Kenya’s Treasury introduced a new government bond aimed at the country’s more than 20 million mobile money users this week: the M-Akiba, available only on mobile money platforms like Safaricom’s M-Pesa.
It’s been hailed as a technological novelty—the first ever bond to be sold exclusively on mobile phones. Officials are also marketing it as a way to encourage Kenyans to save—akiba, the Swahili word for savings. Only 11% of citizens save regularly, half the rate of their neighbors in Rwanda or Uganda, while almost two-thirds of mobile phone users in Kenya have mobile money accounts.
But the real savings from M-Akiba may be for the Kenyan government.
“Obviously our strategy is to get cheap sources of funds so we’re looking at all answers for funding,” finance minister Henry Rotich told the Financial Times (paywall), adding that the country is trying to raise a total of about 220 billion Kenyan shillings ($2.1 billion) in 2015.
When Kenya raised $2 billion in sovereign bonds from international investors last year, it was the largest debut of any African country. Now interest in Kenyan bonds has waned, as it has across much of Africa. Yields have been rising, the shilling is weak, and the budget gap is growing. Currently, the country’s one-year bond pays interest of around 16%.
The first M-Akiba offering will be only 5 billion shillings, but if the bonds take off, they’ll be a cheap pool of funds for a government whose public finances have been the subject of strikes and public anger lately. Half the budget goes toward paying public servants, as opposed to a third for middle-income countries of similar size.
While the Treasury has not set the rate for the bond, Rose Mambo, chief executive of the Central Depository and Settlement Corporation said it would be lower than the market rate for bonds, but higher than that of commercial banks. That means the bond needs only to offer a rate higher than the 6.31% that fixed deposits pay at Kenyan banks.
As of Oct. 21, when M-Akiba officially launches, mobile investors will be able to buy in increments as small as 3,000 shillings. Previously, Kenyans had to spend a minimum of 50,000 shillings to access the country’s capital markets—one reason why only 2% of government bonds in Kenya are bought and sold by individual investors.
The product is one more addition to the many uses mobile money has in financial life in Kenya and across the continent. Investors will be able to sell the bonds on the Nairobi Securities Exchange as well as check their statements from their phones. Interest will go directly into their mobile wallets.