A Comprehensive Guide to Buying Bonds in Kenya

Investing in bonds is considered a viable method for accumulating wealth. In Kenya, the process of buying bonds is relatively straightforward, similar to purchasing shares, but requires a slightly higher minimum investment capital.

The minimum amount required to buy bonds in Kenya is Ksh50,000. However, investors can invest more if they wish to do so.

Understanding Key Terms ¶

A bond is essentially a legal contract where the person or entity entering into it agrees to pay a specified amount of money if the conditions of the contract are not met. The principal is the individual or entity undertaking to fulfill the conditions of the bond and pay the penalty if these conditions are not met. A surety, on the other hand, is the person who undertakes to pay the penalty of the bond if the principal fails to fulfill the conditions or pay the penalty.

Procedure for Bond Execution ¶

1. The principal fills out the relevant form, depending on the type of bond, and complies with the requirements set by the insurance or bank.
2. The bond is lodged with the Bonds section of the Customs Services Department.
3. A proper officer witnesses the signing and sealing of the bond by the principal and surety.
4. The bond is then referred to a senior officer for confirmation and approval.
5. Upon approval, the bond is numbered and booked in the register.
6. Copies of the bond are distributed: the original is filed at the station of execution, the duplicate at the station of utilization, the triplicate is given to the principal, and the quadruplicate is the guarantor's copy.
7. Finally, details of the bond are captured into the Simba 2005 system, making the bond ready for execution.

Procedure for Retirement of Bond ¶

1. The principal applies for withdrawal of the bond using the appropriate form to the Commissioner.
2. If there are no outstanding transactions against the bond, it is cancelled.

Procedure for Bond-in-Force (B-I-F) Cancellation ¶

1. The principal makes an application on Form C36, lodging it with the Bonds officer along with all relevant documents.
2. The application is processed and approved if compliant, or rejected if incorrect.
3. The Bond-In-Force transaction is replenished to the bond account in the Simba system, and the application is endorsed by the customs officer.

A copy of Form C63, duly numbered and endorsed by the officer, is given to the applicant as evidence of B-I-F cancellation.

Applying for a Bond through an Investment Bank ¶

Investors can approach an investment bank to apply for a bond. The process involves presenting a copy of the ID or passport and other required documents, opening a CDS account, and filling out a form provided by the bank, specifying the amount to be invested.

Step-by-Step Guide for Kenyans in Diaspora to Open a CBK-CDS Account ¶

1. Visit the Central Bank of Kenya website and download the mandate card for either individual or corporate investors.
2. Print and fill out the appropriate mandate card.
3. Attach a recently taken colored passport-size photograph and a copy of the investor's Kenyan National Identity Card or passport. These must be certified by a local commercial bank in Kenya.
4. Have the filled CDS mandate card certified by the commercial bank.
5. Scan the completed CDS mandate card and email it to the specified address.
6. Send the physical mandate and attachments by post to the Financial Markets Department at the Central Bank of Kenya.
7. Upon receipt, the Central Bank will open the CDS account and notify the investor of their account number via email, followed by a formal letter.

Guidelines for Submitting Bids for Treasury Bonds ¶

1. Once allocated a CDS account number, investors can apply for the available Treasury bond.
2. Download the bond application form from the Central Bank of Kenya website.
3. Fill in the key details, including issue number, duration, value date, total face value, and interest rate.

Treasury bonds offer a secure, medium- to long-term investment opportunity with regular interest payments. They are auctioned monthly by the Central Bank, and prospective investors should check regularly for upcoming auctions. Most Treasury bonds have a fixed interest rate, providing a predictable income stream. The National Treasury occasionally issues tax-exempt infrastructure bonds, which can be an attractive option.

Both individuals and corporate bodies can invest in Treasury bonds, either directly through the Central Bank or as nominees of a commercial or investment bank in Kenya.