Low-income investors will be allowed to buy government securities using as low as Sh633.55 ($5) as the government steps up its goal of democratising participation in treasuries.
The Central Bank of Kenya (CBK) has disclosed the threshold of investments by low-income investors ahead of a revamped M-Akiba platform to run alongside the apex bank’s DhowCSD trading platform meant to ease investment in government securities.
“In line with the government’s focus on ‘hustlers’ and ensuring no one is left behind, the CBK intends to leverage the DhowCSD to introduce a retail bond for low-income investors, known as M-Akiba.
“We expect low-income investors to invest as low as $5 in government securities through M-Akiba, thereby democratising investing in government securities,” CBK Governor Kamau Thugge said in a speech on Tuesday night.
If adopted, Kenya will have among the lowest thresholds for entry into government securities investments in the world, which sits lower than the minimum Sh3,000 set for the original M-Akiba issuances.
Low-income investors placing the minimum investment will risk seeing most of their interest earnings swallowed up by fees paid to banks or telcos to facilitate the transactions, unless there is a waiver of some of the fees.
Earlier this month, the CBK requested proposals for the provision of consultancy for pre- and post-implementation review of the platform referred to as the ‘hustler bond system’.
The setting up of the infrastructure comes against the backdrop of the government’s push for a lower entry level for retail investors in Treasury bills and bonds.
Currently, Treasury bonds require a minimum investment of Sh50,000. Treasury bills which differ from bonds by their relatively shorter tenors, require a minimum investment of Sh100,000.
President William Ruto directed the CBK last year to lower the threshold for investing in government securities to accommodate more retail investors.
“There is a case I would like to make for people who do not necessarily want to work with Sh50,000. This is what was desired before with M-Akiba but didn’t go as far because of the many challenges,” he said.
The push for lower entries has drawn sharp criticism from analysts who see the risk for price discrimination on the low-income investors on the secondary market who would carry an insignificant bargain in trading based on their low value holdings of the securities.
The government has recently maintained its push for a greater participation of retail investors in government securities auctions by proposing that infrastructure bonds be limited to this category.
The proposal to levy a five percent withholding tax on interest earned from infrastructure bonds is, however, seen as counter-productive to the government’s quest for boosting the participation of retail investors in the auctions.
