Capital Markets

Kenya sets stage for first ever green bond after approving rules


Nairobi Securities Exchange CEO Geoffrey Odundo. FILE PHOTO | NMG

Two unnamed financial institutions have lined up to issue Kenya’s first green bond, the country’s banking sector lobby disclosed Wednesday, even as regulators approved the legal framework to issue the listed and unlisted financial instruments at the Nairobi Securities Exchange (NSE).

The procedures for listing of the financing instruments for climate-friendly projects on the NSE have been approved by the Capital Markets Authority (CMA) and are expected to pave the way for their issuance.

“The approval of the amendments to our listing rules to facilitate issuance of green bonds will enable the NSE offer local and international issuers additional source of green financing, improve investor diversification as well as enhance issuer reputation thus leading to growth in our market,” NSE chief executive Geoffrey Odundo said on Wednesday during the launch of the amended rules.

Kenya Bankers Association (KBA) director of public affairs Nuru Mugambi said the two unnamed Kenyan banks are firming up plans to issue the special bonds to raise money in the war on climate change.

She did not provide timelines.

A major hindrance in such bonds could, however, be the current rate cap model that restricts the interest rate that can be paid for such lending.

Kenya is estimated to require about Sh2.4 trillion to support green economic activities in areas such as afforestation, renewable energy and public transport.

Nigeria was first

Nigeria in December 2017 became the first country in the continent to tap into the globally popular instrument, raising $30 million (Sh3.03 billion) to fund renewable energy and afforestation projects.

Central Bank of Kenya (CBK) governor Patrick Njoroge said at the launch event the green bonds would help diversify Kenya’s capital markets and also provide lenders with opportunities to fund green initiatives.

Like other African nations, Kenya needs to raise billions of dollars to invest in infrastructure projects including roads, water and irrigation, railways and power generation.

Institutions supporting the green bond initiative include the CBK, the CMA and the National Treasury.

“Green instruments will play an important but niche role in driving the growth of Kenya’s capital markets,” said CMA chief executive Paul Muthaura.

Climate Bond Initiatives data show the size of global green bond market nearly doubled in 2017 to $155 billion (Sh15.66 trillion) from about $87.2 billion (Sh8.81 trillion) in 2016, as countries race to mitigate global warming in line with the Paris Agreement of December 2015.

Kenya’s Green Economy Strategy and Implementation Plan, and the UN Sustainable Development Goal on Climate that calls for urgent action to combat climate change and its impacts by the year 2030 also support the initiative.