M-Akiba Bond: What Muslims need to know

M-Akiba Bond: What Muslims need to know

After the National Treasury announced that Kenyans can now buy government securities direct from their mobile phones through the M-Akiba platform, many Muslims are now asking whether this product is lawful (halal) to them.

Muslim Times 3600 looks into the nuts and bolts of M-Akiba and brings out what one needs to know. 

A couple of weeks ago, the Kenyan government though the Ministry of Finance launched the much anticipated initiative dubbed M-Akiba, which initiative allows Kenyans to buy government bonds and securities straight from their mobile devices.

“The launch of M-Akiba bond will allow Kenyans to purchase government securities directly from the comfort of their mobile phones with a minimum investment of only Ksh3,000 ($31)  compared to the traditional minimum of Ksh50,000 ($530),” said Henry Rotich, the Cabinet Secretary for Treasury during the reading of the 2015/2016 national budget.

“This will allow Kenyans to enjoy significantly higher interest rates on government securities compared to the bank deposits through a convenient platform with low entry threshold.

Potential investors will only need a mobile phone line and a subscription to a mobile money service, which will enable telecoms operators open an electronic account with the Central Depository and Settlement Corporation (CDSC) or CBK on their behalf,” the CS added.

With M-Akiba, the government hopes to increase its capital base while at the same time helping potential investors that were previously locked out of investing in government debts to do so. To understand what this M-Akiba thing is all about, we need to start from the basics.

First and foremost, government securities are considered as risk-free investments. In this regard, government securities provide you with a return and/or a consistent source of income over a specified period of time. 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. There are two main types of government securities namely Treasury Bills and Treasury Bonds which are sold to the public through the Central Bank of Kenya.

Treasury bills are a short-term investment, with maturities of 91 days, 182 days and 364 days. 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.

If you’d like to purchase a Treasury bill, you must invest a minimum of Ksh100,000. Treasury bills are a secure, short-term investment, offering you returns after a relatively short commitment of funds. Treasury bill rates in Kenya are attractive, providing an excellent investment opportunity that is readily available, as they are auctioned each week.

The most important point to note is that Treasury bills are sold at a discount. This means that investors choose the amount that they will receive when the bill matures, or the face value of the bill, and pay less than that amount when purchasing it.

Individuals and corporate bodies can invest in Treasury bills as a nominee of a commercial bank or investment bank in Kenya, but if you hold a bank account with a local commercial bank you can also invest directly through the Central Bank and avoid additional fees.

Treasury bonds, on the other hand, 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 for a specified period of time, which is the bond’s maturity. With most bonds, investors will receive interest payments every six months throughout that period of time, and at the end of that period they receive the face value amount that they invested. If you’d like to purchase a Treasury bond, you must invest a minimum of Ksh50,000.

From the foregoing, it is clear that the principles of M-Akiba are not any different from the normal treasury bills or treasury bonds. The fact remains that one is lending the government some money and the conventional principles of lending to government remain in force.

The only difference is that the person buying the government securities through M-Akiba can transact business directly with the Central Bank through a mobile phone so long as he has opened a transaction account with the Central Depository and Settlement Corporation or the CBK itself. Another difference is that the minimum amount one can invest has been knocked down from as high as Ksh50,000 to as low as Ksh3000 for treasury bonds.

From the way it has been marketed, it is clear that M-Akiba is essentially an expanded invitation for the public to invest in Treasury bonds with a minimum investment of Ksh3000 down from a minimum of Ksh50,000.

For the Muslim investors, therefore, they need to know that interest is paid on government securities, whether or not the securities were purchased through the M-Akiba platform.

It, however, important to note that the only investment in securities that is halal to Muslims is investment in Sukuks. Sukuks are asset based securities (ABS) and not debt. According to Ms. Lyla Latiff of the Department of Commercial Law at the University of Nairobi’s School of Law, Sukuks as asset based securities represent ownership in a tangible asset, usufruct (temporary right; title to assets does not pass and the usufruct disappears on death or at the end of the term of years) of an asset, service, project, business or joint venture.

Based on Islamic principles— which principles include prohibition of interest, promotion of profit and loss sharing, prohibition of transactions that are uncertain and speculative— Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity. A sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the bond.

The main difference between bonds and sukuks is that; bonds don’t give the investor a share of ownership in the asset, project, business, or joint venture they support. Instead, they’re a debt obligation from the issuer to the bond holder. But sukuk gives the investor partial ownership in the asset on which the sukuk are based.

Besides, bonds can generally be used to finance any asset, project, business, or joint venture that complies with local legislation. But the asset on which sukuk are based must be sharia compliant, meaning that sukuk cannot be used to finance assets, projects, businesses or joint ventures that are prohibited (haram) according to Islamic law.

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