Partner Organization: National Treasury Kenya

The story of Kenya’s m-akiba: selling treasury bonds via mobi

After many years, the involvement of many partners and many iterations, M-Akiba, a Kenyan government bond sold through the mobile phone, was launched in 2017. M-Akiba (M – mobile, Akiba – savings in Kiswahili) was a three-year bond sold in denominations as small as KShs 3,000 (about US$30) with a coupon rate of 10% paid semi-annually and a tax-free status in line with other infrastructure bonds.  Through their mobile phones, retail investors could open securities accounts, purchase, pay, receive periodic interest/coupon and principal amount invested and trade their securities in the secondary market.

The initial idea to sell Kenyan government investments over a mobile phone emerged in 2011 under the leadership of the National Treasury and the Central Bank of Kenya.  Through M-Akiba the government aimed to broaden its investor base and reduce its borrowing costs. Before M-Akiba, the minimum investment amount for a bond was KShs 50,000 (about US$500) and required a cumbersome process to open up an investment account. There were only 10,000 retail investors in government, accounting for only 2% of the outstanding holdings of bonds. M-Akiba had the potential to reach over 30 million registered mobile money account holders.M-akiba logo

Early on, the World Bank Group provided technical support to the government on how to design the system and process for selling mobile treasury investments.  FSD Kenya commissioned MicroSave to explore how the target market might react to the concept and recommend design principles that could be incorporated into the offering. Many of the principles for the retail investors were addressed such as the ease of opening an account and denominations in thousands of shillings rather than tens or hundreds of thousands. However, the partners found it harder to address many of the recommendations for the unbanked segment such as the preference for even smaller sizes down to hundreds of shillings and tenures in months, not years. FSD Kenya also provided in-kind support in the year prior to launch to ensure that the technologies and systems were sufficiently robust for the offering through multiple payment platforms and a systems audit assurance for the clearing and settlement system.

The complex journey to launching involved a constellation of both public and private partners who each played different roles.

  • The National Treasury issued the bond with the Central Bank of Kenya.
  • The Capital Markets Authority provided regulatory oversite.
  • The Central Depository and Settlement Corporation (CDSC) of Kenya manages the register of bond holders with delegated authority from the Central Bank of Kenya as well as the periodic coupon payments and redemption.
  • The Kenya Association of Stockbrokers and Investment Banks (KASIB) and its members facilitated the market in the background as accounts were assigned to brokers for purchases and sales.
  • Safaricom’s M-Pesa and Airtel Money integrated their USSD channels (*889#) and payments functionality to the M-Akiba platform to enable customers to open accounts, purchase bonds and receive the semi-annual payments. The per transaction limit was KShs 70,000 (about $700) with the daily limit twice that.
  • After the pilot, PesaLink, the interbank real-time push payment platform, was also integrated into M-Akiba which enabled retail customers to purchase amounts up to KShs 999,999 (about $10,000) per transaction.
  • The Nairobi Securities Exchange (NSE) facilitates the on-line trading of the bonds through its system and also provides customer service support through a helpline.
  • Through a competitive bid process, Commercial Bank of Africa was selected as a market maker to guarantee purchases sold on the secondary market.

Although there was a lot of excitement and interest when the bond was piloted and launched, the number of retail customers purchasing bonds proved to be low. The bond was first offered in a KShs 150 million pilot phase in March 2017 for a period of three weeks.  Although 102,632 people registered for on the M-Akiba platform, only 5,692 investors purchased M-Akiba before the pilot was sold out implying much higher average purchases than the minimum.  If the initial customers had only bought at the minimum rate, 50,000 customers could have purchased, almost ten times as many as did.

M-Akiba was officially launched on 30 June 2017 (the last day of the government’s fiscal year), to much fanfare and great hopes that the KShs 1 billion on offer would also sell out and even allowed for an initial KShs 3.8 billion to be sold. Over 300,000 people registered on the M-Akiba platform but onl88 purchased M-Akiba bonds during the official launch totaling KShs 247.75 million, only about a quarter of the KShs 1 billion on offer. This even included an extended time period to allow for some of the complications caused by the election period.

Most of those who invested in the bond had higher education (with 59% having gone to university), 61% were formally employed, most had regular income (71% received salary or other regular monthly income) and most were urban (51% were from the capital Nairobi). Women made up 36.8% of those who invested. However, women were much more likely to actually buy the bond after registration.

Given the potential of this concept paired with the low uptake, FSD Africa commissioned BFA to undertake a post-issuance survey to understand the reasons for the unexpectedly low uptake and draw lessons that would be used to improve the product and support the replication of the concept in other markets. For instance, FSD Uganda is currently supporting Bank of Uganda in the development of a concept for distributing government securities to the mass market leveraging on mobile technology.

Although investment did not meet expectations, the post issuance study found that the product was fairly successful in bringing a new broad-based retail investor group into the market for government paper: 85% of customers had never bought a bond before and buyers were distributed across virtually all of Kenya’s 47 counties.  Most of the investors (84%) really liked the product and were likely to recommend it to someone else and 80% of those who invested were likely to invest again, if the product was issued today.

However, the study discovered a range of problems that hindered uptake:

  1. Poor timing – in the two years between the soft launch and product launch, deposit regulations changed, forcing banks to increase interest rates paid on savings from 0% to 7%, thereby diminishing the advantages of the bond. Furthermore, the bond launch coincided with nl elections, so media advertising about the product was swamped by election coverage.
  2. Poor understanding of product – those who registered but did not ultimately purchase the bond were less likely to know the interest rate, tenor, closing date, or other details about the product. That said, understanding was also poor among those who eventually bought the product: less than 2% knew to call the Nairobi Securities Exchange if they needed their money.
  3. Confusing purchase process – while registration was simple, the second stage of the process was confusing and gave no clear, immediate instruction for how to complete the purchase. Moreover, screenshot displays were sometimes misleading and/or confusing so individuals may not have realised their purchase was not complete after registration.
  4. Lack of prompts/reminders- over 60% of individuals interviewed did not receive a single reminder message after registering; and 70% of those who registered but didn’t purchase did not know he investment round was closing.
  5. Agents focused on registration – when agents visited offices, markets, and groups, there was a marked uptake in registrations. However, the agents did not encourage people to actually invest after registering. In addition, it was difficult for customers to get help from agents when they had follow-up questions after registration.
  6. Weak customer care practices – the only helpline available to customers, many of whom did not fully understand the product, was a landline, which was difficult to access and confusing, given the mobile nature of the product. Furthermore, when fraudulent messages circulated about the product, there was no easily accessible customer service available to refute them.
  7. Concerns about minimum investment – some customers felt the KSh 3,000 minimum investment would be better allocated to savings groups or trading opportunities that could provide quick returns or access to credit.

Despite not living up to its oitions, M-Akiba still stands as the first mobile treasury instrument to be sold in Africa. Although the first pilot and launch did not achieve desired outcome, there are significant opportunities to enhance the product in Kenya and replicate elsewhere drawing on the lessons and recommendations made from the post-issuance study and the lessons learned by the implementers to make it more relevant to the daily reality of citizens aiming to invest in their futures.

Kenya green bond programme kicks-off with strong backing from banking industry and development finance community

Nairobi, Friday 31st March 2017 – The Kenya Bankers Association (KBA), Nairobi Securities Exchange (NSE), Climate Bonds Initiative (CBI) and Financial Sector Deepening Africa (FSD Africa) in conjunction with the FMO – Dutch Development Bank and the International Finance Corporation (IFC) have today launched the Kenya’s Green Bond programme. The programme, which is coordinated by KBA under its Sustainable Finance Initiative (SFI), is endorsed by the Central Bank of Kenya (CBK), Capital Markets Authority (CMA) and the National Treasury.

During the launch, KBA, the NSE, CBI and FSD Africa signed a Cooperation Agreement to support the development of a green bonds market in Kenya.  FSD Africa has committed USD 600,000 over a period of three years, to fund the programme with the objective of aiding Kenyan banks and corporates to be in a position to tap the growing investor demand for green investments.

Through the partnership and funding from FSD Africa, a technical support programme will be implemented that will enable the partners to develop a pipeline of potential bond issuers and support demonstration green bond issuance from leading banks and corporates in Kenya. In addition, it will enable the development of a community of Kenyan-based licensed verifiers and support KBA’s efforts in building capacity locally to catalyze similar programmes across East Africa. In addition to the FSD Africa funding, FMO had earlier committed USD 350,000 to support KBA develop the framework to create the industry’s first pooled gbond facility. The facility that would allow KBA member banks, especially Tier 2 and Tier 3 banks, and corporates to take advantage of wholesale debt capital markets.

The launch of the Kenya Green Bond Programme comes at a time when African countries are gaining momentum to align with the burgeoning activity within the green finance space. Kenya, Nigeria, Morocco, Egypt and South Africa are among countries that have made strides to establish standards, harmonize public and private sector efforts as well as build capacity within the green economy. Globally, based on the 5th annual State of the Market Report by HSBC and detailed by CBI in a recent 2016 report, $694 billion is said to be climate aligned bonds. Out of the $694 billion, $ 118 billion are labelled as green bonds. A green bond label, enables investors to identify climate aligned investments and thus reduce friction in the market, which will in turn facilitate growth in climate aligned investments.

During the launch, the CEO of KBA, Habl Olaka said: “We are very pleased and excited to announce this partnership. This alliance has given us the opportunity to work closely together as a sector in developing Kenya’s green finance market through the green bond programme. One of KBA’s main objectives is to develop and sustain best practices that will inevitably strengthen financial structures in Kenya. FSD Africa, FMO, IFC, CBI and the NSE have all focused over the years on growing sustainable finance practices in the financial sector and this strongly complements our objective.”

The Chief Executive of NSE, Geoffrey Odundo noted: “The Exchange is committed to developing a vibrant green market for this region; we aim to create an environment that will allow the market to prosper in a secure and transpar­ent way. Through the NSE, issuers and investors will have a platform where they can come to­gether and fulfil their green objectives. The Kenya Green Bond Programme is an innovative tool that will promote economic and climate resiliencyntry.”

Ahead of the signing ceremony, the Director, FSD Africa, Mark Napier said: “It is expected that this programme will improve access to a complementary source of longer-term capital alongside traditional, shorter term bank loans, while contributing to the financing of ‘green’ investments and improving the environment. It will further support the national agenda that seeks to reinforce Kenya’s role as a regional leader in financial services as articulated by Vision 2030 and Kenya’s Green Economy Strategy and Implementation Plan (GESIP).”

In agreement, Sean Kidney, CEO of Climate Bonds Initiative also said: “We are very excited to be able to work with our partners to grow a green bonds market in Kenya. This is going to be part of delivering lower cost capital to green projects, and developing capital markets in Kenya. In this year of sovereign green bonds Kenya is taking action and issuing will enhance its leadership positioning in Africa and provide a positive example to other nations loe finance options.”

Ends.


Note to editors

About Kenya Bankers Association

KBA (www.kba.co.ke) was founded on 16th July 1962. Today, KBA is the financial sector’s leading advocacy group and banking industry umbrella body that represents total assets in excess of USD 37 billion. KBA has evolved and broadened its function to include advocacy on behalf of the banking industry, and championing financial sector development through strategic projects such as the launch of the industry’s first P2P digital payments platform PesaLink.  In line with the Government’s policy on public-private partnerships, KBA and Central Bank of Kenya have implemented key projects such as modernization of the National Payments System through the Automated Clearing House, implementing the Real Time Gross Settlement System (RTGS), and the Kenya Credit Information Sharing Initiative. The KBA members are comprised of commercial banks and deposit taking microfinance banksg>Nairobi Securities Exchange (NSE)

The NSE is a company established under the Companies Act, Cap 486 of the Laws of Kenya (as amended) and is licensed by the Capital Markets Authority to promote, develop, support and carry on the business of a securities and derivatives exchange and to discharge all the functions of a securities and derivatives exchange under the applicable Laws of the Republic of Kenya.

About the Climate Change Initiative (CBI)

The CBI is a private company limited by guarantee, established under the Companies Act 2006 of the United Kingdom and registered as a charity in England and Wales, and mandated to work for the preservation and conservation of the environment for the public benefit.

About FSD Africa

FSD Africa is a non-profit company which aims to increase prosperity, create jobs and reduce poverty by bringing about a transformation in financial markets in SSA and in the economies, they serve. It provides know-how and capital to champions of change whose ideas, influence and actions will make finance more useful to African businesses and households. It is funded by the UK aid from the UK Government

For more information about FSD Africa’s activities and current updates follow our social media platforms:

Twitter: @FSDAfrica

Linkedin:  Financial Sector Deepening Africa (FSD Africa)

Website: www.fsdafrica.org

Email: evans@fsdafrica.org


For media enquiries please contact:

Financial Sector Deepening Africa (FSD Africa)

Lara Cornaro

Head of Communications

lara@fsdafrica.org

 

Kenya Bankers Association

Nuru Mugambi

Director of Communications and Public Affairs

Phone: +254-20-2221704/2224014

Email: nmugambi@kba.co.ke

 

Nairobi Securities Exchange Ltd.

Waithera Mwai-Ireri

Head of Brand and Corporate Affairs

Tel: +254 (020) 283 1000

Email: wmwai@nse.co.ke

Website: www.nse.co.ke

 

Climate Bonds Initiative

Andrew Whiley

Communications Manager

Phone: +44 (0) 7506 270 943

Email: andrew.whiley@climatebonds.n