A bond is a loan between a borrower and a lender. The borrower promises to pay the lender some interest quarterly or semi-annually at some date in the future. The borrower also promised to repay the initial money invested by the lender. The lender lends and expects to make a profit. The profit from a bond is gained in the form of an interest. At the moment some bonds in the market have an interest rate of 14%, 12%, 10%,8% depending on the type of bond it is, and when it was issued. There are two main categories of bonds issued in the Kenyan Market namely: –
2.1 Treasury Bonds
Treasury bonds are a secure, medium- to long-term investment that typically offer you interest payments every six months throughout the bond’s maturity. The Central Bank auctions Treasury bonds on a monthly basis, but offers a variety of bonds throughout the year. However, treasury bonds can also be purchased in the secondary market (through the Nairobi Securities Exchange). An investor needs at least Kshs. 50,000 to purchase Treasury bonds in Kenya.
Most Treasury bonds in Kenya are fixed rate, meaning that the interest rate determined at auction is locked in for the entire life of the bond. This makes Treasury bonds a predictable, long-term source of income. CBK also occasionally issues tax-exempt infrastructure bonds, a very attractive investment.
Individuals and corporate bodies can invest in Treasury bonds as a nominee of a commercial bank or investment bank in Kenya, but if you hold a bank account with a local commercial bank you can also invest directly through the Central Bank and avoid additional fees.
2.1.1 Corporate Bonds
These are long-term (at least one year and above) debt instruments issued by private and public institutions. The prescribed minimum lot as per the public offers regulations is Ksh 100,000/=. This implies that this product is available to an investor who is willing to invest a minimum amount of Kshs 100,000/=.
2.1.2 Green Bonds
Green Bonds are fixed income instruments whose proceeds are earmarked exclusively for projects with environmental benefits, mostly related to climate change mitigation or adaptation but also to natural resources depletion, loss of bio-diversity, and air, water or soil pollution. Green bonds deliver several benefits to both issuers and investors; Green Bonds can be issued by corporates or and governments. Acorn issued the first green bond in Kenya in 2019, the bond is listed at NSE and cross listed at LSE.
2.1.3 M-Akiba Bond
A government of Kenya mobile-based retail bond that sought to enhance financial inclusion for economic development. It was launched into the Kenyan market on March 23rd, 2017 by the National Treasury aimed at mobilizing funds for infrastructural development projects, both new and existing.
CMA approved the listing of the Special Limited Offer bond valued at Kshs One Hundred and Fifty Million (Kshs 150,000,000/=) on the Fixed Income Securities Market Segment of the Nairobi Securities Exchange. Following the success of the Limited Offer, a subsequent offer, M-Akiba 2, was made on June 30, 2017. The 3-year mobile phone-based bond modelled as an infrastructure bond allowed buyers an initial investment minimum amount of Kshs. 3,000/= exclusively via mobile phones. The M-Akiba bond was tax-free and the interest rate of the bond was 10% per annum payable semi-annually.
Final payout of principal amount and final interest to both M-Akiba 1 and M-Akiba 2 had been made to investors on April 7, 2020 and September 7, 2020 respectively following maturity of the bonds. As at the time of publishing the Handbook, the Government of Kenya had not issued other M-Akiba bonds. However, given the success of the first two bonds, it is expected that the Government will from time to time be issuing the bond as and when need arises.
