Infrastructure Bonds — Tax-Free Returns for Your Chama
Infrastructure bonds offer solid returns AND tax-free interest. Here's why they're one of the best-kept secrets for Kenyan group investments.
If someone told you about a government-guaranteed investment with 13-18% returns where you pay zero tax on the interest — you'd think it's a scam. It's not. It's an infrastructure bond.
What Are Infrastructure Bonds?
The Kenyan government issues infrastructure bonds (IFBs) to fund roads, railways, energy projects, and other national infrastructure. The key incentive: interest earned is 100% tax-exempt under the Income Tax Act.
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How They Compare
| Investment | Return | Tax on Interest | Net Return |
|---|---|---|---|
| Savings account | 3% | 15% withholding | ~2.5% |
| Regular T-Bond | 14% | 15% withholding | ~11.9% |
| Infrastructure Bond | 14% | 0% | 14% |
The tax exemption makes IFBs approximately 2% more profitable than regular bonds at the same coupon rate.
Key Features
- Minimum investment: KES 50,000 (face value)
- Term: Typically 8-25 years
- Interest payment: Semi-annually (every 6 months)
- Tradeable: Can be sold on the secondary market at NSE if you need liquidity before maturity
- Tax status: Interest is exempt from income tax and withholding tax
For Your Chama
Consider IFBs for your long-term portfolio. A chama investing KES 500,000 in an IFB at 14% receives approximately KES 35,000 every 6 months — tax-free. That's passive income the group can reinvest, distribute, or use to fund welfare.
Buy through a licensed stockbroker or during CBK primary auctions.