BoB backs away from retail bond plan
Mbongeni Mguni | Monday July 31, 2023 06:00
Speaking on Wednesday at an economic briefing for journalists, Governor Moses Pelaelo said the central bank had essentially put the brakes on the initiative.
“We found that it’s very complex and expensive to do,” he said in response to BusinessWeek enquiries.
“We have relaxed the pace and are instead looking at other things to do, looking at what they did in Kenya and South Africa, especially around costs.”
Retail bonds are an ‘IOU’ in which an investor agrees to loan money to an individual, company or government in exchange for a predetermined interest rate. Five years ago, the central bank confirmed that proposals had been made to kickstart the country’s retail bond programme from within government’s then P15 billion note issuance programme.
In its current state, the government note programme, which has since been doubled to P30 billion, is only accessible to primary dealers, who are commercial banks, and these take up government’s offer of notes in lots set at a minimum of P1 million each.
Retail bonds would have meant that Batswana join citizens in a handful of other African countries with access to state-backed retail bonds. With government’s stellar credit rating, retail bonds for Batswana would have represented blue chip investments that offer strong returns and risk-free status.
The plan to introduce retail bonds was viewed as ideal for Batswana looking at investing lump sums, such as entrepreneurs, pensioners, and ordinary citizens. At present, the main savings avenue is via deposits with local banks, where interest rates have been eaten away by inflation in recent periods.
Previously, the central bank had said retail bonds must be readily accessible to retail customers including small businesses and there was a need to focus on relatively small denominations that would accommodate those on relatively low incomes. Such denominations would reach those currently disadvantaged in terms of access to quality savings products which offer attractive returns.
“The necessary consultations with the government would need to be undertaken in this regard. “Effective savings mobilisation at the retail level is essential for financial inclusion,” officials said previously.
On Wednesday, the BoB’s director of financial markets, Caster Moseki, said all was not lost for local retail investors.
“I don’t think we need the retail bonds and we maybe need more financial literacy, with a tweak of the infrastructure,” he told BusinessWeek. “In terms of government bonds, we are issuing these in lots of P1 million but nothing is stopping the primary dealers from collecting those hundreds of thousands from different people and bringing them forward.”