M-Akiba: is it the best thing since sliced bread?
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
09 April 2017
Everybody is going
gaga about M-Akiba, the newly launched Government Infrastructure Bond on
sale through mobile phone platform. For sure it is the first of its kind
anywhere in the whole world, but is it the best invention since sliced
bread?
In summary, this is a
new avenue for members of the public to invest money by lending it to
the government. The theory is this: when you keep your money in a bank
account, the bank accumulates yours with that from other customers and
then lends the millions to the government, earns “huge” interest and
pays you “peanuts”.
So, the government
decided to cut out the middlemen (that is, banks) and go directly to the
public. It’s a good and novel idea on paper, but what about in practice?
The minimum amount is
Sh3,000 and the interest rate offered is 10 per cent per annum, tax
free. The interest is paid every six months. So, if you invest the
Sh3,000, you will get Sh150 every six months until April 2020 and then
get back your Sh3,000.
The question
lingering at the back of my mind is whether anybody is willing to
lock-in Sh3,000 for a whole three years in order to earn at total of
Sh900 in interest. If you invest Sh300,000, you would get a total of
Sh90,000 and that looks more enticing!
You can cash out your
investment before the maturity date. However, cashing out a Treasury
Bond is not a straightforward matter. You have to place it for sale in
the secondary market and hope that there is a buyer willing to buy it.
The truth is that the bonds market in Kenya is very slow and buyers are
not readily available.
Let’s wait and see
what will happen on Tuesday when it begins trading on the NSE. I suspect
that many buyers will feel cheated when they try to sell their M-Akiba
Bonds and find no takers.
How does M-Akiba
compare with other investments in terms of returns? In May 2015, I
explained why one should not keep savings in the bank. A Money Market
Unit Trust is much better.
In that year, I
convinced the members of my “Chama” that we should put some of our cash
in a Money Market Unit Trust and on 1st October 2015 we
invested Sh242,000 with one of these companies. Since then, we have
never added or removed any money from the account.
According
to the statement of 31st March 2017, the balance after taxes
and management fees now stands at Sh282,201. In other words, we have
earned Sh40,201 in just 18 months. This works to a net interest of about
10.8 per cent per annum.
If we had put this
money in M-Akiba, we would have been paid Sh12,100 on each of the
following dates: 31/Mar/206, 30/Sep/2016 and 31/Mar/2017. That is a
total of Sh36,300.
The greatest
advantage however is that we can withdraw our money at any time without
having to look for a buyer. All it takes is a simple email and the money
is out within 72 hours - guaranteed!
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