For a better return on your savings invest in Treasury Bills and Treasury Bonds
Treasury Bills and Treasury Bonds are instruments of saving available to savers who have more than KES 50,000/= to save on a long or short term basis. These are issued by the Central Bank of Kenya [CBK] and are generally secure investments (backed by the Government) and attract interest rates which are generally higher than what the commercial banks offer with an added benefit – the withholding tax rate is usually 10% (instead of 15%). In case the money invested is needed before the maturity of the Bill or Bond, it can be sold on the Nairobi Securities Exchange (sometimes at a discount).
When commercial banks have gone leaps & bounds to embrace the internet technology for banking transactions, it is surprising that our Central Bank has not introduced on-line transactions.. True, they have a pretty informative website. However, subscribing to Treasury Bills or Treasury Bonds is quite in-efficient. This is a regular exercise and now that the minimum subscription amount is only KES 50,000/=, I am sure there are many subscribers and they would benefit tremendously from transacting on-line via the web. In fact I think more people would actually start subscribing if only CBK would make it easier using the current available technology.
This is how it currently works…
- For anyone who wishes to transact in Treasury Bills or Bonds, a Central Depository & Settlement [CDS] account needs to be established – purely a manual exercise requiring various forms to be filled and identification documents submitted and attending a personal interview with an official of CBK.
- Once the CDS a/c is established you can start bidding on the offers announced by CBK from time to time on their website and in the local newspapers. An application form (downloadable from the Bank’s website- which is useful and a time saver) has to be filled in manually and deposited in the appropriate collection box at any of the CBK’s branches physically by the closing date (which is generally Tuesday of the week). Confidentiality is also lost as the form cannot be placed in an envelope.
- After this the auction bids are evaluated by CBK. The results take 2 days. Given the time taken, it is reasonable to assume that this is done manually. Even if software is used to calculate the results, the information must be fed into it manually (as the forms are all manual) and checked for integrity of the input data.
- The results of the auction are communicated (generally on Fridays) to the applicants via letters which need to be picked up from the CBK branches physically.
- You have till the following Monday to remit the funds to CBK -which is one working day (Friday afternoon & Monday morning).
How can it be made easier?
I am quite certain that more savers, especially who are not near the CBK Branches or Currency Centers would invest if just a few changes are made to the system:
- Establishing of a CDS a/c can easily be done on the web with a fill able form (KRA is already accepting Income Tax Returns on line!). Documents certified by Bankers or Notary Public sent separately by mail should be sufficient and there should be no reason for a personal interview.
- Bids should be taken on line by CDS a/c holders logging in with their passwords. All the bids would be recorded on a database directly so manual inputs of the bids can be minimized to those who do not use the on-line system. Database would indicate manual form status. In fact just like KRA’s customs dept., why can’t transactions be restricted via on-line system only?
- A program to calculate the results based on the information from the database should not be a complicated affair.
- As soon as the results are declared, an email / sms can be sent to the bidders. This would be done automatically via the database.
- If on-line system is used, bids closure can be by Friday, processing of the bids can be done over the weekend (by the computer) and results verified on Monday and published and communicated on Tuesday, giving the applicants till Friday to remit (more than 2 full working days).
The technology is available. All we require is for CBK to embrace it. This will attract more individual savers who will get a better return on their savings. As a by-product, the process will drive down the cost of government borrowing, leaving more funds for the development budget.
Related : Fixed income investments