From mobile money to mobile bonds in Kenya

29 Jun 2017

  • Kenyan Treasury issues low-value mobile-only government bonds: encourage savings, cheaper funding, financial inclusion

  • Mobile phones have enabled financial inclusion in China

  • Could there be an opportunity to improve financial inclusion in Australia?

Source: The Economist


Point of View


Kenyans can now buy low-value government bonds using just their mobile phones. Kenya, a pioneer of mobile money with M-PESA in 2007, is the first country in the world to issue mobile-only government bonds, called M-Akiba. After a successful trial in March, the main affair was launched on 30 June 2017.


In the pilot, the Kenyan Treasury issued 150 million Kenyan schillings, KSh ($1.8 million), of M-Akiba, Swahili for ‘savings’. The full launch aims to raise KSh 1 billion ($12 million) by 21 July, with a ‘green shoe’ option to issue a further KSh 3.85 billion ($46 million) through to 8 September 2017. Nonetheless, the bond offering only raised KSh 128 million ($1.5 million) by 21 July.


The Treasury’s purpose for issuing the new three-year bonds is three-fold: to encourage Kenyans to save; to finance government outlays on infrastructure; and to enhance financial inclusion.  


Kenyans save just 11 per cent of their incomes, which is half that of nearby nations, Rwanda and Uganda. The Treasury expects M-Akiba bonds, with a tax-exempt return of 10 per cent, to incentivise saving behaviour in the population. To compare, the earnings rate on bank savings is around 7 percent.


The Kenyan government seeks ‘cheaper funding’ to help pay for ‘mega infrastructure’ investments by issuing M-Akiba bonds. This appears to be a rational move by the government given that Moody’s, Fitch and S&P have all assigned ‘highly speculative’ junk-bond ratings to Kenya, reflecting higher servicing costs to creditors.


The Kenyan government is making bonds accessible to a wider range of people to enhance financial inclusion in the investment space. M-Akiba works through the mobile money system, not the banking system. This is critical to achieving financial inclusion, as fewer than 40 per cent of Kenyans have a bank account but the majority use mobile money. Moreover, the minimum investment is just KSh 3,000 ($36), compared with the minimum for regular bonds of KSh 50,000 ($600).


Mobile phones have also enabled financial inclusion in China with the emergence of mobile payment and investment products over the past few years. For example, in 2013, Ant Financial launched its investment product, Yu’e Bao, off the back of its very successful online payment service, Alipay. Yu’e Bao is now the largest money market fund in the world, valued at US$165.


Alipay users can invest in Yu’a Bao, which is Mandarin for ‘leftover treasure’, with money left over from making mobile payments. There is no minimum to invest and money can be withdrawn at any time. Moreover, the interest rate on Yu’e Bao funds is around 4 per cent, 10 times the rate paid by Chinese banks on at-call bank deposits.




Despite vast differences between the financial services environment here and those in Kenya and China, Australia faces significant problems with financial inclusion and resilience. More than half of Australians have little or no understanding of financial products and services, and 20 per cent are financially excluded (according to the first Financial Inclusion Action Plan (FIAP) report, released in November 2016).


The Chinese technology giants – Ant Financial, Tencent and Baidu (the BATs) – have taken advantage of financial exclusion in China by providing mobile payment services to customers and disrupting traditional banking. The BATs have made enormous profits in this realm and continue to grow at dizzying rates.


To tap into cheaper funding, the Kenyan government has now capitalised on mobile money infrastructure, with M-Akiba. Mobile money increased financial inclusion substantially since it took hold in Kenya a decade ago. Mobile money payments bypass the banking system and instead use a network of telcos and convenience stores.


Could an opportunity exist in Australia to serve the underserved? Several banks have already partnered with the FIAP to work towards financial inclusion for the greater good. However, more than a charitable exercise, might improving financial inclusion be a commercial opportunity? The potential customer base is large, as virtually all adult Australians have a bank account and more than three-quarters own a smartphone.


Some services are have already emerged. For example, budgeting tool, Pocketbook, and Acorns - a micro-investment service that aims to educate Australians on investing. In future, could open banking and the NPP support further services to improve financial inclusion in Australia?


The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.



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The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members. This publication is also subject to the AusPayNet Terms of Use and Privacy Policy available on the AusPayNet website.


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