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Small lenders to pool collateral in interbank money market plan

Central Bank Governor Patrick Njoroge. file photo | nmg
Central Bank Governor Patrick Njoroge. file photo | nmg 

Small lenders could soon be allowed to pool collateral in the interbank money market in a bid to cushion them from discrimination and unfair competition from their bigger rivals.

Central Bank of Kenya (CBK) governor Patrick Njoroge said the shared security facility would be run centrally and help improve liquidity in the interbank market.

“The bank (CBK) is exploring the use of pooled securities under the control of a central counterparty as collateral for interbank money market transactions” he said in a monetary policy statement to the Treasury secretary Henry Rotich, but did not provide details on how the facility would operate.

“This is expected to address the problem of market segmentation and eliminate the credit risk premiums that small banks pay whenever they borrow from the interbank market” Dr Njoroge added.