When Kenya launched M-Akiba, a mobile-only government bond, last year, the goal was to offer ordinary citizens access to the nation’s capital markets. All they needed to buy to invest in the government bonds was a mobile money account.
Given mobile money is so ubiquitous in Kenya with over 27 million users—many of whom were unbanked—M-Akiba promised the government access to a new capital base. The bond offered minimum purchase amounts at $30—far less than the $490 previously required for government bonds—with 10% annual interest and a tenor of three years.
One year after it was launched, a study by FSD Africa, a non-profit focused on finance sector development, shows while M-Akiba recorded some success, there is significant room for improvement. As the government hoped, the mobile-only bond helped unlock a new investor base for bonds as 85% of buyers were purchasing a government bond for the first time. M-Akiba also drew buyers from almost all of Kenya’s 47 counties.
But the bond launch also had some failings: the government only raised 8% of its target as less than 5% of the over 300,000 people who registered for the bond actually made a purchase. FSD Africa’s study blames the low uptake on a confusing purchase process which “gave no clear, immediate instruction for how to complete the purchase” as well as a lack of understanding of the product’s key details, including interest rates. The timing of the launch—135 days before Kenya’s general elections—also saw the marketing campaigns for the bond swamped by election-related messaging. More significantly, uncertainty over the incoming government and how the money would be used “may have made people hold on to cash instead of investing.” the study says.
The launch of the bond wasn’t just about encouraging Kenyans to save. The Kenyan government needs a new pool of cheap money to finance large infrastructure projects. Only 2% of government bonds in Kenya are bought and sold by individual investors. In 2016, Kenya had a gross domestic savings rate of 8.4%, well below the sub Saharan Africa average of 16.9%, according to the World Bank.