Treasury Bill, or simply T-Bill, is a paperless short-term borrowing instrument issued by the government through the Central Bank of Kenya to raise money on short term basis, which is a period of up to one year.
“Usually, when the government is in need of borrowing money, it borrows from the public by issuing Treasury Bills or Treasury Bonds. The kind of bills offered for bidding are classified under their maturity periods such as 91 days, 182 days and 364 days,” Francis Mwangi, an analyst at Standard Investment Bank Kenya says.
The Central Bank then issues the bills at either a discount or face value at a competitive auction on a weekly basis.
“At a discount means that the instrument is sold to an investor, at below the face value and then redeemed at maturity at the full face value. The difference between the discounted price and the face value determines the yield or interest earned,”
These interest rates are what has been luring people as they’ve been at as high as 22 percent despite the ranging difficult economic times.
The diminishing shilling (which is ranging at 103 to the dollar as I write this) has also pushed people into opting for safer methods of investing, which T-Bills offer.
“If you compare the interest rates offered by money markets and banks’ fixed deposit accounts among others, you will see that T-Bills have a much higher interest hence the rush to invest into them,”
But how exactly will you make money in case you opt to invest in T-Bills?
According to Central Bank’s website, investors must have a minimum face value of Sh100,000, with any other additional amount being in multiples of Sh50,000.
But while the quoted amount is Sh100,000, an investor can be offered a discount that could mean that they could buy the bills at a lot less.
“Let’s say you bought Treasury Bills worth one hundred but you were offered a discount enabling you to buy the bills at Sh93,000. This is where you make money as the government will give you back Sh100,000,” .
The government manages to offer such kinds of discounts to the public through the avenues they invest the rendered money into.
If you opt for the 91-Day Treasury bill, CBK will use the three month average rate, to adjust interest rates on loans and corporate bonds as economic conditions change. They will then add a certain number of percentage points, margins, which do not vary to establish the interest rate which it must pay to investors. Additionally, when the rate goes up, interest rates on any loans (for example T-Bills) or corporate bond tied to also go up. This therefore guarantees a return on the bills.
Mary Wainaina, a Nairobi resident and investor, says that she is reaping the benefits of investing in Treasury Bills and would advise others to follow her footsteps.
“T-Bills offer me better rates than what a majority of investment plans are willing to give me. They are also safe, meaning that my money is secure” she says.
And she is right, because of the backing of the government; T-Bills are quite safe to invest in as they have the government’s security.
If you therefore choose to trust Capital FM Business and invest into T-Bills, the process is quite easy.
Upon finding the government’s announcement of the weekly auction on national newspapers, invest in the simple methods that are now electronic.
You will however first be required to open an account with CBK from where the transactions take place.
“Central Bank however needs to work on the process of issuing a person with an account as it takes so long. This alone may deter people from investing,” explains Wainaina.
But she advises Kenyans collectively to get into investing in Treasury Bills, sentiments echoed by Mwangi; “I do advise Kenyans to invest in treasury bills as they are safe and relatively liquid. Unlike land whose liquidity is not immediate, T-Bills guarantee you a return in as little as 91 days.”
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