Governments run on taxes to pay for services offered and to set up public infrastructure development projects like roads. Sometimes, however, taxes collected are not enough and the government is forced to borrow either from donor funding, development banks, other countries but also from the public in form of government securities.

In Kenya, the National Treasury offers two types of government securities: Treasury bills (T-Bills) and Treasury bonds (T-Bonds).

Investors who buy these securities are loaning money to the government, which promises to repay those investors after a specified period of time, called maturity.

“Treasury bills are a short-term investment, with maturities of 91 days, 182 days and 364 days,” the Central Bank of Kenya says in their website.

“This means that if you invest money in a Treasury bill, you will receive that money back within three months, six months or one year, depending on the bill you choose.”

On the other hand, treasury bonds are medium- to long-term investments, and their maturity can range from one year to 30 years.

“T-Bills and T-Bonds are probably some of the most secure investment options, and you don’t have to worry about politics affecting them, even when government changes, they are safely managed by the Central Bank,” says Larry Liza, an Economist and Director at the World Customs Organization. “Once you register an account with the Central Bank of Kenya, you are good to go.”

T-Bills and T-Bonds are considered as risk-free investments. They provide you with a return and/or a consistent source of income over a specified period of time.

Treasury bills are auctioned each week, providing consistent investment opportunities, and usually attract competitive returns of between 8%-12%.  It is important to note that minimum investment is usually Kshs.100,000 and interest payment is only paid when your bill matures.

The Central Bank then issues the bills at either a discount or face value at a competitive auction weekly.

“At a discount means that the instrument is sold to an investor, at below the face value, and then redeemed at maturity at the full-face value. The difference between the discounted price and the face value determines the yield or interest earned,” reads CBK’s website.

“What this means is that if you bought Treasury Bills worth Kshs. 100,000 but you were offered a discount enabling you to buy the bills at Kshs. 92,000. This is where you make money as the government will give you back the entire Kshs.100,000,” says Churchill Ogutu of Genghis Capital.

A back-of-the-envelope calculation shows that at 12% if you invest Kshs. 100,000, you’ll make Kshs. 12,000 in a year. 

“Of course the government will deduct a small percentage as withholding tax, but this is still higher than what you’d get if you had the same amount in a bank account,” says Leonard Wanyama, a consultant at the East African tax and Governance Network.

On the other hand, treasury bonds are auctioned every month, providing ample investment opportunities for diverse financial needs. And they are usually tax-free.

“Most Treasury bonds carry semi-annual interest payments, allowing investors to receive returns every six months,” says CBK on their website.

So, how do you invest in these government securities?

“Investing in government securities is a simple process that you can undertake through the Central Bank directly or through a commercial bank or an investment bank,” The Central bank of Kenya says.

Anyone can lend to the government, as long as you’re of age.

“If you’re interested in investing in government securities you must have a bank account with a commercial bank in Kenya, and you must open a CDS account with the Central Bank,” Mr. Liza says. “However, those who do not wish to open a CDS account with the Central Bank can still invest by opening a client account with their commercial bank, which will invest on their behalf.”

Both Kenyans and foreign investors who meet these qualifications are free to invest in government securities directly with the Central Bank.

“Kenyans living abroad can invest in government securities as long as they have an active Kenyan bank account. They can open a CDS account and submit all required forms to the Central Bank via email,” The Central Bank clarifies.

Historically, over 98% of the uptake in government securities has been by foreigners and local institutional investors, insurance firms, as well as pension and provident funds with only two percent going to individual investors. This has locked many Kenyans from making money on the bond market and also from contributing to nation-building.

In 2015, the CBK under the National Treasury in collaboration with Nairobi Securities Exchange (NSE), Central Depository Settlement Corporation (CDSC), Mobile Network Operators, and Kenya Association of Stock Brokers & Investment Banks (KASIB) partnered to launch M-Akiba— a retail infrastructure bond with a fixed interest of 10% per year.

Through M-Akiba, you can invest in government securities from as low as Kshs. 3,000.