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Features  •  Banking

Noelle Acheson is a 10-year veteran of company analysis and corporate finance, and a member of CoinDesk's product team.

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to our subscribers.

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A country with rickety infrastructure and a reliance on agriculture could be poised to kickstart mainstream use of blockchain technology.

I'm talking about Kenya, where last month, the government issued infrastructure bonds – with a twist. They were only available via mobile phones.

In a world first, the general public had access to government debt via an app. The M-Akiba project (akiba is Swahili for 'savings') aims to: 1) broaden participation in public financing, 2) stimulate the savings rate, and 3) raise funds for infrastructure investment.

The target was $1.5m, with the minimum investment set as low as KSh3,000 (approximately $30). It was open to all Kenyans with an M-Pesa mobile money account – well­ over half the population.

The issue sold out two days ahead of schedule.

Blockchain sweet spot

As CoinDesk reported this week, the World Bank plans to formally support the project with research on, among other things, how blockchain technology could simplify the underlying platform.

The use case is appealing. A recent World Bank report pointed out that the two main weaknesses of the bond issue were: 1) the intermediaries between the Treasury and investors, each charging fees, and 2) the lack of a liquid secondary market for the bonds.

A blockchain platform connecting the issuer and the buyer could lower costs and enhance yields. And a blockchain-based secondary market could improve liquidity and make the investment more attractive to retail investors.

The Commonwealth Bank of Australia is also looking at the blockchain for issuing bonds, as are Japanese securities firm SBI and French bank BNP.

However, comparing M-Akiba to other bonds-on-blockchain projects is missing the point. This isn't about adapting a current system to a new technology – it's about bypassing the current system altogether.

In 2007, Kenya’s leading network operator Safaricom started offering M-Pesa mobile banking accounts to anyone with a Safaricom phone number.

For many, the choice wasn't between their current banking system and M-Pesa, it was between no banking system and M-Pesa. The lack of a strong infrastructure propelled Kenya into the lead position in global rankings of mobile money use.

A similar trend could be happening to public investment in government bonds.

While Kenya has one of the most developed bond markets in Africa, it's still relatively new. It is also dominated by foreign and local institutional investors. With a minimum investment of KSh50,000 and significant paperwork requirements, small retail investors are largely excluded.

Opening up

But that could soon change.

Offering a 10% tax-free return (almost double that on standard savings accounts) with a low minimum investment and easy inscription, the bond is likely to appeal to a broad demographic, from long-term savers to first-timers.

The April issuance was a trial, and the government is planning a much bigger tranche of KSh4.85bn ($48m) on the M-Akiba platform for June.

The World Bank research on the blockchain potential is part of a broader initiative, and will not be completed for some time. Meanwhile, the technology will continue to develop, gradually removing obstacles to implementation. And the experience in Kenya shows that the market is eager for a platform that directly connects issuer and investor, and removes access barriers.

If this takes off, it could herald a new form of public financing and private savings.

The system could end up expanding, not only to other countries, but also other sectors, bringing in private issuers and offering the public an even broader choice of saving and investment vehicles. If users get accustomed to parking their money with bond issuers accessed via easy-to-use apps on their phones, this could change how they view banking. And, as such, it could change the banking industry.

The irony is that a country with a relatively unsophisticated financial infrastructure could end up kickstarting a fundamental reform that might achieve what higher-profile and better-funded projects have yet to pull off: putting the blockchain in the hands of the man on the street. And in the process, improving public finances and private wealth.

Elephant road sign image via Shutterstock

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