Capital Markets
Secondary market dropped in M-Akiba revamp
Thursday March 07 2024
A screenshot of the M-Akiba mobile traded bond. FILE PHOTO | NMG
M-Akiba, the mobile-based bond, will no longer be traded on the secondary market as the Treasury revamps the product to eliminate windy transactions and commission-chasing brokers long blamed for its dismal performance.
The Treasury said a study commissioned by FSD Africa recommended a review of the M-Akiba trading platform to boost efficiency and eliminate costs such as broker fees.
“The National Treasury is currently undertaking M-Akiba issuance re-engineering process with the support of E-citizen Directorate to further deepen the Government securities at the retail level,” the Treasury said.
“The re-engineering process is intended to incorporate recommendations spelt out in the post-M-Akiba Issuance survey report while addressing the challenges therein.”
The study rooted for the elimination of the secondary market trading of the bond to remove the mark-to-market aspect that has been complicating the process of trading. In a secondary market, securities previously sold in the primary market are bought and sold. Investors can purchase these bonds from a broker, who acts as an intermediary between buyers and sellers.
Read: CBK cuts off brokers on new mobile bond trading platform
It recommended a more straightforward method of trading whereby investors only get back their principal if they sold the bond before the interest payment date and any accumulated coupon.
“This will eliminate the complexity of secondary market trading and the involvement of brokers who may not be liquidity providers, and may consequently reduce inherent market trading costs,” according to the study.
The study also recommended removing brokers from customer visibility during registration, redesigning customer messaging with an emphasis on building trust and using simple language that customers can understand easily.
The FSD Africa study further recommended a re-design of the M-Akiba user interface to provide simpler trade guidelines and also allow customers to make piecemeal savings into their accounts towards the Sh3,000 minimum investments.
It also recommended that customers be allowed to reinvest the interest income receives every six months. As it is, interest is paid through mobile money or bank account.
The Treasury said the restructuring of the retail bond programme is meant to shore up investment in government securities by retail investors and deepen financial inclusion.
Read: M-Akiba bond to be revived using Hustler Fund savings
“The introduction of these measures will democratise investment opportunities and improve efficiency and access in the government securities market,” the Treasury said.
The government launched the M-Akiba bond in June 2017, however the bond flopped partly as a result of poor timing, low understanding of the product, and weak customer care.
The bond was launched to raise Sh1 billion, with a green shoe option of Sh2.8 billion.
A green shoe option is a provision in an initial offering underwriting that grants the underwriter the right to sell more shares than originally planned.
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