This archive report was first published on 19 September 2019.
On September 19, 2019, George Bodo wrote in Ideas & Debate that the M-Akiba mobile-based Treasury bond has raised Sh1 billion, and its structure serves two lessons for the domestic fixed income market.
Launched in March 2017, M-Akiba was designed to encourage savings and fulfill the promise of financial inclusion. The bond empowers Wanjiku to exit the market at will, if she decides to do so, and one can buy or sell the bond exclusively using the mobile phone platform.
According to the Treasury, the bond has successfully deployed market making, a crucial role in providing liquidity when needed. Market makers play a vital part in the bond market, and M-Akiba's structure has shown that the market is now ripe for market making.
Let's say the Treasury is looking to raise Sh50 billion through a debt sale. It has two choices: sell it to the wider public through an auction or deal with a handful of pre-selected institutions, known as primary dealers. These institutions sell to any other party, both institutions and individuals, interested in the securities, creating an initial market and providing liquidity when needed.
Market makers play a crucial role of providing liquidity when needed. In the M-Akiba case, if an investor wants to sell their bond, all they need to do is select the sell option through their mobile phones. Behind the scene, a market maker, a bank in this case, undertakes to buyback the bond and in the process provides secondary market liquidity by way of a guarantee.
The growing volume of securities rediscounting strengthens the case for market-making. In 2018, statistics from the Central Bank of Kenya (CBK) showed that a total of Sh17 billion worth of treasuries (bills and bonds) were rediscounted, a 59 percent year-on-year growth over 2017.
Additionally, M-Akiba is the first government bond to be deposited and registered outside the CBK. Ordinarily, the CBK is the only depository and registry for government debt securities, while the Central Depository & Settlement Corporation (CDSC) manages the stocks and corporate bonds register, creating a dual system.
