What is Amortisation of a Bond & How is It Applied in Kenya? [Plus, an Example]

Government bonds have become a favourite investment opportunity for Kenyans looking for steady, low-risk returns. The interest comes in every six months, and in some cases, the principal isn’t paid back all at once at the end. Instead, the bond is structured to return part of your money before maturity — a system known as amortisation.

In Kenya, the Central Bank of Kenya (CBK) sometimes issues bonds with this structure, and the rules can differ depending on how much you invest. Here, we break down what amortisation is, how it is applied in Kenya, and why it is important.

Understanding Amortisation

Amortisation of a bond means that instead of getting your entire principal investment back in one big payment at the very end of the bond’s life, the government starts paying portions of it back to you at scheduled points along the way.

Let’s say you’ve invested in a bond worth Ksh1 million. Without amortisation, you will hold onto the full Ksh1 million until maturity, earning interest on the entire amount every payment period. With amortisation, a portion of that Ksh1 million is returned to you earlier — and since interest is only paid on the money still with the government, your interest payments become smaller after that repayment date.

How It Works in Kenya

Here in Kenya, the CBK occasionally issues bonds with an amortisation schedule, and it’s always clearly spelled out in the bond’s prospectus. The repayment is often done in large chunks, such as 50% of the principal, rather than small monthly instalments.

For smaller investors, amortisation can mean getting all your money back on a set date — effectively ending your investment before the bond’s official maturity. Larger investors may only get part of their principal back, allowing them to continue earning interest on the remainder until the final maturity date.

Example of CBK’s Infrastructure Bond

A perfect case study is the 19-year infrastructure bond the government first issued in 2022. It’s tax-exempt and was one of the most sought-after offerings at the time. In July 2025, the CBK reopened this bond with an interest rate of 12.965%, paid out every six months. The bond is due to mature in February 2041, but it has a key condition: on February 9, 2032, half of the principal will be amortised.

Here’s what that means in practice. If you invested less than Ksh1 million, you’ll get back your entire principal on February 9, 2032. Your bond investment effectively ends there — you stop earning interest because you no longer have money with the Treasury. For example, an investor who put in Ksh500,000 will collect interest every six months until that date, then receive the Ksh500,000 principal back in full.

If you invested Ksh1 million or more, you’ll get back half your principal in 2032 but will continue earning interest on the other half until the final maturity in 2041. So, a Ksh2 million investor would receive Ksh1 million in 2032, then keep earning interest on the remaining Ksh1 million for the next nine years.

Why Does the Government Use Amortisation?

1. Ease of repayment: It spreads out the government’s debt burden instead of paying a huge lump sum at maturity.
2. Investor attraction: Some investors like the idea of getting part of their money earlier, reducing long-term risk.
3. Cash flow management: It allows the government to manage its budget more predictably.

Investor Takeaways

• Read the prospectus carefully before investing — amortisation affects how long you’ll earn interest.
• Plan for reduced income after the amortisation date — especially if you rely on bond interest for regular expenses.
• If you want steady interest for the full tenor, choose non-amortised bonds.
• If you’re comfortable with part of your money coming back earlier, amortised bonds can still be a solid investment.

Wrapping Up

Amortisation isn’t necessarily bad — it’s just different. For Kenyan investors, it’s crucial to understand how it works so you can plan your cash flow and avoid surprises. In the case of the IFB1/2022/019, whether you’re investing Ksh500,000 or Ksh5 million, knowing the February 2032 amortisation date could make all the difference in your financial planning.