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Why Kenyan Banks should be worried about the M-Akiba success

by Milicent Atieno

Kenya has made a name for itself to be an innovator and pioneer in the FinTech space. It is the first country where widespread use of mobile money began, at a time when the rest of the world was just starting to define what the term means. A revolution spearheaded by Safaricom’s M-Pesa mobile money transfer services.

Come March 23rd through April 10th this year, Kenya made another innovation within the FinTech space of issuing government bonds to small-scale investors through the mobile phones. Traditionally, as it is the case in most countries, investors who took part in the purchase of government bonds were those with deep pockets. The investment has always been lucrative given the almost guaranteed payback of the principal amount plus an additional 10% interest.

However, small-scale investors were technically locked out by the fact that the minimum amount a single investor could invest was Ksh. 100,000 and Ksh. 50,000 for Treasury Bills and Government Bonds respectively. Only a handful of Kenyans had such money(s) lying around, and if they did, they probably had not enough information to take part in capital and money market trade.

With M-Akiba, there was a deliberate and sustained awareness campaign from both the government and the telecoms; that facilitates the mobile money transactions. It would be safe to say more people became aware of the government floating bonds over the mobile money service. But more importantly, the bonds were being sold in affordable packages of a minimum  Ksh.3,000 and additional amounts in multiples of  Ksh. 100. The interest will be paid after every six months via mobile money.

So why should banks be a worried lot?

Traditionally, banks have been receiving massive deposits from Kenyans, which they invest in the lucrative government bonds, lend out at very high interest rates, or invest in high return ventures. In return, however, the customers are given peanuts as far as interest on their deposits is concerned. If one does the calculations right, you’ll find the interest given by banks on deposits is hardly enough to pay for the service or ledger fees charged by the banks themselves.

With M-Akiba, depositors who have a little bit extra income can opt to purchase government bonds instead and get higher interest rates. Instead of keeping them as deposits in banks, who instead invest in government bonds themselves with depositors’ money, yet give our peanuts as interest to deposits.

The government securities playing field has been opened up to small investors, who are in fact the majority and the suppliers of funds banks use in investing. If small investors could channel their money away from bank deposits and invest in government bonds, banks will soon run out of funds, as deposits levels will plummet. The small investors will start cashing in more from lucrative government bonds.

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