The Central of Kenya (CBK) launched the Central Securities Depository Dhow (DhowCSD), an infrastructure allowing traders in government securities in local, regional and international financial markets to transact electronically.
The system facilitates centralized custody of the securities and the secure updating of the status of transactions relating to them, thus eliminating barriers.
The upgrade of the CSD system to Dhow CSD is expected to increase efficiency in bidding and trading in Government securities, access to bonds market in Kenya and the diaspora, improve liquidity in the interbank market, and also distribution of liquidity in the banking sector.
The government believes that the platform will deepen the domestic capital market, and promote savings and investments, foster the growth and stability of the financial market.
The new system that is expected to deliver convenience, efficiency, and speed without compromising security does away with the manual process of opening a CDS account besides opening up access to the securities market to everyone, regardless of status. Invest in Government Securities
Government securities are considered risk-free investments and provide a return over a specified period—investors loan money to the government, which promises to repay them after maturity.
In Kenya, the National Treasury offers two types of government securities: Treasury bills and Treasury bonds.
Treasury bills are a short-term investment, with maturities of 91 days, 182 days and 364 days, according to CBK. 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.
Investors make money on Treasury bills because they are sold at a discount. For example, if you invest in a 91-day Treasury bill, you will pay less than the bill’s face value, but after 91 days, you will receive the full face value.
Treasury bonds are medium- to long-term investments, and their maturity can range from one year to 30 years. There are many different types of Treasury bonds, but their basic operations are similar.
Investors buying Treasury bonds are loaning the government money, a minimum of Ksh50,000, for a specified time, which is the bond’s maturity. With most bonds, investors will receive interest payments every six months throughout that time, and at the end of that period, they receive the face value amount that they invested.
Who can Invest
While commercial banks, corporate entities and pension schemes are some of the largest investors in government securities, individuals can invest directly through the Central Bank.
Before the launch of DhowCSD, those interested in investing in government securities were required to open a CDS account with the Central Bank.
Kenyans and foreign investors who meet these qualifications are free to invest in government securities directly with the Central Bank.
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. However, while opening a CDS account is free, commercial banks typically have fees associated with client accounts.
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.
Accessing Funds Before Maturity
Investors who need to redeem their securities before they mature can rediscount those securities as a last resort. The Central Bank will buy the securities back but do so at a punitive rate to discourage investors from doing this and recommends that investors hold their securities until maturity.
Treasury bonds are traded on the secondary market, giving bondholders the opportunity to receive money for their security without rediscounting. Treasury bills, however, are not traded on the secondary market. Both types of securities can be transferred to other parties.
Third-Party Claims
Suppose an investor passes away before all of their investments mature. In that case, third parties can claim the investor’s outstanding securities by submitting documents establishing that they should be the bona fide recipients of the securities.
