M-Akiba bond to divert bank's customer deposits

Nairobi Securities Exchange chairman Eddy Njoroge at a past event. Treasury will float Sh5 billion M-Akiba bond tradeable only on mobile phones on October 21, 2015. FILE PHOTO | NATION MEDIA GROUP 

In Summary

• Banks currently give only 1.37 per cent for the money kept in savings accounts and 6.31 per cent for fixed deposits.
• This means you could make Sh572 from the government paper at best by moving Sh3,000 from banks which could only fetch you Sh41 in a savings account and Sh189 in a fixed deposit account.
• Treasury seeks to penetrate the mobile market which has been on phenomenal growth hitting a subscription of 36.1 million according to the quarter four Communication Authority statistics covering April to June this year.

By OTIATO GUGUYU
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Commercial banks are staring at stiff competition for customer deposits once the government floats a cheap bond mid next month.

The M-Akiba bond that will go for as low as Sh3000 will have a better return than the rates offered by any commercial bank in the market.

Banks currently give only 1.37 per cent for the money kept in savings accounts and 6.31 per cent for fixed deposits.

Although Finance Cabinet Secretary Henry Rotich did not reveal the rates of return, government officials say it will be set in the prospectus to be released earliest October 16 for the paper that will go on sale on October 21.

The rate is however expected to be lower than the market rate which hit 18.6per cent for the 91 day bill on Thursday’s auction while 182 day paper went for 14.5 per cent.

The government’s one year Sh30 billion bond also sold at a record rate of 19.062 offering the biggest returns for investors in three years.

SAFE INVESTMENT

This means you could make Sh572 from the government paper at best by moving Sh3,000 from banks which could only fetch you Sh41 in a savings account and Sh189 in a fixed deposit account.

In fact deposits in bank are pegged to the amount of money you have and the duration it stays in the account.

Commercial banks also charge a withholding tax of five per cent unlike the M-Akiba bond which will not attract any income tax.

The bond is the safest investment in the market given that it will not be affected by volatility and the returns are guaranteed.

“This will be a vanilla bond attracting a fixed rate of interest and redeemable in full on maturity which will not be affected by changes in the market interest rates and the principal is secure,” Central Depository Settlement Corporation (CDSC) CEO Rose Mambo said during the launch of the marketing campaign on Monday.

Individuals sitting anywhere with mobile phones can bid up to Sh140,000 daily, the maximum cap for mobile money transfers, during the week it goes on auction. 

ORDINARY KENYANS

The government is targeting ordinary Kenyans by bringing the minimum amount that can be invested in government paper from the previous Sh50,000.

Treasury seeks to penetrate the mobile market which has been on phenomenal growth hitting a subscription of 36.1 million according to the quarter four Communication Authority statistics covering April to June this year.

Mobile money transfer subscriptions rose to 27.7 million during the quarter from 26.7 million in the previous quarter representing a 3.5 per cent increase.