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Bond-buying Kenya-style: at the tap of a mobile phone

Discussion in 'Kenyan News and Politics' started by Nairoberry, May 5, 2012.

  1. Nairoberry

    Nairoberry JF-Expert Member

    May 5, 2012
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    (Reuters) - For the average Kenyan, buying government debt could soon be as simple as paying for groceries at the supermarket: that is, with the tap of a few buttons on their mobile phone.
    This is the premise behind a project about to be launched by the World Bank and Kenyan regulators that aims to capitalize on the success of M-Pesa, the east African country's hugely popular mobile money transfer service.
    Under the scheme, which is at the beginning of the pilot phase, anyone with a mobile phone will be able to buy Treasury bills, and eventually bonds, offered by the central bank.
    Would-be investors only need a cell phone line and a subscription to a mobile money service, which will enable telecoms operators to open an electronic account with the Central Bank of Kenya on their behalf.
    The CDS accounts, as they are known, are a requirement for anyone wishing to take part in debt auctions.
    "Today, any Kenyan can pay their electricity bill with the phone," said Yira Mascaro, who leads the World Bank's financial and private sector development group in Nairobi that is behind the initiative.
    "So instead of paying your electricity bill you will pay for the bonds you would have bought and then a small fee would be charged to the mobile money account, much like you do for any transfer."
    Low banking penetration in sub-Saharan Africa, where the World Bank estimates only 24 percent of adults have an account with a formal financial institution, has spawned innovations aimed at improving access to financial services and Kenya has been at the forefront.
    Around 7 in 10 Kenyan adults use mobile money transfer services not only to send and receive cash but to pay utility bills or school fees or make hotel bookings. This compares with about 16 percent in the rest of sub-Saharan Africa.
    The new scheme, known as Treasury Mobile Direct, has two main aims, Mascaro told Reuters: to encourage Kenyans to save and to increase retail participation in the bond market, currently less than three percent.
    The World Bank is working with others, including the Central Bank of Kenya, the Central Depository & Settlement Corporation (CDSC), commercial banks and all mobile phone operators, and hopes to launch the scheme in the next six months, she said in a phone interview.
    The service will initially be offered to bank account holders but a second phase will target the unbanked.
    While other countries have tried to offer government debt to retail investors via the internet, the mobile phone system would be the first of its kind, Mascaro said, adding: "In Kenya, the mobile was just too obvious."
    Mobile penetration in east Africa's largest economy reached 71.3 percent in the last quarter of 2011, according to the Communications Commission of Kenya.
    Customers deposited 177 billion Kenyan shillings ($2.13 billion) with mobile money transfer services, a 55 percent jump from the same period in 2010, the regulator said in its latest quarterly report. There were nearly 19 million subscriptions to such services, up 42 percent from the previous year.
    Safaricom's M-Pesa, launched in 2007, is the dominant player with more than 14.8 million customers, accounting for more than three quarters of all mobile money subscriptions. Rivals include Airtel Money, Essar Telecom's yuCash, Telkom Kenya's Orange Money and Tangaza, which operates across all networks.
    Treasury Mobile Direct will initially offer short-term paper but could introduce bonds in the future, as well as the option of trading the instruments, said Rose Mambo, chief executive of the CDSC, which will provide clearance services.
    "Initially, it's to buy and keep until redemption," she said. "There's the option to rediscount it at the central bank if you need your money back before the redemption date.
    "In a second phase of the project you can then facilitate trading among the holders of the bills so that they can buy and sell among themselves. If it's successful there's no reason why it can't be expanded to other securities.
    Bond-buying Kenya-style: at the tap of a mobile phone | Reuters