Government securities are one of the safest investment options available, offering a reliable return or consistent income over a specified period. By investing in these securities, you're essentially loaning money to the government, which promises to repay you after a set time, known as maturity. The process of investing in government securities is straightforward and can be done either directly through the Central Bank for primaries or via licensed stock brokers and investment banks.

Types of Government Securities in Kenya

In Kenya, the National Treasury offers two primary types of government securities: Treasury Bills and Treasury Bonds.

1. Treasury Bills:

Short-Term Investment: Treasury bills are ideal for those looking for short-term investments with maturities of 91 days, 182 days, or 364 days.
How They Work: Treasury bills are sold at a discount. For example, if you purchase a 91-day Treasury bill, you will pay less than its face value, but at maturity (after 91 days), you will receive the full face value.
Example: Suppose you buy a 91-day Treasury bill with a face value of Kshs. 100,000 at Kshs. 95,000. After 91 days, you'll receive Kshs. 100,000, earning Kshs. 5,000 in the process.

2. Treasury Bonds:

Medium- to Long-Term Investment: Treasury bonds have maturities ranging from 1 to 30 years. They are suitable for those looking for a longer-term investment.
How They Work: When you invest in Treasury bonds, you lend money to the government for a specified period (the bond's maturity). You receive interest (coupon rate) payments every six months and, at maturity, the face value of the bond.
Example: If you purchase a 10-year Treasury bond with a face value of Kshs. 100,000 and an interest rate of 10% per annum, you’ll receive Kshs. 5,000 every six months. At the end of 10 years, you’ll get back your initial Kshs. 100,000 investment.

Who Can Invest in Government Securities?

While large entities like commercial banks and pension schemes are significant investors in government securities, individuals can also invest directly through the Central Bank. To do so, you must have a Kenyan bank account and open a CDS (Central Depository System) account with the Central Bank.

Opening a CDS Account: It's free and straightforward. Having a CDS account allows you to invest directly in government securities without any intermediaries for primaries but may require a broker for secondary trading. The role of the broker in the secondary market will be to look for a seller or buyer for your bond and negotiate on your behalf. They will also assist in executing instructions and payment in a secure process.

Investing from Abroad

Kenyans living abroad can invest in government securities as long as they maintain an active Kenyan bank account. They can open a CBK CDS account remotely by using the DhowCSD app or portal. Foreign investors can also invest in government securities through a nominee of a local commercial bank, investment bank, or stockbroker.

Accessing Funds Before Maturity (Secondary Trading)

If you need to access your funds before the security matures, there are options available, though they come with penalties:

Rediscounting: As a last resort, you can rediscount Treasury bills or bonds with the Central Bank, but at a punitive rate. This option is not recommended unless absolutely necessary.
Secondary Market: Treasury bonds can be traded on the secondary market, allowing you to sell them to other investors. Treasury bills, however, are not traded on the secondary market but can be transferred to another party.

What Happens in Case of the Investor’s Death?

If an investor passes away before their investments mature, third parties can claim the outstanding securities by providing documents that prove they are the rightful beneficiaries. This process ensures that the investor's returns are transferred to the appropriate parties.

A Comprehensive Guide to Using the DhowCSD Investor Portal and Mobile Apps

The Central Securities Depository (DhowCSD) system is a crucial platform that allows investors to seamlessly access and manage their investments in Kenya Government Securities, including Treasury Bills and Treasury Bonds. This guide provides a step-by-step walkthrough on how to utilize the DhowCSD Investor Portal and Mobile Apps effectively.

Requirements

Investors can use the DhowCSD system on various devices, including computers and mobile phones. To begin, access the portal via the following link: dhowcsd.centralbank.go.ke.

Getting Started

1. Registration for a CBK Investor CSD Account

For Individual/Physical Persons:

Visit the Central Bank of Kenya Website: Navigate to www.centralbank.go.ke or download the DhowCSD app from Google Play Store or Apple App Store. Click on the investor portal link.
Create an Account: Click "Create account" to start the registration. Enter your email, username, password, accept terms and conditions, and click "Start registration."
Enter Personal Details: Choose "Physical Persons" as the user type and fill in your details, including name, economic sector, birth date, gender, and KRA PIN number.
Contact Information: Provide your main registered phone number and postal address.
Settlement Details: Enter your settlement details under the Individual Account Option.
Upload Documents: Upload a photo, identification document, KRA PIN, and KRA exemption (if applicable).
Email Token: Input the email token received in your inbox to verify your account.
Approval Notification: Once approved by your settlement bank, you will receive an email notification.
Login to Access Your CSD Account: Log in using your email and password, and navigate to "My Account Information/Settings" to access your CSD account details.

For Joint Accounts:

Repeat the steps for individual registration before creating a joint account.
Log into the portal, navigate to settings, and add a joint account.
Enter settlement details, invite jointees by email, and complete the process once they accept the invitation.

For Legal Entity/Corporate:

Register as a corporate by following a similar process. Ensure that all signatories are registered before creating the corporate account.
Fill in the legal entity details, including contact information, settlement details, and signatories.
Upload necessary documents, such as board resolutions and registration documents.

2. Managing Accounts

Account Update:

For all account types (individual, joint, corporate), you can update your profile by logging into the portal, navigating to the settings, and editing the necessary fields.
Save your updates, which will then move to your settlement bank for approval.

Account Re-activation:

If your account has been deactivated, you can reactivate it by logging into the portal, clicking on "CSD linking," and selecting the activation option.

3. Bidding Process in Securities Auctions (Primary Market):

In the primary market, securities like bonds, treasury bills, or other financial instruments are being sold for the first time, usually by a government or corporation, to raise funds. Here's how the bidding process works in this context:

Logging In: First, you log in to your account on the Investor Portal, which is an online platform where you can participate in auctions.
Navigating to the Auctions Menu: Once logged in, you go to the "Auctions" section. Here, you’ll find a list of available securities that are up for auction. These are usually newly issued securities, meaning you’re buying directly from the issuer (like the government).
Selecting a Security: You choose the specific security you want to bid on, such as a bond or treasury bill.
Creating a Bid:
- Bid Type:
  - Competitive Bid: You specify the price you're willing to pay. This type of bid is for those who want to potentially get a better deal but involves a bit of risk because if your bid is too low, it might not be accepted.
  - Non-Competitive Bid: You agree to accept whatever price is determined at the auction. This is safer because your bid will be accepted, but you don’t control the price.
- Enter Face Value: This is the amount of money you want to invest in the security.
- Select Source of Funds: You decide where the money for this investment will come from, usually choosing a bank account linked to your investor profile.
Submitting the Bid: After filling in all the details, you agree to the legal terms and submit your bid. To make sure it’s you submitting the bid, the system sends a one-time password (OTP) to your phone or email. You enter this OTP to confirm and finalize your bid.

Is it in the Primary Market?

Yes, this process takes place in the primary market. When you participate in a securities auction through bidding, you're essentially buying newly issued securities directly from the issuer, like the government. This is different from the secondary market, where securities are bought and sold among investors after they’ve been issued. The primary market is where the initial sale of securities happens, and this is where the bidding process is crucial in determining who gets the securities and at what price.

4. Corporate Actions

Investors can view corporate actions such as redemptions and interest payments directly through the portal.

5. Reports

Portfolio and Transaction Reports:

Investors can generate detailed portfolio and transaction reports for a comprehensive view of their investments.

Understanding the Secondary Market and Transaction Processes:

The secondary market is where securities that have already been issued and sold in the primary market are traded between investors. In simpler terms, this is where you buy and sell shares, bonds, or other securities from other investors, not from the original issuer (like a company or the government). You continue to enjoy the same benefits till maturity where you get your money back.

When trading in the secondary market, there are specific processes to ensure that the exchange of securities and money is done securely and efficiently. Two common processes are Delivery vs. Payment (DvP) and Free of Payment (FoP). Here's a breakdown:

Delivery vs. Payment (DvP):

What is DvP? DvP (Delivery vs. Payment) is a method used in the secondary market to make sure that the buyer gets the security they purchased only when they make the payment, and the seller gets the payment only when they deliver the security. This method is all about security and ensuring that neither party is cheated.
How DvP Works:
- Step 1: Trade Agreement: Two investors agree to trade a security (like a bond or share). The buyer agrees to pay a certain amount, and the seller agrees to deliver the security. Mostly through a broker who sources and negotiates on behalf of the investors.
- Step 2: Payment and Delivery: The buyer deposits the payment in a secure account, and the seller transfers the security to a secure holding. Once both the payment and the security are confirmed to be in these secure holdings, the exchange happens simultaneously. The buyer gets the security, and the seller gets the money.
- Security: This process minimizes the risk of either party failing to deliver on their side of the deal.
Example of DvP: If you're buying a bond in the secondary market, your payment will be transferred to a secure account. The seller's bond will also be transferred to a secure account. Only when both are confirmed does the bond get delivered to you, and the payment gets released to the seller.

Free of Payment (FoP):

What is FoP? FoP (Free of Payment) is another method used in the secondary market. Unlike DvP, in FoP, the securities are transferred without the simultaneous exchange of payment. This method might be used in specific situations like gifts, donations, or when transferring securities between different accounts you own.
How FoP Works:
- Step 1: Transfer Request: The seller or donor initiates the transfer of securities to another investor or account without requesting immediate payment.
- Step 2: Securities Transfer: The securities are moved to the new owner's account without any money changing hands at that moment.
- Use Cases: This method is often used in cases like transferring a bond between family members, consolidating accounts, or moving securities between different custodians.
Example of FoP: If you want to gift some bonds to a friend, you would use the FoP method. The bonds would be transferred to your friend's account without any money being paid by your friend at the time of transfer.