MPs approve Bill seeking to lower threshold for securities

The Central Bank of Kenya building in Nairobi. PHOTO | FILE 

By CHARLES MWANIKI

In Summary

• The National Assembly Committee on Finance, Planning and Trade recommends that the CBK (Amendment) Bill 2014 introduced by Mukurweini MP Kabando wa Kabando on July 16 be passed.
• The Bill requires CBK to put in place mechanisms to establish lower minimum denominations and allow electronic transactions in the issuance of public debt instruments.

The plan to allow investors with less than Sh50,000 to buy government securities has received a boost after Parliament gave the nod to proposed amendments on the Central Bank of Kenya (CBK) Act that sets the minimum investible amounts.

The National Assembly Committee on Finance, Planning and Trade recommends that the CBK (Amendment) Bill 2014 introduced by Mukurweini MP Kabando wa Kabando on July 16 be passed.

The Bill requires CBK to put in place mechanisms to establish lower minimum denominations and allow electronic transactions in the issuance of public debt instruments.

It does not, however, specify a set minimum amount for the government securities. Currently, Treasury bills have a minimum face value of Sh100,000, with additional buys in multiples of Sh50,000, while Treasury bonds have a minimum face value of Sh50,000, with additional values also in multiples of  Sh50,000.

The committee, which is chaired by Ainamoi MP Benjamin Langat, noted that CBK will still get to determine the lowest denomination of purchase even as it is compelled to bring this lower in the proposed amendment on Section 45 of the Central Bank Act.

“Increased domestic borrowing is, however, expensive and therefore the government should strive to minimise it,” the report said.

The MPs pointed to a comparative analysis on the minimum amounts of government issues in the region.

In Tanzania, the minimum investable amount in government securities is Tsh 500,000, equivalent to Sh25,900.The minimum in Uganda is Ush100,000 (Sh3,255) and in Rwanda it is 100,000 Francs (Sh13,000).

In a letter to the committee, CBK noted that the amendments would help improve Kenyans’ saving culture.

The regulator said it was already implementing electronic trading, adding that the adoption of the Treasury Mobile Direct (TMD) will allow investors make low value payments on mobile platforms when trading securities.

The bulk of government’s local borrowing of Sh1.279 trillion is taken from formal financial institutions. Banks hold Sh681.7 billion of this debt, pension funds Sh312 billion and insurance firms Sh127.9 billion.

Individuals – classified as “other investors” along with saccos, listed and private companies, self-help groups, educational institutions and religious institutions – collectively hold Sh120 billion, representing 9.4 per cent of the total debt.

Investors unable to raise the minimum amounts for the securities have been going through commercial banks, which pool their investment and act as intermediaries.