Individual or retail investors can buy and sell bonds as easily as they would shares. This model provides issuers the opportunity to raise capital on a transparent and regulated market that offers broader participation of individual investors and benefit from enhanced price discovery.
Through issuing retail bonds on FINSEC Fixed Income Bonds, issuers are able to tap into a new source of funding or diversify into a new pool of retail liquidity.
A retail bond can either be an alternative source of funding or complement existing channels such as private placement, bank lending and the wholesale debt capital market. Retail bonds are aimed at enhancing financial inclusion and a saving and investment culture to promote economic development.
Saving becomes convenient for investors as they can trade via mobile phones and online channels. Throughout Africa corporates and government are issuing retail bonds. A classic example is when the government of Kenya recently launched mobile traded retail bonds, dubbed M-Akiba.
This retail bond, the first of its kind in the world was a success and it gave ordinary citizens an opportunity to participate in the development of their country while at the same time earning interest on the mobile wallet balances.
The government of Kenya got access to cost-effective funds for infrastructure development. The technology that was at the centre of the M-Akiba Retail Bond in Kenya is the same technology that FINSEC has adopted in rolling out mobile and online issuing, trading and settlement of securities including equities and bonds.
There are several opportunities for expanding the participation of retail investors in the local capital and investments markets. UNTU Capital, a local microfinance firm, recently published its Information Memorandum for the US$5 million medium term notes to be listed on the Financial Securities Exchange (FINSEC).
A portion of this issue will be reserved for retail investors who can subscribe for these notes using a variety of payment platforms including mobile and online platform. This is the first time in Zimbabwe that investors will be subscribing for listed securities using mobile and online gadgets. The minimum investment amount for these UNTU Medium Term Notes is $50 hence demystifying the misconception that investment is complex and meant for the elite.
This investment opportunity will enable investors to have a steady source of interest income paid every six months and investors have a guaranteed exit option, that is, they can sell their bonds anytime before the maturity period. Trading can be done on the go with mobile and online facilities. Most investors buy bonds at launch, and many hold them to maturity. However, once issued, bonds, like shares, can be freely traded on FINSEC.
The bond price will move up and down according to market forces and the major determinant of this movement is interest rates prevailing or expected to prevail in the market. When interest rates are higher or expected to be higher that the coupon rate of the bonds, then the price of the bonds will go down.
This is because bonds will become less attractive as an investment options since they are paying less than market interest rates. The reverse is true. If interest rates are lower or expected to be lower than bond coupon rates, bond prices will increase because it’s more beneficial to holds bonds that are paying higher rates of interest than what is available in the market.
When investing in a bond, investors are essentially lending money to issuer of the bonds, be it a private company, a local municipality of the government. Investors should therefore make sure that they are comfortable with ability of the issuer to repay both capital and interest. In most cases, as is with UNTU Capital mentioned above, issuers also provide third party guarantee to investors as an additional security.
The Financial Securities Exchange (FINSEC) is a Zimbabwe registered securities exchange and a member of the Escrow Group. The Escrow Group has interests in the financial services and technology sectors. Corpserve Registrars and Escrow Systems are the other members of the group.
For more information contact: – 2nd Floor ZB centre, Cnr Kwame Nkrumah and 1st Street – Harare, Zimbabwe – Tel: +263 4 758193 – Email: [email protected] .co.zw – www.finsec.co.zw – Twitter: @FINSECZim
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