Overview: Kenyan money market

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Kenya has one of the fastest growing money markets in the region. PHOTO/FILE
The money market refers to financial institutional arrangements which deal with short-term borrowing and lending with original maturities that range from one day to one year.

Money market investments in Kenya mainly involve trading in Treasury Bills and Bonds which are sold by the government to meet its funding needs.

Treasury Bills
Treasury Bills are paperless short-term borrowing instruments sold by the Central Bank of Kenya (CBK) on behalf of the government to raise funds on short term basis – 3 months (91-Day Treasury bill) or six months (182-Day Treasury bill).

Treasury Bills are sold at a discounted price and the investor receives payment of face (par) value on maturity date.

CBK floats treasury bills on a weekly basis – with 91 days and 182 days bills being issued in alternate weeks – through an auction which determines the interest rate based on the bids received.

Potential investors should be:
1.) Resident or non-resident persons or organisations that hold an account with a Kenyan commercial bank.
2.) Resident or non-resident persons or organisations that have a CDS Account with CBK.
3.) Resident or non-resident persons or organisations that invest as a nominee of a commercial bank or a local investment bank.
4.) Able to raise a minimum face value of Sh100,000. Note: Any additional amounts must be in multiples of Sh50,000.

Investors must complete Treasury Bills application forms and submit them to CBK (or branches- Mombasa, Eldoret and Kisumu) on or before 2.00pm on Thursdays. Application forms are available at the CBK head office in Nairobi, its branches and the CBK website.

Treasury Bonds
Issued monthly, Treasury Bonds are medium to long term borrowing instruments sold by CBK on behalf of the government to raise funds for a period of more than one year.

Treasury Bonds that have been issued so far have maturities ranging from one year to 25 years. They include Zero Coupon Bonds, Fixed Coupon Bonds, Infrastructure Bonds and Floating Rate Bonds.

Zero Coupon Bonds and Fixed Coupon Bonds are the commonly issued bonds as they have huge investor demand.

a.)  Zero Coupon Bonds do not have fixed interest and investor’s return is the discount amount equivalent to the yield quoted. They usually have shorter maturity periods and are mostly taken up by commercial banks.

b.)  Fixed Coupon Treasury Bonds do not have fixed coupon (semi-annually interest based on the face value held during the life of the bond) and the investor benefits from discount which is very essential for secondary market trading and regular interest payment.

c.)  Infrastructure Bonds is used to fund an infrastructural project that is usually specified in the prospectus.

d.)  Floating Rate Bonds pay a semi-annual interest based on a benchmark rate, e.g. average rate of 91-days or 182-days Treasury Bill plus some margin.

Potential investors should be:
1.) Resident or non-resident persons or organisations that hold an account with a Kenyan commercial bank.
2.) Resident or non-resident persons or organisations that have a CDS Account with CBK.
3.) Resident or non-resident persons or organisations that invest as a nominee of a commercial bank or a local investment bank.
4.) Able to raise a minimum face value of Sh50,000, except for infrastructural bonds whose minimum face value is Sh100,000.

Investors must complete Treasury Bonds application forms and submit them to CBK (or branches) on or before 2.00pm on Tuesdays of the last week of bond sale.