What is a Money Market Fund?
A money market fund (MMF) is an institution that pools money from investors to purchase financial assets.
Why are Money Market Funds Popular?
Over the past decade, money market funds have seen widespread adoption growth in Kenya. The total assets under management grew from KSh 66.2 billion in FY2019 to KSh 215.05 billion in December 2023, more than a 4x increase in under five years.
Money market funds are popular because of ease of access - deposits can be made via M-PESA, daily returns where users can see the growth of their investments at the end of the day, and quick withdrawal times, where money reaches the user’s account in a matter of seconds.
| Reasons for popularity of money market funds in Kenya | |
|---|---|
| Factor | Description |
| Easy deposits | Deposits and withdrawals can be made via M-PESA. |
| Quick withdrawal | Withdrawals can be made in a matter of seconds. |
| Daily returns | Interest is remitted daily |
| Compound interest | Interest is compounded over time. |
| Source: Kiihela | |
Money Market Funds vs Other Investment Options
MMFs vs Savings Accounts
MMFs offer a higher yield than saving accounts in Kenya. The annual interest rate for money markets ranges from 10% to 16%, in contrast to savings accounts, which offer interest rates of 3% to 8% per annum.
MMFs vs SACCOs
Savings and Credit Cooperative Organizations (SACCOs) are a popular savings and investment option in Kenya. Their main benefit is access to credit, which is guaranteed by other members.
They differ greatly from MMFs in terms of liquidity and management.
| Money Market Funds vs SACCOs | ||
|---|---|---|
| Feature | MMFs | SACCOs |
| Dividend/Interest Rates | 10-16%+ p.a. | 8%-12% p.a |
| Liquidity | High; almost immediate | Low; withdrawals require notice |
| Management | Professionally managed | Managed by cooperative members |
| Risk and Returns | Diversified, daily returns | Dependent on cooperative health and management |
| Regulatory Oversight | Regulated by Capital Markets Authority (CMA) | Regulated by Sacco Societies Regulatory Authority (SASRA) |
| Source: Kiihela | ||
Conclusion
Money market funds are a critical source of short-term financing for issuers in Kenya’s public markets, providing moderately high returns, and liquidity for investors.
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