Why you too should loan State money this time round

My ageing grandmother and any other mobile phone user has a chance to loan the Government money through the world’s first mobile-only government bond, M-Akiba, which was launched by Treasury last week.

Trading in government bonds has for a long time been a preserve of high net worth individuals and corporates which can afford minimum Sh100,000. With M-Akiba bond that has been reduced to only Sh3,000 anyone can loan the Government money. This can be transacted from the comfort of your home or office by dialling *889# on your mobile phone.

A Kenyan in Mandera or Wajir can now trade from the comfort of their manyatta. You can invest in M-Akiba for returns higher than other mobile investing schemes.

A few years ago, one had to travel to Nairobi and a few other major towns to initiate trade in Government securities or follow up on payments at Central Bank of Kenya.

M-Akiba is basically a long-term security issued by the Government. With its launch, Kenya becomes the first country in the world to offer a mobile platform for ‘Wanjiku’ to trade in government bonds. Even developed countries have not achieved this feat.

And while you are reading this, several countries across the world are watching the team that actualised M-Akiba to replicate the same. After the revolutionary M-Pesa, we will soon be exporting M-Akiba to the world.

When governments need to raise money for projects, they will not always increase taxes. Instead, they often issue bonds that citizens buy. You then receive principal and interest payments for a certain number of years before the bond matures. Depending on your investment goals, M-Akiba could provide a number of advantages that other investments don’t.

With the M-Akiba, you are guaranteed a 10 per cent rate of return on your investment, in addition to the lack of maintenance fees involved in other schemes. M-Akiba is extremely safe investments.

Since your principal investment is backed by the Kenyan government, your money will not lose value, which is arguably one of the safest investments out there. So, by barring Kenya defaulting on its debts, your investment is safe. Other investments, such as stocks or corporate bonds, don’t have the same level of security. If the company goes bankrupt, you could lose your entire investment.

You don’t have to pay state income tax on the interest you receive every six months. Because M-Akiba is typically safer than stocks, you might find it useful if you’re looking to retire. Also, because it pays interest every six months, it can help generate a steady stream of income.

M-Akiba can be bought and sold just like other investments, such as stocks and corporate bonds. For example, if the bond won’t mature for another three years but you need cash now, you can sell the bond to another investor.

However, because of changing market conditions, you could find yourself taking a loss to unload the bond. On the other hand, depending on the circumstances, you might also be able to make a gain.

Having a fixed rate 10 per cent, which is higher than bank interest rate on your M-Akiba, allows you to budget for how much income you’ll have to spend as you receive payments. Plus, if interest rates fall, your rate is locked in so you earn a higher rate than the market is paying.

Of course, there’s always the chance that interest rates could go up. Having a fixed rate hurts you because you’re stuck with the lower rate. The M-Akiba was unveiled after two years of crafting and testing.