8 .

SNAPSHOT

By David L . Ross and Catherine Mandler - Statera Capital

How much is Transacted Using Mobile Money Each Year in East Africa ?

This month ’ s indicator figure is $ 63,575,367,410

$ 63,575,367,410 What ?

$ 63,575,367,410 USD or $ 63.6 billion USD is the total sum of money that was transacted in aggregate in a single year on mobile money platforms in the East African Community ( EAC ) countries . This corresponds to 46 % of the total GDP of the EAC in the most recent statistics available from 2015 ( excluding Burundi )..

What do you mean by transacted on mobile money platforms ?

Mobile money is defined as the transfer of funds using a mobile phone . Common East African platforms for mobile money include M-Pesa , TigoPesa , MTN Mobile Money , and others . The amount transacted relates to the total amount of money sent from one person to another using the most recent figures available .

Which EAC country has the largest and which has the least amount of money transacted via mobile money ?

Kenya , the pioneer of mobile money and the largest economy in East Africa has the largest volume of money transacted over mobile platforms at $ 28.7 billion USD and largest percentage of their GDP transacted over mobile money at 63 %. Tanzania comes in second at $ 24.1 billion USD transacted comprising 45.6 % of GDP followed by Uganda and Rwanda at $ 9.2 billion USD ( 21.1 % of GDP ) and $ 1.5 billion ( 8.1 % of GDP ) respectively .

How does the use of mobile money in the EAC compare to other regions of the world ?

The largest player in mobile money transaction volume is China where two platforms , WeChat Pay and Alipay with hundreds of millions of users utilize these platforms each month to conduct billions of dollars of transactions . The highest percentage use of mobile money in the world by population is Cambodia at 67 % which is followed by three EAC members , Tanzania , Kenya , and Uganda followed by Zimbabwe , Ghana , and Rwanda .

Is the use of mobile money increasing or decreasing ?

Mobile money transaction volume is increasing in size significantly as the economies of the EAC grow as well as mobile money ’ s share of GDP . In Tanzania for example , mobile money volume increased 31 % in the first six months of 2016 compared to a similar period the year before .

What is driving the growth of mobile money ?

Several factors make mobile money successful in East Africa which include demographic factors and service factors . Demographic factors include the large percentage of the population that is unbanked , the large informal sector of the economy , and the highly disbursed population throughout the region . Service factors include the relatively high cost of transportation to move physical cash , the high cost of remittances , the pervasiveness of mobile phone and service access , and market dominance by Kenya ’ s Safaricom or interoperability among mobile money platforms in Tanzania .

In summary , it is cheaper , faster and easier to send money via a mobile money platform than to journey over to someone ’ s location to pick up physical cash .

David L . Ross is Managing Director of Statera Capital and US Ambassador to the Open University of Tanzania active in growing companies in Eastern and Southern Africa through primary investment , investment advisory , strategic partnerships , and executive education . Connect on LinkedIn at https :// tz . linkedin . com / in / davidlross1 or at david @ stateracapital . com .

Catherine Mandler is a Senior Analyst at Statera Capital . Connect on LinkedIn at www . linkedin . com / in / CatherineMandler or at catherine @ stateracapital . com .

By Eugene Mwai - The Exchange

IMPACT OF RISING INTEREST RATES

ising or declining interest rates present a lot of uncertainties in any market . It expresses the expectations of the market-players towards weekly auctions by the government in the domestic and capital money markets . Whereas there is no scientifically fixed rate where short-term interest rates should be stabilized , most markets the world over have an internal optimal stable rate which is acceptable by all market players . Kenya uses the 91 , 182 and 364 days Treasury bill rate .

Effects on the cost of money Interest rates measure the cost of funds lent to any issuer be it a corporate entity or the government . This translates into the current rate of 91 or 182 days becoming the benchmark upon which other derivatives can result from . Most commercial banks fix their base lending rates to the Treasury bill rate . When interest rates move either way the resultant effect on the banks is to adjust their lending rates . When interest rates are low , the owners of capital have to also lower their lending rates . With the cost of money being cheap , more activities are likely to emanate which include funds borrowed to finance more productive activities in the economy . This is why every government strives to keep the level of shortterm interest rates low . The Central Bank of Kenya has of late been rejecting high bids during the primary auction of both treasury bills and bonds leading to stability of short-term interest rates at desirable levels . However to reap the maximum benefits of a low interest rate regime , inflation has also to be held in check in tandem with exchange rates to ensure that savers do not get negative yields .

Conversely , when interest rates are high , the market witnesses the money-lazing concept-- where owners of capital look for the easiest , cheapest and risk-free way to invest those funds . This leads to diversion of resources from being lent to the productive sectors to high- yielding short-term products . High interest rates also indicate a riskier market and as such investors price and load that opportunity cost on the issuer . With the advent of rising interest rates , we are likely to go back to the era of defaulting borrowers , eventually leading us to the cases of bad debtors . For instance , in the Kenyan market , there was an aggressive retailing of unsecured loan products from the commercial banks a few years back . The evaluation criteria have always been based on monthly salaries . Once the underlying borrowing rates change due to rising short-term interest rates most borrowers will not be able to cope because salaries are not adjusted upwards with rising interest rates .

Effects on government borrowing There is empirical evidence the world over that high interest rates lead to more investor appetite . What drives higher demand for government papers is the stability in the interest rates . This therefore means with a proper management of the levels of interest rates in any market , the supply and demand can be also managed . Rising interest rates tend to send signals to investors that more and better return is yet to come . As such , most investors postpone their investments leading to low demand for weekly Treasury bills .

Effects on the equity market Capital and money markets are both complementing and supplementing at the sometime . However , to investors , what matters most is the return achievable in any of those markets . If the return on capital market

TREASURY BONDS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Data Source : NSE Trading reports and CBK bond prospectus and Auction results .

MAY 2017

products like equities seems relatively very high than the money market , most institutional investors shift base . Therefore there is no doubt that as the interest rates keep creeping up , trading in equities remain subdued for some time .

Effects on bonds market Bonds ’ trading is entirely dependent on stable and predictable interest rates , to the extent that any disturbance in the stability can heavily discourage trading in the secondary market . The basic principal behind bonds ’ trading is the yield to maturity ( YTM ) concept which states that fixed income securities should be traded when priced to maturity . The remaining life of the bond has to be priced to the resultant yield in the market . By doing this , all the fixed income securities have to be marked or valued to current / existing market . This helps the bonds holder determine the worth of that investment at the existing prices . The prices of bonds are inversely related to the yield to maturity . This relationship commands all the primary and secondary market of the treasury securities . In a rising interest rates market , therefore , the value of the fixed income securities , particularly treasury bills and bonds tend to decline . This makes the holders to book losses on those investment which can easily be realized when those bonds are literally sold to third parties . In a scenario where interest rates are rising , bondholders would be booking huge losses . However , since no trader of bonds would wish to make loses when selling , trading at the secondary market comes almost to a halt .

The table below shows government fixed rate bonds that are listed at the Nairobi Securities Exchange and the indicative market yields and current market value . NB : not all bonds trade on a regular basis and therefore their respective yield to maturity is obtained through interpolation by using the benchmark bonds .

Issue No .

Date of Issue

Maturity Date

Coupon Rate

DISCLAIMER : Whilst every care has been taken in compiling the data the writer does not accept any responsibility for the accuracy or completeness of the information contained herein .