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Debt Management: News & Views

Is the game over for retail debt programs or restarting with mobile technology?

SUBMITTED BY COSKUN CANGOZ ON APR 21, 2016Young boy with  mobile phone

Public debt management has been attracting growing interest over the past decade for avariety of reasons from the success of the HIPC initiative to the ballooning of government debt outstanding in high income countries in the aftermath of the 2008-2009 crisis. However, retail debt programs, one of the long-established channels for government borrowing (e.g. 1861 in the case of the United Kingdom) have received far less attention. One of the reasons is that today's markets are highly institutionalized offering preference to collective investment vehicles and market infrastructures have adapted to the preferences of these large, wholesale buyers. Accordingly, retail debt programs represent a decreasing share of total government borrowing in many countries.

Another reason is the cost effectiveness of this distribution channel which has been a key concern to a number of sovereigns. To this end, in 2013, Germany decided to discontinue its retail debt management program. However, while the cost effectiveness is crucial to all debt managers, it is not the only focus in retail debt programs. Expansion and diversification of the investor-base are important objectives in their own right and supporting financial literacy and expanding financial services to marginalized segments of the population are common objectives in developing countries. For some of these reasons, other countries such as Canada have decided to continue their programs.

Country cases show that retail debt management programs are offered through a wide range of channels with a diversity of products that reflect the specificity of each country’s unique history. To this end, banks and post offices, telephone and internet services, and even payroll deductions can be employed in retail debt management programs to access investors. In some countries retail debt managers are offering retail investors the same products sold to institutional investors (e.g., treasury bills and bonds in domestic and foreign currencies and inflation-linked securities) while others are fragmenting the market and designing specific products such as lottery bonds and savings accounts/bonds to target retail investors.

The trade-offs between different objectives – some of which can be very hard to quantify – and whether these have changed or will change post-financial crisis is an important discussion when looking at the future of retail borrowing. Technological innovation allows much more flexibility in establishing a retail debt management program than there used to be. It can also be cost effective as illustrated by Kenya’s project of issuing government securities via cell phones. Modern clearing, settlement, and payment systems facilitate the issuance of retail securities in very small amounts, which also make it easier to create tailor-made retail products and/or provide wholesale instruments for small investors.

These are indeed very interesting times for retail debt managers with plenty of challenges and opportunities. To discuss these questions, debt managers from all over the world will gather in Washington, DC on April 28, 2016 to attend the International Retail Debt Management Symposium hosted by the World Bank Treasury in collaboration with the US Treasury. This biannual event brings together countries with seasoned retail debt management programs and those looking to establish or review existing programs. The Symposium provides a forum for debt managers to discuss current issues and trends such as product development, distribution channels, market research, and use of new technology.

Photo: Women of Takalafiya-Lapai village, Nigeria. Credit: World Bank.