You don’t have to be a millionaire to lend to the government of Kenya!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

15 December 2024  

After diligently paying Sh4,000 every month over the last 12 years, my education/life assurance policy matured in October and I was paid out just under Sh730,000. As soon as I received this money, I lent it to the government of Kenya through a treasury bill. The applicable interest rate was 15.6855 per cent per annum for a 91-day bill which will mature in January 2025.

I tell this story to dispel the popular belief that only the big banks can lend money to the government. It is simply not true! Ordinary citizens can buy government treasury bills. The minimum amount required is Sh50,000 which is affordable to very many people.

Treasury bills are auctioned every week (on Thursday) and bidders choose maturity periods of 91 days (three months) or 182 days (six months) or 364 days (one year). Bid amounts should be in multiples of Sh50,000, that is Sh50,000, Sh100,000, Sh150,000, etc. The bidding is done online via the Central Bank’s “DhowCSD” platform.

There are two types of bids, competitive and non-competitive. Competitive means that you indicate the interest rate you want – as high as you wish! But remember that this is an auction and winners will be those who indicate the lowest rates. Government wants the cheapest loans!

Non-competitive bidding means that you will accept the average rate of all the successful competitive bids. This what small investors like myself choose. The 15.6855 per cent quoted above was the mean for that particular week.

The interest earned on treasury bills is calculated in reverse. Let me illustrate with the one I bought last month. Obviously, with I could not bid for a bill of Sh730,000 – remember it has to be multiples of Sh50,000. So, I applied to buy Sh750,000-worth.

First, the Central Bank divides the annual rate by four to determine the 91-day rate (4.1714pc). Then they ask: How much should we ask from Mungai so that, in three months, we shall pay him Sh750,000? The answer is Sh721,773.75.

Therefore, in the 91 days, I will earn Sh28,226.25 interest. But this is subjected to withholding tax at the rate of 15 per cent which amounts to Sh4,233.90. So, in total, I paid Sh721,773.75 + Sh4,233.90 = Sh726,007.65 to the CBK in October and in January, they will pay me Sh750,000. My net earning will be just under Sh24,000.

So, what are you waiting for? Join the big boys and lend to the government. Remember: you only need Sh50,000!