You don’t need millions to buy Treasury Bills!
The Sunday Nation
Nairobi,
01 November 2015
With interest rates above 20 per cent, why aren’t people moving their money in government Treasury Bills (T-Bills) in droves? I think it is because of the false belief that you cannot invest in them unless you have a few hundred millions shillings. This falsehood is entrenched by the other, equally untrue, notion that banks make most of their money from T-Bills.
In an attempt to open up accessibility to government borrowings, the National Treasury is planning a mobile-phone-money Treasury Bond (T-Bond) where the minimum amount will be just Sh3,000. This programme was supposed to have started on Monday this week – 26 October 2015. However, the launch was postponed indefinitely because, according to the Treasury Cabinet Secretary, “interest rates are too high”.
That explanation is not convincing; it only cemented further the widely held belief that T-Bills and Bonds are the preserver of the rich – only they are allowed to buy the Bills and Bonds to enrich themselves even more. After all, aren’t prices (interest rates, in this case) expected to go down when supply is high?
I think that public education about T-Bills and T-Bonds has been so badly handled and thereby created fertile ground for rumours. So, allow me to help the authorities.
First of all, the minimum amount required to buy a T-Bill is LESS than Sh100,000. The actual figure changes each week because of the way the Bills are sold.
The easiest way to understand a T-Bill is to think of it as post-dated cheque. Suppose I owe you Sh95,000 and, instead of paying it upfront, I gave you a cheque for Sh100,000 dated three months into the future. Would you accept it?
Well, financially it is a very good deal – you are making an extra Sh5,000 for simply waiting three months. That comes to 5.26 per cent for the period or 21 per cent per year. However, since I am an individual, you might not trust my cheque – you may fear that I will go and close the account before the period is over!
But if a reputable company – say, Safaricom – offered you such a deal, you’d probably take it. What about The Central Bank of Kenya (CBK): would you have any reservations about the cheque? Of course not: after all, this is the institution that verifies all money in the country!
This is essentially what the CBK does every week. Members of the public are invited to bid to buy the “cheques” and then wait three, six or 12 months before cashing them. Those who offer the highest amounts (that is, lowest interest rate) are selected and allowed to buy.
So, if you have Sh100,000 that you know you won’t need in the coming three months, you should consider putting it in a T-Bill. The process is a little cumbersome – you have to physically visit the CBK to drop you bid in the tender box – but the returns are good enough to justify the inconvenience.
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