KISERO: Witnessing a game changer in sale of government securities


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I have received many responses to my recent article on M-Akiba, the new platform that allows retailers to buy Treasury Bills and Bonds, with many readers wondering where the idea came from in the first place — and asking why pundits have rushed to tout it as a game-changer.

The timing of the launch, just as we are about to go to the elections, is also a concern among readers. Where did the idea come from? It has been on the cards since 2012, the feasibility study having been done by consultants engaged by the National Treasury.

At one stage, the National Treasury brought in a team of consultants from MIT of the USA, to advise on how to fine tune the whole thing.

We must also not forget that a Bill proposing the same thing — and sponsored by the MP for Mukurwe-ini, Mr Kabando wa Kabando, was enacted way back in 2014.

Why is it a game-changer, will the experiment fly? Experience has shown that all disruptive innovations grow along an ‘S’ curve.

Incumbents ignore them until they reveal themselves with a bang. The truth of the matter is that we are witnessing the world’s first sale of government securities through the mobile phone. With nearly 30 million mobile subscribers and with M-Pesa now moving trillions of shillings within a quarter of a year, the potential for M-Akiba is endless.

We must remember that when the government borrows money, the ultimate borrower is the taxpayer. Yet until now, the interest on government borrowing has been going into the pockets of shareholders of commercial banks — some of them — living in far-flung parts of the world.

For the first time, the taxpaying citizen is directly going to fund the government, in the process, cutting out financial intermediaries who have been making a killing from trading in government securities — banks, insurance companies and fund managers. Interest income earned from government borrowing will accrue to the same taxpayer.

For our banks, their intermediation model will have to change. The old model of collecting cheap money from the public and packing it in government paper has been disrupted. For the first time, our banks are going to have to rediscover their core calling, namely, allocating scarce capital to projects and businesses offering the highest return.

The big question is the following: What is the National Treasury going to use the money for? What is Wanjiku (ordinary Kenyan) being invited to buy? In my view, three major reforms must be implemented to ensure that the new government borrowing model does not lead to profligacy.

It should made clear that the money raised through M- Akiba is not to be used to pay for the expanding waistlines of governors, MPs, MCAs and overpaid Cabinet secretaries.

We must debate whether this is the time to think about creating an independent statutory agency to which we must give the following instruction: Raise money for us even as you focus on minimising our long term risk-adjusted cost of debt.

Secondly, place our cost of debt on a declining glide with a target, for example, of three per cent of revenues within 10 years. A retail market for government securities will only work efficiently if we create a Treasury Management Agency to take over the responsibility of overall government fiscal agent from the Central Bank of Kenya.

Indeed, M-Akiba could be the perfect Trojan horse for removing the Central Bank of Kenya from playing the conflicting roles of being the government’s fiscal agent, whereby it borrows money from the market on behalf of the State, when its primary responsibility is conduct of monetary policy.

This is also a good time to look at other fundamental reforms to enhance the efficiency of financial markets infrastructure institutions such as the Central Depository System (CDS) that sits at the Central Bank of Kenya and the Central Depository and Settlement Corporation (CDSC) that serves capital markets.

While CDS, at the Central Bank, manages payments and settlements of government securities, CDSC performs a limited function of keeping records of ownership of equity securities. Perhaps, it is time we thought about expanding the mandate of the CDSC to include taking payment instructions and — even more important — settlement of payments.

We would have then set the stage for a merger of CDS and CDSC, allowing Wanjiku to buy government paper, corporate paper and equities through the mobile phone. That is the kind of transformation that should follow the advent of M-Akiba.

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