Financial services, mobile phones, and Kenyan development

In late March 2017, Kenya made history by becoming the first country in the world to issue and sell sovereign government bonds over mobile phones. The process followed by the Kenyan government allows any Kenyan to invest in the country’s development and growth and contribute towards infrastructure projects. Purchasers do not even have to be formally employed.

The name of the bond is M-Akiba, a Swahili name meaning “mobile savings” and has been launched as a pilot in order to test demand and monitor uptake levels. It is valued at 150 million Kenyan Shillings (KES) which equates to around 1.3 million Euros or USD 1.4 million. If successful, it is expected that a much larger, but also mobile based, 5 billion KES bond will be launched.

What is unique about this sovereign bond is that almost anyone is able to invest in the bonds. Currently only 2% of Kenyan government bonds are bought and sold by individual investors. Kenyans are able to invest as little as 3,000 KES (approximately USD 30) in the bonds whereas previously, many Kenyans had been excluded from purchasing government bonds due to the high minimum price of 50,000 KES (approximately USD 500), required in order to invest.

Patrick Njoroge, the Governor of Kenya’s Central Bank, speaking at the launch of the bond was reported by The Independent to have said “Police officers, primary school teachers or those working in kiosks can actually buy government securities just as they would  buy products or transfer money with their phones.” He added “Frankly if this is not transformational, I don’t know what is.”

Furthermore, the bond is tax free and aims at promoting an improved culture of savings amongst Kenyans, particularly low-income citizens. It pays an interest rate of around 10%, which is paid out every six months and can be purchased by phone users without the need for a bank account.

In Kenya, the rate of total savings is around 11% of national GDP which compares poorly to two of its east African counterparts, Rwanda (22% of GDP) and Uganda (60% of GDP). According to the BBC, Njoroge believes the bond will “Dramatically improve the savings culture of our people.”

The bond was instantly popular. Within three hours of its launch a total of one million shillings had already been invested. The success of this bond is expected to shake up financial services by partially creating an additional savings option alternative to low-interest bank accounts, mobile wallets and cooperatives. It is also anticipated that such bonds will be replicated in other countries where mobile payment solutions are already popular.

Kenya has been a world leader in the mobile money sector since 2007 due to the hugely successful launch and expansion of M-Pesa (Swahili for “money”). The BBC reports that M-Pesa already “has about 20 million users, and there are more than 100 times as many M-Pesa kiosks as there are cash machines in Kenya.” It has proved so successful that it is now available in 10 countries.


Image courtesy of Flickr. Originally published by S&S on December 5, 2017.


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