Kenya: Individual Investors Raise Public Debt Stake by 41%

The Central Bank of Kenya (CBK) is set to pay the government a dividend of Sh2.5 billion on the agency’s performance in the year ended June. FILE PHOTO | NMG

Individual investors and private firms have raised their investment in government debt by nearly half since the beginning of the current fiscal year, pointing to the growing popularity of bonds as an investment option among Kenyans.

Central Bank of Kenya’s latest data on holders of domestic debt shows that the class of investors comprising saccos, listed and private companies, self-help groups, educational institutions, religious institutions and individuals have raised their holdings of state debt by 41 per cent or Sh57 billion since July 1, to Sh194.9 billion.

The total stock of government domestic debt stood at Sh3.57 trillion as at April 9.

During the Covid-19 economic downturn, investors have increasingly turned to fixed income investments—mainly government bonds—in search of returns due to the poor performance of other investment classes.

The securities are paying interest rates ranging from 7.1 per cent on the shortest tenor to 13 per cent for long-term paper, which is well above the average returns from the stock market and bank deposit rates.

Lending to government has for a long time been associated with large institutional investors such as banks and pension funds, which have the advantage of aggregating funds and are thus able to bid large amounts.

Other investors such as self-help groups and investment clubs had been more active in the equities market in the past, but with the NSE currently in a prolonged bear run, they have been turning their attention to the bonds market.

The pace of new lending to government by these investors relative to their outstanding amount at the beginning of the fiscal year in July 2020 has therefore outstripped that of pension funds, insurance firms, banks and parastatals.

Insurance firms have grown their lending to government by 22.2 per cent to Sh234.9 billion, while pension funds have seen their debt holding go up by 17.7 percent to Sh1.09 trillion.

Parastatals have grown their outstanding government debt portfolio by 8.9 per cent to 198.2 billion, while that of banks is up by 6.6 percent to Sh1.86 trillion.