The International Finance Corporation (IFC) has provided $2 million (Sh210 million) to fund the development of new financing products for private companies in Kenya.
Dubbed Joint Capital Market Development Program (J-CAP), the programme aims to mobilise resources from major pension funds to offer loans denominated in the local currency.
“The project aims to develop and enable the use of capital markets to mobilise long-term financing for key sectors, with a focus on housing and infrastructure, by combining public and private sector operations to introduce new products and instruments for a sustainable economic growth,” IFC says in its investment disclosures.
It is expected that the upcoming long-term debt products will be regulated by the Capital Markets Authority. IFC is working with its parent company, the World Bank Group, on the initiative that is also being rolled out in several other countries.
The advisory project is expected to run until October 31, 2020. If successful, it could create a new way of funding private companies that rely heavily on bank loans. Most bank loans have a short to medium term maturity, making it difficult for companies seeking credit with longer lifespans.
Alternative credit markets in Kenya are shallow and have receded further after a series of defaults by major issuers of corporate bonds and commercial papers in the past five years.
Pension funds, with a perpetual time horizon and rising assets under management, are well placed to lend long-term to projects with stable returns.