Blog – Page 5 – Rubiani Wealth Management Ltd.

4Apr, 2024

7 Ideas to Build Your Passive Income

cartoon-of-man-on-vacation-with-money-raining-upscaled

Passive income is the income you make with little of your effort or time put in. In other words, it is money working for you. Developing your stream of passive income is important for several reasons. Firstly, passive income will increase your cash flow and thereby increase your purchasing power. Passive income will also have the potential to grow exponentially as it is not limited by your time or effort. Understanding passive income is therefore key to growing real wealth. Finally, it’s important to develop passive income as you age. You may not have the energy to work as agile as you did before and at that time, you want to have your money working for you instead.

There are many opportunities for you to develop your passive income. In this blog, we will look at 7 of these ways.

1. Real Estate – Real estate includes land and buildings. Rental property is ideal for passive income. If you are looking to develop your rental property, identify a location with a high renters population and with reasonable land prices to maximize your returns. You can also purchase houses or office space to rent out. Centum, Tsavo Properties www.tsavo.ke and The Epic Properties Ltd develop small unit houses (bed-sitters and one-bedroom) targeting investors seeking to make rental income.

Advantage – Rental income from real estate protects you against inflation by hiking rent as standards of living rise

Disadvantage – Developing rental property is usually expensive. Furthermore, if you are developing the property yourself, land ownership and developing the property can be hectic especially if you are not experienced.

2. Treasury Bonds – These are government instruments that allow you to invest long-term with a reasonable return of investment of between 9 – 14% per year. You receive interest every 6 months for the term of the treasury bond and at the end of the term, you receive back your investment.

Advantage – High, long term and hustle-free passive returns. Also, long Treasury Bonds of over 20 years (Infrastructure bonds), are tax-free. Treasury bonds are also easy to liquidate (through the NSE) if you wish to sell before the end of the term. They are also affordable at a minimum of Ksh 50,000.00

Disadvantage – The income from Treasury Bonds is not inflation-sheltered and your income remains constant throughout the term of the bond

3. Wealth Management / Cash Management Product - This is an investment opportunity provided by fund managers whereby investors lock funds for periods of 3 months, 6 months or 1 year and receive interest from their investment in agreed-upon periods. The minimum investment is Ksh 1,000,000.00

Advantage – It gives you more control of your funds as topping up and withdrawing funds is easy. You can also arrange with your fund manager to receive your interest every month.

Disadvantage – The interest rate keeps fluctuating with market performance so mid to long-term earnings prediction is impossible.

4. Income Earner and Annuities - Insurance companies also provide products for passive income. You give a lump-sum amount to the insurance company and in return receive a predetermined amount of income every month for a specified amount of time.

Advantage – Monthly income ideal for retired senior citizens

Disadvantage – The returns on your investment are not competitive

5. Private Equity – Private equity is owning a part of a private company that you are not involved in the day-to-day running. You therefore earn dividends based on the performance of the business. You can directly negotiate ownership in a business in exchange of capital funds or go through private equity companies that give you access to businesses needing funding partnerships. If you are a business owner, you can create systems and processes and hire people so that your business can operate without your active involvement. This way, you can convert your business into a source of passive income.

Advantage – Opportunity for exponentially growing wealth.

Disadvantage – Long-term passive income is not guaranteed as you are exposed to business risks including losses and closure

6. Royalties and Residue Income Opportunities – Royalties are the money paid for the use of intellectual property. It includes payment for a franchise and payment for the use of copyrighted content. Software developers and artists such as musicians can continue earning from their intellectual content many years after production and thus passive income.

Advantage – Depending on the value and uniqueness of the intellectual property, it can be quite profitable.

Disadvantage – Income will usually dwindle over time and therefore not a reliable long-term source of passive income

7. Residue Income – Residue income is income that you continue earning long after you have made a sale. Opportunities such as the sale of insurance and investment products, internet affiliates and agency commissions provide residue income -- as long as the client continues to renew the service.

Advantage – You do not need funds to generate this type of passive income flow but rather your sales skills and networks.

Disadvantage – Long-term passive income is dependent on renewals thus requiring some level of customer service input to maintain income.

We hope that this list will help you as you think through developing your streams of passive income. Please feel free to revert with comments or enquiries by writing to us at invest@rubianiwealth.com.

2Apr, 2024

How to Invest in the NYSE and NASDAQ from Kenya

Stock market chart on virtual screen with woman’s hand digital remix

Investing in the New York Stock Exchange (NYSE) and the NASDAQ exchange is a great way to diversify your portfolio and gain exposure to some of the world's largest and most successful companies. However, for us living in Kenya, the process can seem daunting. Fortunately, with these few simple steps, investing in the NYSE and NASDAQ from anywhere in the world is possible.

First, you'll need to open a brokerage account with a firm that allows international investors to open accounts. Some popular options include Interactive Brokers, TD Ameritrade, and eTrade. Be sure to check that the firm is reputable and regulated and that it offers access to the markets you're interested in investing in.

Once you've opened your account, you need to transfer funds into it. This can typically be done via wire transfer or credit card. You should also ensure that your account is properly linked to your local bank account so that you can easily withdraw funds if you need to.

Once your account is funded and set up, you can start investing in the NYSE and NASDAQ. Like any other stock, you can purchase shares of publicly traded companies listed on these exchanges through your brokerage account.

One important thing to consider is the currency conversion as the shares are bought and sold in US dollars. This will affect the value of the shares depending on the exchange rate of the currency you are using. Given the current unstable state of the Kenyan shilling, this can be an advantage. Also, you should be aware of the taxes and regulations in your country as they may affect your returns.

It's also worth noting that some companies listed on these exchanges are also traded on other international stock exchanges, so you may be able to purchase shares through those exchanges as well. It's always best to research and consult a financial advisor before investing.

Investing in the NYSE and Nasdaq from outside the US is doable, but it requires some preparation and research. By following the steps outlined above and working with a reputable brokerage firm, you can access some of the world's most powerful markets and potentially benefit from the growth of some of the world's top companies.

Also, It’s important to keep in mind that investing in the stock market comes with a level of risk and should be done after research and consulting with a financial advisor.

Interested in investing in foreign stock markets from Kenya? Kindly contact us at invest@rubianiwealth.com

26Mar, 2024

Overview of the Money Market Fund in Kenya

World Habitat Day,close up picture of little cart which full of coins

In this blog, we will look at what Money Market Fund is, and how to invest in this product.

Fund Managers

A Fund Manager is a financial institution licensed by the Capital Markets Authority to collect deposits from the general public for investing. The deposits are put into collective funds called Mutual Funds or Unit Trust Funds and invested in diverse investment products. As of March 2024, there are 41 Fund Managers in Kenya.

Mutual Funds

There are 5 main types of Mutual Funds based on where the fund is invested;

1. Equity Fund – Fund invested in stock markets

2. Bond Fund – Fund invested in Corporate Bonds and Treasury Bonds

3. Money Market Fund – Fund invested in Treasury Bills, Commercial Papers and Bank Deposits

4. Balanced Fund – Fund invested in any investment product at the discretion of the fund manager

5. Real Estate Investment Trust – Fund invested in real estate

Money Market Fund

The Money Market Fund is the most popular Mutual Fund in Kenya. It accounts for over 70% of all the funds under mutual funds. This is mainly because it is risk-free and has performed relatively well over the years – as compared to other funds.

Features of Money Market Fund

FEATURE	DESCRIPTION
Minimum Investment	Depends on the Fund Manager -Example Zimele Ksh 100.00 Britam Ksh 1,000.00 Sanlam Ksh 2,500.00 CIC Asset Ksh 5,000.00
Risk Level	Low – Since the fund is invested in guaranteed return products like the Treasury Bill, the money that you invest is protected (cannot be reduced in amount).
Returns	Conservative – The returns from the Money Market Funds range from 6% to 10% depending on the Fund Manager.
Terms	The Money Market Fund is Open-Ended. This means that you can withdraw and deposit funds at any time. Most Fund Managers request 3-5 days from the time of request of withdrawal to receipt of funds to process and transfer funds to your bank account.
Other Characteristics of Money Market Fund	- Withholding Tax Levied at 15% of interest earned. - Interest is calculated daily and credited back to your account for re-investing. - Most fund managers provide a Mobile App to enable you to track the performance of your investment.

Average Journey of Kshs. 10,000 invested in a Money Market Fund.

Major Fund Managers Providing Money Market Fund

See below the key players in the Money Market mutual fund and their market share;

	Company	Funds Managed(Bn)	Market Share
1	CIC	61.3	38.10%
2	NCBA	27.7	16.90%
3	Sanlam	17	10.30%
4	ICEA Lion	14.6	8.9%
5	Britam	13.2	8%
6	Old Mutual	8	5%
7	Dry Associates	4.5	2.7%
8	Coop Unit Trust	4	2.4%

Performance of Money Market Fund with Major Fund Managers

Below is a graph that shows the performance of the major Fund Managers over the past 7 years.

How to Invest in a Money Market Fund

Rubiani Wealth Management Ltd. is an Investment Agent with the following Fund Managers in Kenya;

- Britam Asset Managers Ltd

- Sanlam Investments East Africa

- CIC Asset Management Ltd

- ICEA LION Asset Management

If you would like to open a Money Market account with any of these Fund Managers, kindly reply to this email and we will assist you to do so. Opening the account is free of charge.

You may also revert with comments or enquiry by writing to us at invest@rubianiwealth.com

facebook twitter linkedin Website

20Mar, 2024

Investing is Not an End in Itself- But a Means to an End…

Investment has become a buzzword in our world today and many people are aware of the importance of saving and investing. Nowadays, I hear people ask each other questions such as -- “What are you investing in?”, or “Do you save part of your income?” These are good questions. But they give the impression that you should save or invest because it is the right thing to do.

However, we have found that unless you are investing towards a particular goal, your savings and investments will be outright ineffective. It is for this reason, that we advise any potential investor to invest with an end or goal in mind. You need to determine what you are investing for before starting to invest.

Determining Your Reasons for Investing

People save and invest for diverse reasons. However, your reasons for investing will normally fall into two categories;

Afford Expensive Expenditure

A major reason why you may want to invest is to purchase assets or items which you may otherwise not afford from your monthly income. For example, you may want to buy a car, or house or pay for an overseas holiday but you may not be able to afford these things from your monthly income. In such a case, you may need to accumulate funds over time to afford the items.

Passive Income

Another major reason why you may want to invest is to have an income without having to “work”. In other words, you want to convert your active income to passive income. This should be a goal of everyone who is employed as this is the only way you can get to be financially free and retire from active employment. For example, you can invest towards owning a rental property to earn passive income from the rent.

Write Down Your Goals and have a Plan

Therefore, to become more effective in your investing, you will need to clearly articulate or write down your reasons for investing. You will then need to come up with a plan of how to progressively accumulate your funds towards meeting your reasons or goals for investing.

Rubiani Investment Course

If you need some help in writing down your goals and developing your financial plan towards meeting your financial goals, you can consider taking the Rubiani Investment Course. We have tools and one-on-one sessions that will help you easily write down your goals and develop a financial plan for your investments. To learn more about this course, we advise you to attend one of our Free Open Days where we get to share more on what to expect from the course.

Get in touch via invest@rubianiwealth.com

14Mar, 2024

Book Review: “Cashflow Quadrant” by Robert Kiyosaki

The "Cashflow Quadrant" by Robert Kiyosaki is a book that explores the different ways individuals can generate income and build wealth. The book is divided into four quadrants, each of which represents a different type of income-generating strategy.

The first quadrant is the "Employee" quadrant, which represents individuals who work for someone else and receive a pay check. These individuals have a limited potential for financial growth and are dependent on their employer for their income.

The second quadrant is the "Self-Employed" quadrant, which represents individuals who own their own business but are still dependent on their own efforts to generate income. These individuals have more potential for financial growth than employees, but they are still dependent on their own efforts and time to generate income.

The third quadrant is the "Business Owner" quadrant, which represents individuals who own and run a business that generates income without their active involvement. These individuals have the most potential for financial growth as they are able to leverage their money and other people's efforts to generate income.

The fourth quadrant is the "Investor" quadrant, which represents individuals who invest their money to generate income. These individuals have the greatest potential for financial growth as they are able to leverage their money to generate income without their active involvement.

Moving from the left side to the right side quadrants in the "Cashflow Quadrant" model typically involves a shift in mindset and strategy.

To move from the "Employee" quadrant to the "Self-Employed" quadrant, an individual can start a side hustle or a small business while still working a full-time job. This can involve developing a skill or expertise and monetizing it, such as starting a consulting business or offering freelance services. As the business grows, the individual can eventually transition to being fully self-employed.

To move from the "Self-Employed" quadrant to the "Business Owner" quadrant, an individual can focus on building a business that can run without their active involvement. This can involve hiring employees, delegating tasks, and systems and processes to run the business efficiently. The key is to focus on creating a business that generates income without the need for the owner to be involved in day-to-day operations.

To move from the "Business Owner" quadrant to the "Investor" quadrant, an individual can focus on investing their money and time in income-generating assets such as stocks, bonds, real estate, or other passive income opportunities. This can involve learning about different investment options and developing a diversified investment portfolio.

It's important to note that, moving from one quadrant to another is a process that takes time, effort and most importantly patience, it's not a switch that happens overnight, but with a good plan, hard work and the right mindset, one can eventually achieve the goal.

"Cashflow Quadrant" by Robert Kiyosaki has received both positive and negative reviews. Some critics argue that the book oversimplifies the process of building wealth and that the quadrant model is too rigid. They argue that the book does not take into account the unique circumstances and challenges that individuals may face when trying to move from one quadrant to another.

Additionally, some reviewers critique the author's idea of becoming rich through real estate investments, without providing a deeper understanding of the real estate market and how to invest in it successfully. They also point out that the author's own success story is not representative of the average person's experience and may not be applicable to most readers.

Another criticism is that the author's writing style can be repetitive, and some of the ideas presented in the book are not original. Some critics also take issue with the author's emphasis on financial independence through aggressive wealth-building strategies, which they argue may not be suitable for everyone and could lead to financial problems if not done carefully.

It's important to note that, while the book has its criticisms, it still has a number of loyal followers and readers who have found value in the author's ideas and strategies. Ultimately, whether the book is useful or not, depends on the reader's perspective, expectations and the stage of the financial journey.

Overall, the "Cashflow Quadrant" provides a valuable framework for understanding the different ways to generate income and build wealth. It is an easy read and it's a good introduction to personal finance, and the author's ideas are clear and well-explained.

7Mar, 2024

5 Wealthiest People in the World – and How They Made Their Wealth

From Tech Titans to Luxury Moguls: The Stories of the World's Top 5 Billionaires in 2024

The world's wealthiest individuals have been able to amass staggering fortunes through their business acumen, entrepreneurial spirit, and innovative ideas. As of March 2024, these five people are the richest in the world, with net worths that are nothing short of astounding. They come from various backgrounds and industries, but all have one thing in common: their relentless drive to succeed. In this article, we will take a closer look at who these individuals are and how they have made their fortunes. From tech giants to luxury goods moguls, these people have all left an indelible mark on the world and continue to shape it with their businesses and philanthropy.

Elon Musk - As of 2022, Elon Musk is the richest person in the world with a net worth of over $200 billion. He is the CEO and founder of SpaceX, a private aerospace company, and the CEO of Tesla, an electric vehicle and clean energy company. Musk has also co-founded PayPal, a digital payment company.
Jeff Bezos - The founder and former CEO of Amazon, Jeff Bezos has a net worth of around $150 billion. He is also the owner of The Washington Post and Blue Origin, a space exploration company.
Bernard Arnault - Bernard Arnault is the chairman and CEO of LVMH, the world's largest luxury goods company. He has a net worth of around $110 billion and is known for his investments in high-end fashion brands such as Louis Vuitton and Dior.
Mark Zuckerberg - With a net worth of around $98 billion, Mark Zuckerberg is the founder and CEO of Facebook, the world's largest social media platform. He also co-founded the philanthropic organization, the Chan Zuckerberg Initiative, which focuses on education, healthcare, and science.
Bill Gates - Co-founder of Microsoft, Bill Gates has a net worth of approximately $124 billion. He is also a philanthropist and the founder of the Bill and Melinda Gates Foundation, which focuses on global health and education.

All of the people above have made their fortunes through a combination of innovation, hard work, and smart investments in various industries such as technology, e-commerce, luxury goods, and media. They are continuing to make impact in their respective industries and also making significant contributions to charity and philanthropy.

13Feb, 2024

The FIRE (Financial Independence and Early Retirement) Movement

Financial Independence, Retire Early (FIRE) is a movement that aims to help individuals achieve financial independence and retire early by saving and investing a significant portion of their income. The FIRE movement encourages individuals to prioritize saving and investing over consumerism and lifestyle inflation and to use the power of compound interest and market returns to grow their wealth.

The first step towards FIRE is to calculate your current expenses and your desired retirement income. From there, you can determine how much you need to save and invest each month to reach financial independence and retire early. A common rule of thumb is the "4% rule," which states that you can safely withdraw 4% of your invested assets each year in retirement without running out of money.

Once you have a savings and investment plan in place, the next step is to implement strategies to reduce expenses and increase income. Cutting back on unnecessary expenses, such as eating out or buying expensive clothing, can free up money to be saved and invested. Additionally, increasing income through a side hustle or negotiating for a raise can also help speed up the journey to financial independence.

Investing is a key component of the FIRE movement, and individuals often turn to low-cost index funds or real estate investments to grow their wealth. Diversifying investments across different asset classes and regions can also help reduce risk.

It's important to note that the FIRE movement is not just about retiring early, it is about having the freedom to make choices about how to live your life. whether that means retiring early or not, The goal of the FIRE movement is to have enough savings and investments to cover your living expenses, so you can focus on the things that matter most to you, such as travelling, pursuing hobbies, or starting a business.

Overall, the FIRE movement is a powerful tool that can help individuals achieve financial independence and retire early, but it requires discipline, focus, and a willingness to make sacrifices today to achieve greater freedom in the future.

8Feb, 2024

Are Insurance, SACCOs, Multilevel Marketing or Businesses Good Investment Opportunities?

Coin on wooden table in front of green bokeh background. coins a concept of investment and saving moneys.

In one of our previous blogs, we discussed some contemporary investment opportunities. The article elicited quite some reaction. We hope that it gave you some further insights into the products.

In today’s blog, we look at more opportunities and discuss their viability for investing.

Insurance

Insurance companies have over time sold education policies and life insurance products as investments.

These products are also referred to as endowment plans.

The insurance companies receive payments referred to as premiums over a long time in exchange for a lump sum pay out at an agreed-upon time or compensation to beneficiaries in case the product buyer dies before this agreed-upon time.

So, are these insurance products investments? Well, the reality is that insurance is more for protection rather than investment. In other words, the value of any insurance product is that you get compensated in case of a loss. For these life insurance products, for example, the real utility is the “peace of mind” you get -- That in case you die before the agreed-upon period, your beneficiaries will receive a cash pay out.

However, in terms of investing, these products will give you a very low return on your investment. They are therefore not advisable for someone looking purely to invest.

SACCOs

SACCOs have over the years been a major source of funds for personal improvement and development. Kenya owes a lot of its development to SACCOs. From agricultural SACCOs to employee SACCOS, these institutions have provided pooled funds that have been used for both personal and national development. However, the question we are asking today is this: Are SACCOs a good investment opportunity?

SACCOs are a major source of funding due to the ease of debt. Members borrow up to 3 times their savings without the need for security apart from a guarantee from other SACCO members. Debt processing is also easy and fast and the interest rate is relatively low.

However, the reality is that SACCOs are ideally not for investing but rather for accumulating funds towards taking a loan. For this reason, SACCOs will avoid members withdrawing their saved funds (shares) and rather encourage members to borrow money against these funds. Furthermore, very few people who receive dividends from SACCOs re-invest these dividends; therefore, the SACCO account savings do not compound.

Running a Business

Many investors believe that starting and running a business is a way of investing. They will invest their money in a shop or a matatu. Are businesses good for investing?

Businesses are an ideal source of income as opposed to being an investment. Businesses in most instances require more of your time and effort as opposed to your capital. You will need to actively manage your business for you to make money.

It is for this reason that we advise business owners to have alternative investments apart from their business to separate their income from business and their investments. This way, their investments are shielded from business risks.

Multi-Level Marketing (Network Marketing)

Multi-Level marketing (MLM) also referred to as Network Marketing or Referral marketing is another contemporary opportunity. The MLM business model allows members to join a business at a low initial cost. The business will be selling products such as health products, ornaments or services such as travel. Once you join the network, you get to profit every time you refer someone to join the network or buy products from the network company.

Multi-level marketing has enabled many individuals to make substantive profits by simply referring others to use products or services. It is therefore a worthwhile source of income as opposed to being an investment opportunity. You can therefore consider MLM as a side hustle or alternative source of income and then channel funds made from your MLM to investment products that will grow your funds.

Other “Investment Opportunities”

There are other products or opportunities that always come up in our market promising to give good returns to investors. Some of these investment opportunities are indeed credible and you could profit. However, some fraudulent or bad investment opportunities would easily lead you to lose your funds. In our subsequent article, we will review how you can tell whether an investment opportunity is worth considering.

6Feb, 2024

Bit Coins, Day Trading and Forex Trading as an Investment Opportunity

cryptocurrency bitcoin golden coin isolated in white background

In our previous blog, we discussed the traditional investment products that have been used over the years to grow invested funds. These products have been tested over time and they are reliable for your investments. However, there are new investment products that continue to become available in the market. In this blog, we will discuss some of these contemporary products.

Bitcoins and Cryptocurrencies

Cryptocurrency is digital cash or digital assets that are used to settle transactions similar to physical money. The digital cash is encrypted to regulate the generation of new units and to verify the transfer of the funds. Though there are many cryptocurrencies, the most common at the moment is Bitcoin.

The concept of investing in Bitcoin is similar to that of investing in any other asset. You invest in the currency and hope its demand and consequently its value will go up thus making a profit.

The issue with Bitcoins is that like many other new products, there is quite some amount of misinformation and people taking advantage of a lack of knowledge to defraud potential investors. Furthermore, the usage of cryptocurrencies for transacting is still quite low and therefore, much of the demand for the currency is speculative. This has resulted in these currencies fluctuating and being unpredictable, especially for future growth.

Day Stock Trading

Day stock trading is an aggressive way of trading the stock market whereby you keep buying and selling shares within very short periods in a bid to grow funds more rapidly. Some people offer a service to churn or aggressively trade your cash in the stock market with a promise of high returns.

In our experience, day trading in the Kenyan stock market is high risk as many factors make our market difficult for day trading. Firstly, the taxes and charges per transaction are quite high and you therefore need high margins to cover these costs and still make a profit. Unfortunately, most counters do not fluctuate much within the short run making it hard to make any meaningful profits. Secondly, most of those who offer to trade your money in the stock market will make a commission every time you trade. So they intend to trade as frequently as possible to grow their commission as opposed to making you money. For this reason, we find that there is a conflict of interest.

We have seen many investors lose large sums of money to these day traders who promise high returns but will often fall short of their promises.

Forex Trading

Forex trading also known as currency trading is yet another contemporary investment opportunity that has gained traction with the widespread use of high-speed internet. The forex market is a decentralized market where the world’s currencies are traded. Online trading platforms operated by currency brokers allow individuals to open and trade in multiple currencies from around the world.

Trading in forex entails exchanging one currency for another in the expectation that the price of the currencies will change in your favour and thus make you a profit. For example, if you believe that the US dollar will lose value against the British Pound, you can sell the US dollar against the Pound. If your hunch is true and the dollar continues to lose against the pound, then you will make a profit.

There are various advantages of trading in Forex.

Online – Online trading has enabled almost anyone to access the over USD 5 trillion a day forex market. This has made the Forex market more liquid and less prone to manipulation. You can also start your practice on free demo accounts and this enables you to try out the market before transacting with your real money.
Easy to Trade – The Forex market is well advanced and is easy for any layperson to join, learn and start trading. There are tools and training opportunities that make it easy to learn and get started.
Leveraging – Online Forex is traded using leverage. Leverage means that you get to borrow against the cash that you are trading with so that you can increase your margins. The effect of leverage is that small movements in currency prices result in large changes in your funds. You can therefore make larger profits or lose funds much faster than when trading without leverage.

Our take on Forex

Our caution when trading with Forex is that there are many non-regulated Forex online brokers. This does not guarantee the safety of your funds as you cannot verify the financial health of the broker. In Kenya, there is one online Forex broker who is licensed by the Capital Markets Authority – BrokerEGM Securities Limited. See CMA press release here.

There are also several online forex brokers that are credible. Therefore, you must do your thorough due diligence before starting forex trading.

Secondly, the use of leverage means that you easily make or lose funds. Many investors have lost a lot of their funds because of leverage. However, on the flip side, you can make substantive profits if you get to understand trends and use the right tools to help with your decisions.
There are also Forex traders who offer to trade on behalf of others. Some will even guarantee you a given return on the funds that you place under their trading. You must be extra cautious when allowing someone to trade forex on your behalf. Firstly, many of these traders are not regulated meaning that you do not have a recourse if they do not keep their end of the bargain. Furthermore, many of these traders have lost much of their client’s wealth as the Forex market cannot provide a guarantee.
Forex requires your consistent monitoring and taking of positions daily and at times hourly to profit. This means that it cannot be a passive way of investing your funds.

We hope that the article has given you some insights on these products. We also appreciate hearing from you on the same. Please do get back to us by mail at invest@rubianiwealth.com

1Feb, 2024

The Kenya Debt Situation and its Impact on Treasury Bills and Bonds – A Comparison with Ghana

Summary
-Kenya is due to pay USD 2 Billion in June 2024 as Eurobond Matures.
-If Kenya makes the payment, the economy will experience relief as the next Eurobond maturity is in 2027.
-Kenya's dollar reserves are low and settlement is dependent on a bailout from the World Bank, IMF and other concessional loans.
-If Kenya defaults, there will be far-reaching effects that could result in Treasury Bonds being restructured as was the case in Ghana.
-The risk of defaulting is however low.
-If Kenya settles the June 2024 payment, those who will have invested in Treasury Bonds before June stand to gain as interest rates may fall thereafter.

CBK continues to borrow heavily locally and interest rates are now hitting record highs. Treasury bill rates are now above 16% and in January 2024, CBK issued an Infrastructure Bond and the coupon (interest rate) is expected to get to around 20%.

However, as the government continues to borrow aggressively locally to hedge against foreign debt and raise funds to meet its obligations, questions continue to arise as to whether there is a chance of default on payments from these local Treasury Products.

This article looks into Kenya's current debt situation and whether there is a risk in investing in Treasury Bills and Bonds. We will look at the 2022 Ghana domestic debt crisis and the chance that Kenya can go in that direction.

State of Maturing USD 2 Billion Eurobond at the end of June 2024

In June of this year (2024), Kenya must settle USD 2 Billion as a Eurobond matures. Settling this Eurobond would bring relief to the economy as the next Eurobond maturity will be in 2027. However, Kenya finds itself in a financial challenge as its dollar reserves are low and the weakening of the Kenya Shilling has affected the government’s capacity to raise the required funds. Kenya is now relying on bailouts from the World Bank, the International Monetary Fund (IMF) and other international institutions.

Red Flag as President Ruto's Backtracks on Pledge

Concerns of a potential for default were raised when President Ruto failed to meet a commitment. He had announced plans for Kenya to pay USD 300 million in December 2023 as a partial settlement of the USD 2 billion Eurobond but this did not happen.

What would a default mean?

In the event of a default, Kenya faces dire economic consequences experienced by countries like Greece, Zambia, Lebanon, and Argentina. Consequences of default would include the government's inability to borrow through Eurobonds, a decline in investor confidence, a weakening local currency, and inflation, among other far-reaching and long-term negative impacts on the economy.

How would this affect your investments in Treasury Bills and Bonds

Traditionally, governments are considered least likely to default on domestic debt as they can leverage their control over their local currency. However, the December 2022 default by Ghana on its overseas debt and the impact it had on domestic debt challenged this narrative.

What happened in Ghana?

When Ghana defaulted on its foreign debt and sought a bailout from the IMF and World Bank, these lenders of last resort introduced a unique precondition for the bailout that substantively affected the way we look at treasury products. The IMF required the Ghana government to restructure its local debt so that the pain of default would be shouldered by both foreign and local creditors – including Treasury Bond holders. This restructuring saw a reduction in Bond investors’ principal and a lowering of the Bonds’ interest rates (coupon).

Prospects for Meeting the June 2024 Deadline

However, there is much hope for the Kenya situation. Signs indicate that Kenya will meet the June 2024 obligation especially because the stakes of a default are too high. A default would jeopardise most government projects as the government would be forced to go into survival mode. This would in turn adversely affect a Kenya Kwanza re-election bid.

Besides this, the government is collaborating well with the IMF and World Bank and following through with their bail-out conditions – which include increased taxes and reduced government spending.

Which way to go

In light of this, there is a collective confidence that the country will successfully make the June 2024 Eurobond payment. If it does so, there is an expectation that the government will relax its aggressive borrowing and this will in turn reduce the interest rates on Bills and Bonds. If this does happen, those who will have bought Treasury Bonds within this period before June will continue to reap good returns on their investment for years.