The exchange says the current bond market is primarily accessible to institutional investors such as pension funds and large commercial entities.
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. Retail trade of bonds is more common in developed capital markets such as Wall Street which has some retail traders holding their pensions in popular stocks.
At a financial services stakeholder engagement held on Wednesday, the local bourse’s new chief, Aupa Monyatsi, spoke on trends where major securities traded on the exchange are dominated by institutional investors, particularly in the bond market.
“Institutional investors continue to dominate activity in the exchange,” he said. “When you look at the bond market we want to turn things around and allow for retail investors to be able to buy bonds and re-invigorate the market.”
Opening up the bond market to retail investors is not a new discussion in the local capital market.
Five years ago, the Bank of Botswana confirmed that proposals had been made to kick start the country’s retail bond programme from within governments then P15 billion note issuance programme which now stands at a ceiling of P55 billion. The central bank, which was championing the move, would later back-track on the plans citing the hefty costs involved in introducing state-backed retail bonds.
“We found that it is very complex and expensive to do,” revealed the then governor, Moses Pelaelo. “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.”
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.
