Central Bank of Kenya Amendment Bill targets retailers’ savings to fund State coffers

 

It will soon be possible for retail investors to participate in the Government debt market, using smaller denominations in bids that can be submitted through electronic means.

This is if parliament passes into law amendments to the law to allow smaller players into the Treasury bond and bill market.

The CBK Amendment Bill (Kenya Gazette Supplement No. 110, 21st July 2014) underwent the first reading on August 12, 2014. The National Assembly in a recent public notice has called for public participation in the proposed amendments via memos to reach the Kenya National Assembly clerk not later than Friday September 26, 2014.

"In a country where one can pay utility bills or the herdsman using a mobile phone, why is the government debt programme still run with cave-man technology? There are huge barriers that ensure ordinary Kenyans cannot lend to the Government," said Hon Kabando wa Kabando, MP for Mukurweini and sponsor of this Bill.

At the moment, one requires a minimum of Sh100,000 to buy Treasury Bills or Bonds and must open a Central Depository System (CDS) account at the Central bank of Kenya (CBK). The CDS account acts as the investor's securities holding and trading account.

Prospective investors may choose to open the CDS accounts directly with the CBK or open a client account through an authorised agent, which includes, commercial banks, investments banks, stock brokers and investment advisors.

Plans to rope in mass market retailers into the Government debt market come after statistics indicate that in 2013, Kenyans transacted over Sh2 trillion via Mpesa money transfer platform alone. This is compared to the total customer deposits within the banking system, which stood at Sh 1.3 trillion.

"In spite of these impressive numbers, there is scepticism in our ability to lend to Government. In June, when I drafted this Bill, the Government wanted to borrow Sh8 billion in 180 days and one-year Bills. The weekly government debt auction only yielded Sh2.5 billion," said Kabando wa Kabando.

While banks or foreign investors get impressive rates when lending to Government, retail investors are locked out. Hence this latest move to amend the law to create a level playing field gives small investors an opportunity to cash in from the debt market.

"While the Government floated an international sovereign bond to raise Sh176 billion ($2 billion), this is a small fraction of what is transacted on Mpesa alone or total customer deposits within the banking system," explained Kabando wa Kabando.

In addition to high subscription amounts, bids must be in specified format to reach the CBK before 2pm on the appointed day, a stern advertisement from the director financial markets usually warns. Bids may be paid for in cash, banker's cheque or RTGS.

Parliament is seeking to amend the CBK Act in section 45 by (a) re-numbering the existing provision as sub-section (1); and (b) inserting the following new sub-section immediately after subsection (1) –

"2. Subject to sub-section 1(c), the Bank shall put in place mechanisms to enable the public to participate in Government securities through –(a) electronic means; and (b) lower minimum investment denominations"

This week the Central Bank of Kenya offered 91-day Treasury Bills for a total of Sh3 billion. The total number of bids received was 141, amounting to Sh2.71 billion, representing a subscription of 90 per cent.

Total bids accepted stood at Sh2.22 billion. The market weighted average rate was 8.770 per cent, and the weighted average of accepted bids, which will be applied for non-competitive bids was 8.637 per cent, up from 8.219per cent.