HK and Pundit Explain M-Akiba for me

[Omollo]

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You two could hardly hide your celebration of M-Akiba. I am not yet done reading all the nice things you said about it. I was about to buy in to it recently when my bank stopped me. My bank manager called me a zillion times as he had stopped paying out a huge cheque I gave a broker ( a former High School fella with an exaggerated love for mercantilist interests)  to buy for me.

Based on what the Bank Manager told me, here is my simple question:

The interest rate is 8.8% yet the inflation rate is now at 11.5% and rising. Is there any real value for a buyer of these bonds?

He said something like: The government is basically getting free man at best and at worst stealing from the poor. Now this is a statement I want to hear from HK and Pundit about how I can refute it. We can not have bank managers telling potential investors to stay off Jubilee innovations founded on the promise of The Digital Age, can we?

I wonder if MoonKi is anywhere near to weigh in on this and help us save our country from the slander of bank managers and other mercantilist junkies!
 

[hk]

You two could hardly hide your celebration of M-Akiba. I am not yet done reading all the nice things you said about it. I was about to buy in to it recently when my bank stopped me. My bank manager called me a zillion times as he had stopped paying out a huge cheque I gave a broker ( a former High School fella with an exaggerated love for mercantilist interests)  to buy for me.

Based on what the Bank Manager told me, here is my simple question:

The interest rate is 8.8% yet the inflation rate is now at 11.5% and rising. Is there any real value for a buyer of these bonds?

He said something like: The government is basically getting free man at best and at worst stealing from the poor. Now this is a statement I want to hear from HK and Pundit about how I can refute it. We can not have bank managers telling potential investors to stay off Jubilee innovations founded on the promise of The Digital Age, can we?

I wonder if MoonKi is anywhere near to weigh in on this and help us save our country from the slander of bank managers and other mercantilist junkies!
 

This is a dumb lie. M-akiba isn't traded via  a broker. M-akiba buying and selling is strictly via mobile phones by using USSD *889#. So there was no broker and a cheque for "substantial amount" flossing  .The bank manager who"supposedly stopped" the cheque needs to take investing 101 class. The M-akiba is tax free unlike the  T-bills meaning it yields better return than other bonds. Investors are indicating that the core inflation is going down after the spike due to drought. If the yield has come down from 10% to 8.8% it means investors are piling up to buy in the secondary market. No wonder treasury is refusing to accept high yield T- bill. The next tranche of $1.5b might be lower than 10% meaning M-akiba is working perfectly by lowering cost of government debt. This inturn will lower the CBR rate which eventually will lead to lower interest rates for everyone.

[Omollo]

HK

You have again dodged the question while trying to speculate (will return to that).

If one is getting an interest of 8.8 but the inflation is 11.5. what is the real profit. I can understand that you wish to interpret why the interest is low. Thank you for that but that is not what I asked. You are an economist, so you say, not a Jubilee propagandist, right?

What makes you think I would invest in Akiba or any other GoK thing under my own name? Not when they are throwing me out of sites, collecting IPs etc. You read Pundit claiming to know where I come from. He just din't reveal that he used fake information from choo.com - a fake email I planted after being advised that the NIS was collecting such information. Giving them my phone number would be suicide. I consider your Jubilee government a gang of mass murderers. I consider it my patriotic duty to see them in Kamiti.

• The M-akiba is tax free unlike the  T-bills meaning it yields better return than other bonds.: How much beyond the 8.8% ?
  
• The bank manager who"supposedly stopped" the cheque needs to take investing 101 class. : I have explained his reasoning. So far apart from hurling matusi at him, you have not contradicted what he said and that is: the 8.8% would be eaten up by the inflation at 11.5 making it an underwater investment. I am waiting for your explanation of how I still make profit even after inflation.

• If the yield has come down from 10% to 8.8% it means investors are piling up to buy in the secondary market.: This is speculation not backed by any evidence. Plus, just because people are rushing to buy does not mean they are profitable. case in point: Safaricom shares were over-subscribed only to tank for several years. In fact Kenyans have a very good record of over-subscribing to unprofitable investments
  

  This is a dumb lie. M-akiba isn't traded via  a broker. M-akiba buying and selling is strictly via mobile phones by using USSD *889#. So there was no broker and a cheque for "substantial amount" flossing  .The bank manager who"supposedly stopped" the cheque needs to take investing 101 class. The M-akiba is tax free unlike the  T-bills meaning it yields better return than other bonds. Investors are indicating that the core inflation is going down after the spike due to drought. If the yield has come down from 10% to 8.8% it means investors are piling up to buy in the secondary market. No wonder treasury is refusing to accept high yield T- bill. The next tranche of $1.5b might be lower than 10% meaning M-akiba is working perfectly by lowering cost of government debt. This inturn will lower the CBR rate which eventually will lead to lower interest rates for everyone.
  
  

[hk]

HK

You have again dodged the question while trying to speculate (will return to that).

If one is getting an interest of 8.8 but the inflation is 11.5. what is the real profit. I can understand that you wish to interpret why the interest is low. Thank you for that but that is not what I asked. You are an economist, so you say, not a Jubilee propagandist, right?

What makes you think I would invest in Akiba or any other GoK thing under my own name? Not when they are throwing me out of sites, collecting IPs etc. You read Pundit claiming to know where I come from. He just din't reveal that he used fake information from choo.com - a fake email I planted after being advised that the NIS was collecting such information. Giving them my phone number would be suicide. I consider your Jubilee government a gang of mass murderers. I consider it my patriotic duty to see them in Kamiti.

• The M-akiba is tax free unlike the  T-bills meaning it yields better return than other bonds.: How much beyond the 8.8% ?
  
• The bank manager who"supposedly stopped" the cheque needs to take investing 101 class. : I have explained his reasoning. So far apart from hurling matusi at him, you have not contradicted what he said and that is: the 8.8% would be eaten up by the inflation at 11.5 making it an underwater investment. I am waiting for your explanation of how I still make profit even after inflation.

• If the yield has come down from 10% to 8.8% it means investors are piling up to buy in the secondary market.: This is speculation not backed by any evidence. Plus, just because people are rushing to buy does not mean they are profitable. case in point: Safaricom shares were over-subscribed only to tank for several years. In fact Kenyans have a very good record of over-subscribing to unprofitable investments
  
  

The 8.8% yield is what is trading at in the secondary market. The yield annual is still 10% if you hold the bond for at least an year. M-akiba yields better return than kawaida t-bills of 13%, why because t-bills is taxed 15% withholding tax.  The 11% inflation is monthly not annual by years end the average will be much lower as food prices drop. So the investment will not be underwater. Bonds are mainly a savings instrument so one should compare bonds yields with fixed accounts earnings. The stuff about NIS its just laughable but understandable people have a tendency of seeing a bogeyman behind everything. 

[MOON Ki]

The 8.8% yield is what is trading at in the secondary market. The yield annual is still 10% if you hold the bond for at least an year. M-akiba yields better return than kawaida t-bills of 13%, why because t-bills is taxed 15% withholding tax.

I'm no economics expert, so I need some enlightenment on this one. Using my Std. 4 arithmetic:

0.13 - (0.15 * 0.13) = 0.1105

And 11.05% sure looks better than 10%.  I'm not a Big-Investment type, but I'd be looking at things like that.

What have I missed?

Also, I am no tax expert, but I am inclined to distinguish between "withholding tax" and the tax that one actually pays.  I can imagine a scenario in which tax is withheld but one ends up with a refund and a scenario in which no tax is withheld but one ends up paying tax.    That is, that whether one actually pays tax---and how much---on T-bill returns, M-Akiba returns, etc. is not determined "tax withheld" and "tax free" and whatever. But perhaps that is just my imagination, and I'm sure the tax experts here will soon set us straight.   

[MOON Ki]

I wonder if MoonKi is anywhere near to weigh in on this and help us save our country from the slander of bank managers and other mercantilist junkies!

What gives you the idea that Kenyans wish to be saved from anything?

[RV Pundit]

And just to add to HK robust answer - when you talk about inflation - are talking annual underlying inflation or inflation including the price of Ugali(food inflation) - you want to watch the annual underlying inflation. I think annual inflation now is 7.8% according to CBK.

Is M-Akiba a good deal - of course - which explain why it was oversubscribed.

[hk]

The 8.8% yield is what is trading at in the secondary market. The yield annual is still 10% if you hold the bond for at least an year. M-akiba yields better return than kawaida t-bills of 13%, why because t-bills is taxed 15% withholding tax.

I'm no economics expert, so I need some enlightenment on this one. Using my Std. 4 arithmetic:

0.13 - (0.15 * 0.13) = 0.1105

And 11.05% looks better than 10%.

What have I missed?

Also, I am no tax expert, but I am inclined to distinguish between "withholding tax" and the tax that one actually pays.  I can imagine a scenario in which tax is withheld but one ends up with a refund and a scenario in which no tax is withheld but one ends up paying tax.   

I stand corrected ,  the  1yr t-bills annual rate is 10.8%  not 13%. And yes withholding tax can be offset with other paid taxes but I am no tax accountant.

[MOON Ki]

I stand corrected ,  the  1yr t-bills annual rate is 10.8%  not 13%. And yes withholding tax can be offset with other paid taxes but I am no tax accountant.

Even then, the comparison should be between the 10.8% and the 10% of M-Akiba.   If the Kenyan tax system operates in a normal way, then there is nothing like "tax-free" M-Akiba returns: people will still have to declare whatever they have raked in, and the taxman will then determine a tax (after looking at the total income for the year in question).  Whether or not tax is "withheld at the source" is an entirely different matter from the actual tax obligations.

[gout]

Investment options by profitability/appreciation/benefits
Plots
Saccos (They have fuelled the real estate as many financial commentaries talk of money laundering)
Treasury Bills/M Akiba
NSE
Insurance/ Bank fixed deposits

For simplicity, 10% return means doubling your investment in 10 years. In real sense reinvesting the interest makes the growth of the investment even faster.

[hk]

I stand corrected ,  the  1yr t-bills annual rate is 10.8%  not 13%. And yes withholding tax can be offset with other paid taxes but I am no tax accountant.

Even then, the comparison should be between the 10.8% and the 10% of M-Akiba.   If the Kenyan tax system operates in a normal way, then there is nothing like "tax-free" M-Akiba returns: people will still have to declare whatever they have raked in, and the taxman will then determine a tax (after looking at the total income for the year in question).  Whether or not tax is "withheld at the source" is an entirely different matter from the actual tax obligations.

I am not sure I understand your argument. M-akiba interest accrued is tax free, the yield aren't taxed and shouldn't be declared while filing income tax. However T-bills yield is taxed 15% witholding tax that is part of income tax. To offset or claim it one  has show that their income is lower than tax withheld, if no income is filed its normally treated as minimum income tax. It was instituted mainly to capture foreign investors who don' have any other local income, they are also the main players in the debt market.

[Omollo]

I thought voodoo economics died with well, Ronald Reagan. Looks like it is alive and well under Uhuru cheered on by HK and Pundit.

People investing their money in M-Akiba whether the interest is 8.8 or 10% are losing purchasing power as long as inflation is higher than the  interests earned on the savings. I don't even know where to begin to argue and spin about that.

We had this scenario in the Moi days when Treasury bonds were attracting huge interests. I know people who rushed down to buy and they were very proud. Those who bought one year bonds saw the Moi government honour its pledge and pay out promptly.

The trick came when they tried to repatriate their loot and found the dollar had long appreciated. Some tried to invest locally and found their purchasing power had declined as the money sat with Moi.

Pundit talks of the annual underlying inflation yet Akiba matures every six months. Since Akiba was launched the monthly rate has remained above 9 (February - 9.4, March - 10.28, April - 11.48). There are indications it will only grow upwards. Unless there is a voodoo system somewhere, the so called Annual Underlying inflation, is determined by among others the CPI.

I will not even extend the tax concerns to this (already raised by Moon Ki). The investment is already under water ab initio

This is a fraud perpetuated by the Jubilee government against the poor of Kenya. A responsible government should have ensured that the M-Akiba interests rates were above the inflation rate. That way it would not be complicit in eroding the purchasing power of it citizens then paying under water interests and encouraging them to resubscribe. 

[RV Pundit]

Nobody is forcing you to buy M-Akiba. GoK which has never defaulted can get loan at 5% from Eurobond or China. So Treasury is doing you a big "favour". If you know other investment that can make more returns - feel free to park your cash there. Bonds are safe destination for keep your money afloat - not really a way to make lots of money. It just better than deposit them in a bank and getting 4% deposit rate.

I thought voodoo economics died with well, Ronald Reagan. Looks like it is alive and well under Uhuru cheered on by HK and Pundit.

People investing their money in M-Akiba whether the interest is 8.8 or 10% are losing purchasing power as long as inflation is higher than the  interests earned on the savings. I don't even know where to begin to argue and spin about that.

We had this scenario in the Moi days when Treasury bonds were attracting huge interests. I know people who rushed down to buy and they were very proud. Those who bought one year bonds saw the Moi government honour its pledge and pay out promptly.

The trick came when they tried to repatriate their loot and found the dollar had long appreciated. Some tried to invest locally and found their purchasing power had declined as the money sat with Moi.

Pundit talks of the annual underlying inflation yet Akiba matures every six months. Since Akiba was launched the monthly rate has remained above 9 (February - 9.4, March - 10.28, April - 11.48). There are indications it will only grow upwards. Unless there is a voodoo system somewhere, the so called Annual Underlying inflation, is determined by among others the CPI.

I will not even extend the tax concerns to this (already raised by Moon Ki). The investment is already under water ab initio

This is a fraud perpetuated by the Jubilee government against the poor of Kenya. A responsible government should have ensured that the M-Akiba interests rates were above the inflation rate. That way it would not be complicit in eroding the purchasing power of it citizens then paying under water interests and encouraging them to resubscribe. 

[Omollo]

Nobody is forcing you to buy M-Akiba. GoK which has never defaulted can get loan at 5% from Eurobond or China. So Treasury is doing you a big "favour". If you know other investment that can make more returns - feel free to park your cash there. Bonds are safe destination for keep your money afloat - not really a way to make lots of money. It just better than deposit them in a bank and getting 4% deposit rate.

Brother Pundit

This is not about Omollo.

Because of my day job, I have no idea where I have invested. Will know when I quit or retire.

The M-Akiba thing was merely to help out someone and from my experience such "investments" in Kenya simply get lost. The day you turn up and ask about it, the excuses alone weigh a ton and a half. I have previously "invested" in pyramid schemes which at the time I was being nagged for the cash I pointed out these were ponzi schemes to no avail. So I am used to that and never have any expectation of getting returns. I am reliably aware that I am not alone being told about the wonders of the latest ponzi scheme in Kenya. I had nearly forgotten that there is one or two Ponzi schemes every election year since 1992 !!!

BUT it opened my eyes to the nature of the fraud being perpetuated by Jubilee.

I think it were better if they continued borrowing from China, themselves and drug lords (syndicated loans) rather than cheating the poor out of their savings. Poor people are extremely trusting but small losses change their lifestyle in ways that shock. A good number die! I know this. I have witnessed suicides around the globe.

But then Pundit reminded us that Ruto's path to power requires that he be "ruthless". Makes sense.

[Omollo]

I find it necessary to BUMP this thread and invite HK to apologize.