Michael Dosnard, a Digicel agent, shows Ronald C. Dorzeluia how too use his mobile banking account on his cell phone at the Digicel store in the Lalue neighborhood of Port-au-Prince on January 7, 2011. Ronald is an Engineer who just heard about mobile banking from a friend and would like to avoid having to wait in long lines at the bank to deposit or withdraw money. (World Bank Blog)

The government of Kenya is looking to capitalise on high mobile penetration to expand financial inclusion, with plans to offer a new infrastructure bond exclusively via mobile phones, marking the first sale of its kind in the world.

The government has moved away from its traditional focus on institutional investors – who accounted for 98% of uptake in earlier rounds of public fundraising – to target individual retail investors, signalling its intent to reach a broader investor base via a lower entry threshold for investment.

The National Treasury hopes to raise KSh5bn ($48.8m) from the five-year M-Akiba bond, which will be used to finance road works, alongside a raft of energy, water and telecoms projects.

While the bond was initially scheduled to go on sale on October 20, the government announced it would postpone the launch until interest rates are more favourable. A KSh20bn ($197m) one-year sovereign bond sold at a record coupon rate of 22.95% in late October, according to local media reports.

Tapping mobile potential

Expanding the range of financial services available via mobile devices is seen as a particularly viable strategy in Kenya, building on the success of mobile money transfer platforms.

According to the latest sector report from the Communications Authority of Kenya, mobile phone penetration stood at 83.9% as of the fourth quarter of FY2014/15, with subscriptions climbing 3.6% quarter-on-quarter (q-o-q) to reach 36.1m for a population of 43m. Meanwhile, mobile money subscriptions rose 3.5% q-o-q to 27.7m.

Although unique subscriptions for both mobile and mobile money services are likely to be slightly lower than official estimates, given the number of users that have accounts with multiple providers, according to the World Bank’s “2014 Global Findex” report, issued in June, around 58% of adults in Kenya have mobile money accounts, more than any other country in the world.

Kenya also ranks as the most-banked country in sub-Saharan Africa, with approximately 75% of the population holding bank accounts. The figure, which includes both mobile money and conventional bank accounts, is above the global average of 62%, according to the World Bank report, and ahead of Ghana (40%), Nigeria (44%) and South Africa (70%).

Mobile transactions are already widely accepted as a standard way of paying for key services, with reports indicating that 55% of Kenyan households settled their utility bills via mobile money payments over the past year, compared to 20% in Nigeria.

Kenya’s strong mobile money culture has had a direct impact on financial inclusion, particularly among populations that typically have difficulty accessing such services in other countries.

“By providing more convenient and affordable financial services, mobile money accounts offer promise for reaching unbanked adults traditionally excluded from the formal financial system – such as women, the poor, young people and those living in rural areas,” the World Bank reported noted.

Mass appeal

To encourage a wider cross section of society to invest, the government has cut the minimum investment level on the M-Akiba bond from KSh50,000 ($487) to KSh3000 ($29). In addition, the bond is tax-free and is likely to earn a higher interest than fixed deposit accounts at commercial banks, according to the government, although a precise interest rate has yet to be announced.

The decision comes on the heels of a public bond offering by neighbouring Ethiopia, which saw denominations as low as $1.22 and raised approximately $341.5m. The Ethiopian government plans to use the funds to finance construction work on the Grand Ethiopian Renaissance Dam, Africa’s largest hydropower project. A similar initiative by Egypt, which sold savings certificates for retail investors for as little as $1.28 to help fund the Suez Canal expansion, raised more than $8bn.

National savings

In addition to financing critical infrastructure projects, the M-Akiba bond is seen as an innovative means of boosting domestic savings, with the government keen to increase the country’s savings rate, which lags behind many of its regional peers. Indeed, the name of the bond, Akiba, means “savings” in Swahili.

As with any pilot project, some practical concerns may still need to be considered, particularly in terms of market liquidity.

“The industry generally sees this as a positive development, as it will bring more Kenyans into the government bond market and increase their financial participation,” Patrick Ndonye, managing director of Kingdom Securities, a local brokerage, told OBG. “However, it is difficult to predict the viability of a secondary market for these bonds, as they will be issued in such small denominations.”

(Oxford Business Group)