Cabinet has approved a proposal to allow the public use the mobile money platform to buy government securities.
A briefing on Monday showed that government believes it will lead to “increased savings and investment amongst Ugandans…, enhanced distribution capacity of government securities with the ability to reach out to individual retail investor especially those in rural areas.”
The securities market – where Bank of Uganda issues out instruments such as treasury bills and treasury bonds on behalf of the executive – remains an easy source of capital for government to borrow money.
This financial year, government was supposed to borrow Shs 600 billion in financial 2018/2019, although there are reports that say more money has been gotten. Government currently pays interest rates of between 10 per cent to 18 per cent on money it borrows through the securities market. Commercial banks have been the main investors in the securities market.
There have been complaints that banks focus more on investing in government securities instead of lending more money to the private sector. Banks reason that government securities are nearly risk-free, which is not the case with the private sector.
The statement about cabinet decisions says the use of mobile money would reduce the cost of domestic debt by widening the scope of investors. It adds that this will reduce the dependence on a few players such as commercial banks, offshore players and institutional investors, which tends to engage in erratic bidding during auctions, which disrupts the pricing of the securities.
The government paper briefing says the mobile money platform would not be taxed under the Income Tax Act. More than Shs 40 trillion circulates within the mobile money platform annually. This amount is more than what goes through the banks during the same period.
Government said in a statement that this will provide the opportunity for local people to save and earn some income. The minimum amount one can invest in the government securities is Shs 100,000. It is not clear when this proposal will be implemented.