Contractors work on a section of the Kisumu-Bondo Road. CMA plans a manual for county governments to be used in assessing their applications to raise money from the public to finance construction of key infrastructure such as roads. Photo/Jacob Owiti
What you need to know:
CMA Wednesday said it is working on guidelines to help county governments to tap the markets, which will include educating governors, their secretaries and senators.
Most counties are currently in deficit and have to rely on the central government for both their recurrent and development expenditure.
The regulator is also seeking quick spread in the use of Islamic finance products in both the equities and bonds markets.
The capital markets regulator is drafting a manual for county governments to be used in assessing their applications to raise money from the public to finance construction of key infrastructure such as sewerage and roads.
The Capital Markets Authority (CMA) Wednesday said it is working on guidelines to help county governments to tap the markets, which will include educating governors, their secretaries and senators.
“We are creating awareness among county government about the value of capital markets. The counties can leverage on capital markets for infrastructure development,” said acting CMA chief executive Paul Muthaura at the Open Day and Exhibition in Nairobi.
The Constitution allows county governments to borrow, but on condition that they get approval from the county assembly and the backing of the central government, which guarantees the debt.
The Article is intended to help counties wean themselves off reliance on the central government, but economists said it may take some time before investors can get an offer to buy the maiden county infrastructure bond due to the deep indebtedness of most counties.
“You first need to come up with a budget then you can convince everybody that you actually need the money,” said Dr Nelson Wawire, chairman of Kenyatta University’s macroeconomics department.
Most counties are currently in deficit and have to rely on the central government for both their recurrent and development expenditure.
Nairobi County for example has a deficit in excess of Sh7 billion, Nyeri Sh3.4 billion and Nakuru Sh1.8 billion.
Last year consultancy firm PwC said it would take at least up to the end of this year for county governments to put structures in place to implement their budgets.
The 2013/14 Budget estimates have allocated Sh210 billion for county governments.
Most counties have indicated intention to build access roads, water and sewerage plants and irrigation schemes within the county.
The regulator is also seeking quick spread in the use of Islamic finance products in both the equities and bonds markets.
“The authority is particularly keen to see the take-off of the market for Islamic investment products given the strong correlation between these products and infrastructure financing for which the nation is in heavy demand for,” said Mr Muthaura.
Islamic products do not charge interest but seek to share profit from financed projects.
Apart from the Government and KenGen bonds, the infrastructure bond offers are yet to be taken up by listed firms despite the introduction of several incentives in the 2008/9 Budget.
“Our priority objective is to accelerate the building of a critical mass for the development of significant Islamic capital markets industry thereby widening the range of available Shariah-compliant products and services,” said Mr Muthaura.
The acting CMA boss said the Authority was engaging stakeholders to increase awareness on the potential issuance of Islamic bond (Sukuk) products as a means of alternative financing for infrastructure development.
“The authority also continues to build intellectual capacity within its ranks through specialised training in this (Islamic finance) niche sector,” said Mr Muthaura.
Just last week, Central Bank of Kuwait governor Mohammad Y Al-Hashel told the World Islamic Banking Conference in Singapore that the backing of Islamic lending by assets made it particularly useful for infrastructure.
“Since Islamic finance dictates that lending should be backed by tangible real assets, it has the potential to offer the much needed funding for infrastructure building,” Mr Al-Hashel said.
In Kenya, Mr Muthaura said the CMA had approved some Shariah compliant Collective Investment Scheme (Unit Trust).
The latest product was in March and was launched by Genghis Capital. The first one was done last year by FCB Capital, a fully-owned subsidiary of First Community Bank.
