Kenya’s government will launch a new service next week that will allow retail investors to purchase government bonds by using mobile technology.
The service, M-Akiba, will offer bonds for as low as $40, while the minimum investment in the traditional system has been around $500. A bank account will not be required to make the purchases and brokers will be eliminated. Interest will be paid into e-wallets and bonds can be traded on the secondary market. Today, institutional investors acquire all but a fraction of government bonds.
“This is going to be transformative,” central bank governor Patrick Njoroge said. “The key driver of the service is to create a new vehicle for savings. We are offering a new option to the population that has normally not invested in these kinds of saving mechanisms.”
The programme builds on Kenya’s already vibrant mobile banking system, M-Pesa, with annual transfers totaling around $10bn. Mobile banking has ensured that no Kenyan lives more than 5km from a financial access point.
“Kenya is the premier example of electronic payments, where the majority of Kenyans are now using electronic platform,” said Jeffrey Bower, of the UN Capital Development Fund.
Njoroge said the new programme is part of a broader effort to work with commercial banks to innovate.
“This is just a starting point. In the future we will see other services appearing. If we are successful, which I think we will be, private institutions will to continue to develop other services,” he said.
Kenya wants to position itself as a financial hub for the region, taking advantage of its stellar economic numbers and financial technological advances. The government believes that strong fundamentals will encourage investors.
Inflation, which was close to 7% in June, has trended down and is now at 5.8% and GDP growth is projected to come in above 7%. The central bank has been aggressive in dealing with external pressures, especially the appreciation of the US dollar.
Njoroge said the bank has followed a tight monetary policy, intervening in the FX market and raising the benchmark interest rate — it increased 300bp in June and July.
“We have acted to control volatility and at the same time counter the second round effects on inflation. We have been successful and from our perspective we are ready to use all the tools at our disposal to counter volatility,” he said.
Kenya, unlike many emerging markets, has been able to surf through the disruption created by the uncertainty in China. Its exports are more diversified than similar countries in East Africa with China representing around 1% of its export destination.