February 6, 2024


If you are looking for that basic guide to understanding money market instruments in Kenya, well, this article is for you.

More by Winnie Kabintie

Understanding Money Market Instruments in Kenya

Understanding Money Market Instruments in Kenya

Understanding the Money Market in Kenya

As a millennial, one of the things that you breathe, walk, and dream…once you hit the third floor; is how to make multiply your income and how to invest as well, especially as a means to ending the dark, enslaving cycle of black tax.

Investing in the land as our fathers did is no longer as lucrative as it was in their days due to many factors at play, and also thanks to advancements in technology, we understand that other avenues out here can yield better secure returns. These include money market funds but well, many of us just hear of these terms floated around and often all you need is a basic explanation like a 2-year-old on what exactly these things entail and how to get started.

If you are looking for that basic guide to understanding money market instruments in Kenya, well, this article is for you.

What is the money market and how is it regulated?

The money market refers to borrowing and lending for periods of a year or less. A Money Market Instrument is a security with a maturity date of less than one year from the current date. In Kenya, money market funds are regulated by the Capital Markets Authority (CMA).

Investment companies, banks, and brokerage firms typically offer money market funds, which provide a range of investment vehicles that cater to various risk appetites and investment goals.

1. Treasury Bills (T-Bills): Short-Term Security with Low Risk

Treasury Bills are short-term debt securities issued by the government through the Central Bank. They come in three main tenures: 91 days, 182 days, and 364 days. T-Bills are considered low-risk investments, making them an attractive option for conservative investors seeking capital preservation and liquidity. The interest earned is the difference between the purchase price and the face value of the bill.

2. Treasury Bonds: Long-Term Investments with Higher Yields

For investors with a longer investment horizon, Treasury Bonds are an excellent choice. These debt securities have tenures ranging from two years to thirty years, providing a spectrum of options. The interest is paid semi-annually, offering a steady income stream. The longer tenures often come with higher yields, making Treasury Bonds appealing to those willing to commit to a more extended investment period.

3. Commercial Paper: A Corporate Debt Instrument

Commercial Paper (CP) is a short-term debt instrument issued by corporations, financial institutions, and other eligible entities. It typically has maturities ranging from 30 to 365 days. Investors can diversify their portfolios by participating in the commercial paper market, enjoying potentially higher yields compared to traditional savings accounts. However, it’s crucial to assess the creditworthiness of the issuer before investing.

4. Money Market Funds: Pooling Resources for Diversification

Money Market Funds (MMFs) in Kenya provide investors with a convenient way to access a diversified portfolio of money market instruments. These funds invest in a mix of T-Bills, CPs, and other short-term securities. MMFs offer liquidity, professional management, and the potential for competitive returns, making them suitable for both retail and institutional investors.

5. Repos (Repurchase Agreements): Short-Term Collateralized Transactions

Repos involve the sale of securities with an agreement to repurchase them at a later date. These short-term, collateralized transactions are prevalent in Kenya’s money markets. Financial institutions often engage in repos to manage liquidity and meet short-term funding needs. While not directly accessible to retail investors, understanding the role of repos can provide insight into the dynamics of the broader money market.

Things to consider

While money market instruments in Kenya offer attractive opportunities, investors should conduct thorough due diligence. Factors such as interest rate movements, economic indicators, and geopolitical events can influence returns. Additionally, staying informed about changes in market conditions and consulting with financial professionals can contribute to making well-informed investment decisions.

Money market funds offer easy access to the invested capital, allowing investors to redeem their shares and access their funds quickly. They also offer better returns than the fixed deposit accounts provided by banks as their interest is compounded.

The best way to get started is to speak to an investment banker, you can consult multiple of them during your research. Most financial institution has such a member of staff so you don’t need to worry about consultation fees or where to get an investment consultant.


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