 8 billion ($ 34.54 million) subject to investor appetite.

Although over 300,000 people signed up on the M-Akiba platform, only 5,988 bought the bonds at the official launch for a total of Ksh247.75 million ($ 2.25 million), or less than a quarter of a billion Ksh ($ 9.09 million) proposed.

However, according to the National Treasury, the main objective of the M-Akiba bond is not necessarily to raise funding for budget support but to promote a national culture of savings and strengthen financial inclusion.

“The goal of this debt instrument is really to deepen financial inclusion, so you’re not looking at its success in terms of the amount of money you raise, but more in terms of coverage or the number of ‘individuals who have subscribed to the instrument. This is how we measure its success rate, ”said Sirma

The idea of ​​government bond traded on mobile was brought up in 2011 by the National Treasury and the Central Bank to deepen and improve financial inclusion by leveraging increased mobile phone penetration to democratize access. formal financial systems for savings and investments.

More Kenyans were expected to participate in government bonds by investing a minimum of Ksh3,000.00, which is considerably lower than the minimum of Ksh50,000 ($ 454.54) required to invest in government bonds. other Treasury bills and bonds.

Last year (2020), the National Treasury said it would reconsider the cost of trading government securities to boost the adoption of treasury bills as a means of saving and investing after the poor performance of M-Akiba bond.

Yes, those (cost items) are some of the things we need to look at, but you see you can’t watch M-Akiba Bond apart from the conventional link because it’s one and the same anyway. These are all government securities, ”said Sirima East Africa last year (2020).

“You know that the Public Financial Management (PFM) law requires that in mobilizing resources through borrowing, you must consider both the elements of cost and risk. It is therefore not appropriate to simply consider the element of cost independently of risk. “

The total cost of buying and selling a treasury bill in the secondary market over the phone has been estimated to be 0.335% of the transaction value, excluding the normal mobile money transfer fee for loading or withdrawing money from the mobile wallet.

On the other hand, the total cost to an investor of trading conventional government bonds is estimated to be 0.0384% of the value of the transaction.

This includes the brokerage commission (0.024%), the levy on CDSC bonds (0.002%), the levy on the bonds of the Capital Markets Authority (0.0015%), the levy on the bonds of the Fund. ” investor compensation (0.004%), the levy on NSE bonds (0.0035%) and the value added tax (VAT) on the brokerage commission (0.00336%

At the regional level, the Dar es Salaam Stock Exchange (DSE) seeks to engage the Ministry of Finance and Planning (MOFP) for the development of micro-savings products commonly referred to as “M-Akiba bonds” as part of its program. five-year (2018-2022) growth and development plan.

In 2019, the Ugandan government announced that the cabinet had approved trading of government securities via cellphones to boost savings and investment among ordinary Ugandans as well as boost economic growth.