The Kenyan investment scene has various investment opportunities you can benefit from. These range from real estate to commodities and financial instruments of different types and risk levels. Since Kenya is one of the fastest-growing economies in Africa, your investments are bound to rise and give you good returns.
Among the safest financial instruments to invest in are treasury bills (T bills). These are short term investment instruments which are favored for being secure and getting reliable returns. They’re readily available as they can be bought every week from the Central Bank of Kenya.
What are Treasury Bills?
These are financial instruments offered by the government to raise money for its projects. The T bills are offered on a weekly basis whereby you can buy the 91-day, 182-day, and 364-day T bills from the Central Bank.
The names of these bills is based upon their maturity dates. As such, there are T bills that mature in:
- 91 days (3 months)
- 182 days (6 months)
- 364 days (12 months)
Basically, you buy the T bill of your choosing and receive your money plus the interest at the end of the designated period.
To benefit investors, T bills are offered at a discount from their face value. Investors will thus buy the bills by paying less than their actual value, then receive the actual value at the end of the chosen period.
Both individuals and companies are allowed to buy T bills whether they’re Kenyan citizens or not. For foreigners, they can only invest in these bills when nominated by an investment bank or commercial bank based in Kenya. Kenyan citizens with a bank account in Kenya have an easier process as they simply invest in these instruments through the CBK without additional charges.
Advantages of Investing in Treasury Bills
Investing in T bills in Kenya has various advantages among them the following:
1. They’re secure investments
T bills are among the most secure investments as they’re backed by the government. As they’re units of government debt, they’re guaranteed to be paid after the agreed period.
2. They’re offered at attractive rates
To entice investors, the government offers these bills at prices comparative to other investment instruments in the market. For example, their current rates of return range 6.498% to 8.785%. These are good rates for their short-term periods.
3. They’re short-term investments
As seen from above, the longest time you can wait for your returns is a year for T bills. Otherwise, you can have your gains as soon as 3 months after making the purchase. With guaranteed payouts, you can always have money in these instruments and easily access it whenever the need arises.
4. Weekly auctions
Besides giving you returns in periods of 3, 6 and 12 months, these bills are available every week for purchase. That means that, all year round, you can invest in them.
Disadvantages of Investing in T-Bills
All isn’t rosy with these bills however. Among the weak points of investing in treasury bills in Kenya and elsewhere include the following:
1. They have low yields
Being safe investments, T bills have some of the lowest returns when compared to other investments such as shares in companies. While you’re guaranteed of the gains, you have to forego high returns.
For this reason, it’s advisable to invest in T bills as a safety net rather than a source of money to build wealth.
2. The government may default
While far-fetched, the government operates like a very large company and may also default on its debt promises.
Every government has a debt ceiling. If the government borrows up to this cap, it may not meet its financial obligations for a given period. If this occurs, it may not mean you don’t get your money. It could only be a temporary delay at its worst.
Even with these issues, the T Bill remains one of the most consistent investments in Kenya.
How to Invest in Treasury Bills
Whether you’re an individual or a firm, the procedure for investing in these instruments is the same. The steps are as follows:
1. Open a CDS account
A CDS (Central Depository & Settlement) account is an account held with the Central Bank which enables you to trade in government-issued investments such as treasury bills and bonds.
A CDS account can be opened when you have an account with a local commercial bank. You’re then handed a mandate card to fill with your contact information. You also need to provide your commercial bank account details and two signatories from your bank as proof that indeed you hold an account with the bank.
Besides this information, your certified and stamped passport size photo should be provided with the mandate card. A copy of your identity document (ID, alien certificate or passport) should also be provided.
2. Choose your Preferred Treasury Bills
For the best returns, pick your treasury bills basing on their recent rates as it’s indicative of what you’re likely to earn.
The investments are made in denominations of Kshs. 50,000 with the lowest face value for each treasury bill being 100,000 Kenyan shillings.
When paying for your T bills, however, you don’t pay the whole amount as they’re discounted investments. The face value of 100,000 shillings, for example, is what you’ll get after the time period lapses. When buying them, you’ll pay less as per the interest rate.
3. Hand in the Application Form to the Central Bank
Fill out a Treasury bill application form detailing out the type of treasury bill you want, its issue number, face value, and other such details. Your personal details such as your name, ID number, telephone number, your bank details and CDS account number are also to be submitted.
A notable aspect about filling the application forms is that you have two options when selecting a rate. They’re the Interest/Competitive Rate and the Non-Competitive/Average Rate.
For the competitive rate, you choose the interest rates you wish to pay on your purchases. It falls upon the CBK to choose which interests rates it’ll pay and which ones it won’t. As such, choose the rate that’s the most reasonable to avoid before cut off from the list of rates the Central Bank is willing to pay.
If you go for the average rate, you’re guaranteed to receive an allotment of treasury bills by the CBK. However, the rate you get on these T bills will be the average weighted rate of the rates accepted in allocating T bills to the investors in the competitive rates. Also, the highest face value of the average rate applications is set to 20 million Kenyan shillings only.
You also need to read and fill in the rollover section. This section allows you to easily re-invest the gains you’ve made from your T bills into other government securities such as bonds and bills.
When done with the filling process, you’re to hand in the application form before 2pm on Thursday for the three types of T bills.
4. Check if your Application was Accepted
2 hours after submitting the applications, the Auction Management Committee (AMC), a branch of the CBK, meets to determine the allocation of the bills to the applicants and at what rate. Once decided, the committee will publish the results in the statistics page of the CBK website or in the daily newspaper.
The investor is then required to call or visit a branch of the CBK to find out if they were allocated T bills or not. If you’ve been allocated the bills, you’ll be needed to pay for them before 2 pm the next Monday. You can make payments through bankers’ checks or cash if your amount is 1 million shillings or less. If you’re paying more than that, a KEPSS transfer is required.
Care should be taken in this stage given that failure to pay for the bills after you’ve been allocated could see you get banned from future investments in all government investments.
5. Receive your Pay
After the period for your bills has lapsed, your CDS account will be remitted with the face value of the treasury bills you chose.
If you choose to re-invest the money into new securities, you need to apply for a rollover BEFORE the bills’ period lapses. In that case, your CDS account will only be remitted with the gains made on the first investment.
Beyond the treasury bills, there are other government securities you can invest in for reliable gains. If, however, you prefer higher gains than the government securities offer, the Kenyan economy has many other opportunities you can explore.