The Bank of Uganda is attempting to enhance bond issuance.
To increase trading in government bonds, the Bank of Uganda (BoU) is relying on a mobile solution and offshore indices.
Through the Okusavinga mobile platform, retail customers may now purchase T-bills and bonds issued by BoU with or without a bank account.
“The Okusavinga program is designed to allow broad-based retail investing in government securities, boosting the optimum deployment of domestic savings and, ideally, decreasing the high returns that reflect conventional players’ domination,” said BoU Deputy Governor Michael Atingi-Ego.
BoU cut the minimum investment amount for bonds to $27.7, which is lower than Kenya’s M-Akiba, which trades at $30, in order to make it more appealing to individual investors and dilute bank control.
Investment advisers believe offshore indexes aid in monitoring and assessing the entire return of developing market bonds that fulfill specified liquidity and rating standards.
Mr. Atingi-Ego said that they want to list their bonds on the Bloomberg African Bond Indices (ABABI), the Financial Times Stock Exchange (FTSE) Frontier Market Index, and the JP Morgan Emerging Market indices.
According to Mr. Atingi-Ego, this will provide the government securities with “global visibility.”
According to asset managers in Kampala, quoting securities on offshore indexes has taken hold in developing markets, which were formerly seen as inferior but now outperform bonds issued by highly rated issuers and governments in industrialized nations.
As a result of this transition, several developing nations have made efforts to get their bonds listed on these platforms, said Stephen Kaboyo, managing director of Alpha Capital, a sovereign asset management business located in Kampala.
“These indexes give investors with portfolio performance objectives, a reference for index-linked products, and, most crucially, they increase global visibility,” he added.
Following the implementation of the master agreements, Uganda has been attempting to make its securities readily traded by overseas investors. The latter protects the interests of financial institutions, particularly when dealing with repos and swaps.
According to the Bank of Uganda, this has increased non-resident portfolio inflows into the nation, which reached $364.3 million in 2020/2021. Non-resident government bond holdings have also increased, reaching $806.2 million by November 2021.
According to Atingi-Ego, the securities may be traded on worldwide platforms such as Bloomberg and Refinitiv. Transactions transacted on these automated platforms account for 20% of all secondary market transactions.
However, according to data from the Capital Markets Authority Uganda, the value of government bonds sold on the secondary market declined by 23.8 percent in the fourth quarter of 2021, from $2.9 billion in the third quarter.
The capital markets regulator attributed poor investor demand for government securities to a change in investor capital in the MTN Uganda Ltd Initial Public Offering, which started in October and concluded in November last year.
This also demonstrates that the significant reliance on government securities in the hands of a few investors is a danger that the Bank of Uganda is attempting to mitigate.