Pillar: Financial Markets

NBE to Make Digital ID Primary for Use by Banks

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ADDIS ABABA – The Digital Identification (ID), named Fyda, is on the fast track to becoming a primary ID for use by all financial institutions in Ethiopia.

The move is among the “major steps the National Bank of Ethiopia (NBE) is taking “to modernize the financial sector consistent with its mandate.”

To this end, the NBE says extensive work has been undertaken to introduce a foundational Digital ID for use by all financial institutions in collaboration with the National ID Project.

“Today, we announce the launch of two initiatives centered around the introduction of a Digital ID,” the NBE announced on Monday.

Backed by the World Bank, the government is implementing a nationwide biometric digital ID system, aiming to register all eligible Ethiopians by the end of 2025.

NBE’s first initiative targets onboarding all financial sector customers to the digital ID platform in the 2023/24 Ethiopian fiscal year (or 2016 EFY).

The central bank says the initiative will increase financial inclusion by removing barriers to entry.

“This process will follow several legal and technical safeguards, including cybersecurity and personal data protection principles, enshrined within the existing legal framework,” the NBE said. “As such, a Digital ID will be able to serve as a primary Bank ID and will have legal acceptance in all financial institutions.”

Parallelly, the central bank and the Digital ID Project will also implement another initiative involving “the use of the Digital ID in the financial sector’s Know-Your-Customer (e-KYC) processes.”

The ID platform, named ‘Fayda’, would offer a “reliable and real-time identity verification system,” the central bank said, and can serve as a basis for onboarding new customers and for introducing new digital products while mitigating associated financial risks.”

“The use of such e-KYC processes can significantly reduce barriers to financial access and improve service delivery standards,” the NBE added

The digital biometric ID includes an individual’s name and gender, iris scan, and fingerprints, and also displays date of birth, gender, address, and photograph.

“The implementation of the Digital ID as a Bank ID in Ethiopia will significantly improve the transparency, stability, and security of the financial sector,” the NBE said, and it will also “complement national development plans geared towards establishing a digital economy.”

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SADC urged to strengthen climate finance expertise

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Southern African Development Community (SADC) has been urged to strengthen regulators’ and stock exchanges’ expertise on climate finance, as well as green bonds, so they can play leadership roles.

“They have dual roles: implementing appropriate regulations, as well as to support market development,” a market report on the green bond market in the Southern Africa Development Committee (SADC) region prepared for FSD Africa and Committee of SADC Stock Exchanges (CoSSE).

The study covered the identification of green bond opportunities in the region, the barriers that hinder their uptake, and recommendations to overcome these. The study informed the development of the SADC Green Bond programme.

The report said in the SADC region in terms of green bonds, the emphasis is on the market development roles.

“Development partners can provide critical supports in this regard, by financing technical assistance programs which serve as platform for development of the country’s climate finance strategy and deployment of green bonds. It calls for support from international development partners.”

The report recommended for the establishment of national champions for designing and implementing market development measures for enhanced deployment of green bonds.

It said green bonds should be considered as an integral part of each country’s climate finance strategy as well as the capital market development agenda.

“Regional collaborations can facilitate peer-learning for not only product expertise but also on ideas for fostering enable environments, designing and implementing concrete policy measures, hands-on experience of leading stakeholders. There is no one-size fits all prescriptions for all SADC countries to improve deployment of green bonds.”

It was recommended that specific plans need to be developed in each country, reflecting the reality on the ground.

The report further said strong leadership by institutions with public mandates, such as capital market regulators and stock exchanges, and good coordination with relevant public and private-sector parties, including environment ministry and other relevant government entities, as well as key private-sector market participants, will be critical.

The report said banks must be incentivized to develop portfolios of eligible and bankable projects for green bonds.

It is estimated that the cumulative climate change adaptation and mitigation financing over the period

2020 – 2030 in the SADC countries is approximately US$200 billion; and this is well above what the government budget can support. Private capital needs to be mobilized, and policy makers and market participants globally see Green Bonds as a useful financial instrument in this regard. Green Bonds are still a relatively new instrument in the SADC countries.

It said green bonds should be considered in the context of the country’s overall climate finance and capital market development strategies. This is especially the case in countries with shallow capital markets.

“To deploy Green Bonds effectively, it calls for a deeper capital market; and on the other side, successful Green Bond issuance can help deepen the local capital market. Trying to stimulate deployment of Green Bonds without addressing the broader capital market deepening would face limitations in these counties.”

The report noted that many capital market regulators and stock exchanges are keen to play the role but lack necessary expertise; and seek for knowledge sharing support.

“Banks are also keen to embrace green bonds if they could develop suitable loan portfolios, and Development Finance Institution (DFIs) could consider financial intermediary loans to help them start developing such portfolios, perhaps with contingency for participating financial institutions to refinance such DFI loans subsequently with green bond issuance. For other countries than South Africa, without active involvement of international development partners with financial supports, deployment of green bonds is likely to struggle. “

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Ethiopia gears up for launch of first-ever securities exchange

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Addis Ababa, July 6, 2023 – Efforts are underway to develop Ethiopia’s financial market as the government prepares to launch its first-ever securities exchange in 2024.

In light of this, representatives from the public and private sectors, potential investors, policymakers, and regulators are meeting in Addis Ababa for a two-day workshop aimed at strengthening the capabilities of key market participants, preparing potential issuers and investors for the ESX’s portfolio of instruments, and garnering support from key policy-making institutions and regulators.

Speaking at the opening of the workshop on July 6, Antonio Pedro, Acting Executive Secretary of the Economic Commission for Africa (ECA), described the ESX as a “game-changer for Ethiopia and the region.” He stressed the importance of inclusivity, sustainability, and connectivity to harness the platform’s full potential.

The workshop is co-organized by the Economic Commission for Africa (ECA), Ethiopian Investment Holdings (EIH), Ethiopian Securities Exchange (ESX), and FSD Africa.

Mr. Pedro reaffirmed ECA’s commitment to supporting African countries in their socio-economic development and expressed enthusiasm for partnering with Ethiopia on this groundbreaking financial market initiative.

According to Brook Taye, Director-General of the Ethiopian Capital Market Authority (ECMA), the ESX will serve as a “key part of a functioning Ethiopian capital market ecosystem.”  Mr. Taye emphasized that ECMA was “fully committed to supporting the launch of the ESX and will work closely with the ESX team as it becomes a full-fledged securities exchange over the next year.”

Mark Napier, CEO, FSD Africa said: “We are pleased to be collaborating with the Government of Ethiopia in this historic initiative that will accelerate the development of capital markets in Ethiopia. Our assistance for establishing the Ethiopian Securities Exchange will leverage FSD Africa’s vast expertise and experience in developing capital markets infrastructure across Africa. This support signals our long-term commitment to a thriving capital market that is deep, liquid, and efficient”.

As a pioneer securities exchange and market organizer, said Michael Habte, ESX Project Manager, the platform will “play a critical role in the development and growth of the Ethiopian capital markets.” He stated that ESX will deploy a “state-of-the-art electronic trading platform for the equity and fixed-income markets as well as an innovative alternative capital market that caters specifically to up-and-coming SMEs.”

Mr Habte underscored the importance promoting accessibility of the market to issuers and investors in Ethiopia and abroad, including Ethiopia’s large retail and diaspora investor base.

“A thriving, deep, and liquid Ethiopian capital market will require the full support of valuable development partners to realize the catalytic development impact of a modern securities exchange as we embark on the launch of the Ethiopian capital markets,” said Mr Habte.

The capacity-building workshop addresses a wide range of topics, including the money market, fixed-income market, equity market, policymaking, and market development.

Experts from the National Bank of Ethiopia, ECMA, ESX, FSD Africa, Afreximbank, the International Growth Centre, NCBA Investment Bank, Old Mutual Investment Group, and the Pension Benefit Guaranty Corporation will deliver training presentations and participated in interactive panel discussions to share their valuable experiences and insights.

With technical support from ECMA and financial assistance from the Bill & Melinda Gates Foundation, the workshop aims to establish the groundwork for a prosperous securities exchange in Ethiopia. This initiative can spur economic growth while fostering a robust financial ecosystem for investors and issuers alike.

About ECA

Established by the Economic and Social Council (ECOSOC) of the United Nations (UN) in 1958 as one of the UN’s five regional commissions, the United Nations Economic Commission for Africa’s  (ECA’s) mandate  is to promote the economic and social development of its  Member States , foster intraregional integration and promote international cooperation for Africa’s development. ECA is made up of 54 Member States and plays a dual role as a regional arm of the UN and as a key component of the African institutional landscape.

For more information, visit:   www.uneca.org 

About EIH

EIH is a wholly state-owned company created under Proclamation No. 1263/2021 and Regulation No. 487/2022 as a strategic investment entity of Ethiopia to serve the strategic needs of its economy and build multi-generational wealth. EIH aims to achieve its purposes by bringing together public assets under a professional management structure and investing judiciously on a diversified range of strategic investment targets. EIH is operated as a private business organization with a view to driving performance of public assets using modern management practices, corporate governance standards, and systemic mechanisms to ensure the protection of shareholder’s interests.

About ESX

The Ethiopian Securities Exchange (ESX) is being established in line with the Capital Markets Proclamation (No. 1248/2021). Article 31 of the Proclamation provides that ESX shall be established as a share company by the government in partnership with the private sector, including foreign investors. The Government of Ethiopia is expected to hold a minority share in the establishment of ESX. The establishment of ESX is primarily led by EIH with the support of Financial Sector Deepening Africa (FSD Africa). A dedicated Project Offi­ce, the ESX Project O­ffice, leads the development work in preparation for the official launch of the exchange.

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It was announced that the purchase of the financial documents trading system to start the capital market is being completed

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In order to start the capital market, it has been announced that the process of purchasing financial documents from foreign companies is being completed.

After the establishment of the Ethiopian Capital Market Authority, the Ethiopian Securities Exchange (ESX), which is being established, is said to be selected and evaluated by a foreign institution that will develop the Internet infrastructure that will enable it to carry out its trading activities.

This was announced by the United Nations Economic Commission for Africa with partners on Thursday, June 29, 2015. He is at the Capital Markets Capacity Building Workshop held at the Radisson Blu Hotel. Representatives of the authority, the National Bank and foreign institutions supporting the capital market were present at the forum.

The Capital Market Establishment Proclamation stipulates that the Central Securities Depository (CSD) is a place where financial documents are stored in a consistent manner and converted to electronic, and where financial documents are traded and paid and delivered without physical transmission.

Wineshet Zeberga, a representative from the National Bank, said that having a strong Internet infrastructure is important for transferring ownership and marketing. The development of the infrastructure in Ethiopia’s capital market, he said, “will help us strengthen what we have been lagging behind in.”

“With the support we received from FSD Africa and with stakeholders such as the capital market authority and the securities market, we are working hard to have the infrastructure,” he said.

According to Tilahun Kasahun (Dr.), the senior project manager of the Ethiopian document Muale Newaiyo market that is being established, the selection of the institution that will develop the system has been completed and the stakeholders are conducting an evaluation.

Tilahun (Dr.) added that the evaluation which is being conducted by the National Bank, the authorities and the market will be completed in the next month and the selected institution and full information will be made public soon.

It is known that the Financial Sector Deepening Africa (FSD Africa) office, which is based in England and works on financial issues in various African countries, has provided financial support for the purchase of the infrastructure.

FSD Africa’s capital market specialist, Victor Nkirim, told a reporter how much the purchase was, and said that the contract will be announced and the purchase process is being finalized.

“Currently, a general evaluation of the structure and operation is being evaluated by the National Bank,” Victor added.

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ASEA nears uniting Africa’s stock exchanges

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The African Securities Exchanges Association (ASEA) is moving closer to linking the African capital markets by facilitating cross-border trading and free movement of investments in Africa.
Already, the African Exchanges Linkage Project(AELP) has onboarded 30 broker firms to facilitate cross-border trading.

Meanwhile, Ethiopia’s Ministry of Finance, the Ethiopian Investment Holdings and FSD Africa, has signed a cooperation agreement to establish the Ethiopian Securities Exchange (ESX).
Once established, the ESX will become the 30th exchange on the continent. At least fifty companies, including banks and insurance companies, are expected to list at the launch of the exchange. The exchange is designed to provide a fundraising platform for small and medium-size enterprises, which are the backbone of the Ethiopian economy. The exchange will also offer a platform for the privatisation of Ethiopia’s state-owned enterprises.

In the past few years, the Ethiopian government has implemented several reforms to open the economy and the launch of a securities exchange will be a catalyst for attracting new investment from the private sector.

In a joint statement, the three parties said that through the Exchange, the Government of Ethiopia will be able to finance its budget deficits by issuing long-term bonds in local currency thereby reducing reliance on inflationary and foreign sources of budget financing.

Through the cooperation agreement, FSD Africa will fund technical support, legal advice, and the costs associated with getting the exchange operational.

“The establishment of a securities exchange, the first in our nation’s history, through such a public-private partnership will usher a new era for the Ethiopian financial industry and the economy as a whole. Today’s cooperation agreement between the Ministry of Finance, EIH, and FSD Africa is a first concrete step towards realizing our vision,” said H.E Ato Ahmed Shide, Minister, Ministry of Finance.

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Morocco’s Ministry of Economy and Finance launches new study

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Morocco’s Ministry of Economy and Finance launches new study – alongside FSD Africa – exploring financing options for small and medium sized enterprises in Morocco’s burgeoning Green Economy

  • Morocco’s small and medium-sized enterprises (SMEs) businesses represent 93% of all companies in the country and employ over 46% of its workforce which generate only 40% of the nation’s gross domestic product (GDP) and 31% of its exports.
  • SMEs are expected to play an important role in delivering Morocco’s Nationally Determined Contributions (mitigation and adaptation will require USD 38.8 billion and USD 40 billion, respectively), with around 40% of the mitigation actions and 55% of the adaptation actions to be implemented by SMEs either directly or through subcontracting to large enterprises (LEs).

Flagship research provides estimates of Morocco’s substantial green economic opportunity – as well as its alignment with the country’s efforts to address Nationally Determined Contributions – and explores the provision of green finance to SMEs so critical to the sector’s growth.

 Rabat, 23 May, 2023 – Morocco’s Ministry of Economy and Finance (MEF), alongside partners at FSD Africa and at the British Embassy in Morocco (Foreign Commonwealth Development Office), has commissioned a study that surveys the accessibility and diversity of financial assistance available to SMEs and MSMEs in Morocco, and the capacity of these businesses (which represent 93% of all companies int eh country, and employ 46% of its workforce) to accelerate Morocco’s transition to the green economy.

The provision of green financing has risen to prominence in the Kingdom, with several offers emerging in the last few years to support green projects. From public institutions mandated to support Moroccan business, to regional and continental development finance institutions and local commercial banks, there is an increasingly sophisticated eco-system of players able to – via debt, equity and grants – stimulate the growth of small, innovative Moroccan enterprises. The growing demand for green finance instruments creates a residual financing gap that needs to be addressed by innovative financing schemes.

The study concludes that the country’s commitment to sustainable finance growth will require coordinated effort from various stakeholders. Following the publication of this study, FSD Africa will outline the design and implementation of a new financial instrument that will increase the availability and accessibility of green financing for Morocco’s SMEs. In line with the updated Moroccan Nationally Determined Contributions (NDCs), SMEs are expected to play an important role in delivering Morocco’s Nationally Determined Contributions (NDCs), with around 40% of the mitigation actions (USD 15.5 billion) and 55% of the adaptation actions (USD 22 billion) to be implemented by SMEs either directly or through subcontracting to large enterprises (LEs).

Commenting on the project, Madam Minister of Economy and Finance, Ms. Nadia Fatah, added: “We are delighted to note the relevance of this study covering an analysis of supply gaps and needs of green financing targeting SMEs for the design a new instrument that could respond to the unmet demand of SMEs in terms of green financing. Indeed, this work comes at the right time to support the efforts undertaken to implement the Kingdom’s strategic orientation aimed at making sustainability a pillar of development. In this regard, we would like to acknowledge the support of British cooperation in carrying out this study.”

UK Ambassador to Morocco, Simon Martin noted: “In March 2023 the United Kingdom published its updated Green Finance Strategy. It emphasises the growth opportunity the transition to net zero represents for businesses, SMEs in particular, and the need for dedicated support to back them up. It further highlights how FSD Africa’s work in Morocco is already helping to stimulate capital flows in support of green economic growth. I am delighted that with this new study, we are able to take the next step in supporting Morocco’s flourishing green economy and expand our bilateral financial cooperation further.”

FSD Africa CEO, Mark Napier, added: ‘’Morocco’s potential as a green economy is extremely promising, but it’s critical that the country’s economic backbone – small and medium sized businesses – is encouraged and supported in their efforts to engage in green projects and activities. Only by devising a system of green financing can the Kingdom’s green aspirations be achieved. This study constitutes an important and timely intervention which, we hope, will stimulate discussion among policymakers, legislators, private capital, and other stakeholders.”

Emerging from the GAP analysis was a clear picture of areas requiring action within the green finance space. Certain key industries – such as construction, transport, electricity production – have a high greening potential but are underserved by green lines of credit, whereas areas such as agriculture are well catered for. Moreover, the study concludes that key sectors such as fishing and sustainable housing remain virtually untouched by green finance offerings and must be addressed. Finally, the research points to a lack of key instruments such as green insurance and guarantee products, or equity funds exclusively designed for green activities.

The study makes a series of recommendations, in areas ranging from public awareness to regulation and tax, technical assistance and technology, among others.

Ethiopian Securities Exchange Invites Investors to Become Stakeholders

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The Ethiopian Securities Exchange has started its Capital Roadshow aiming to attract actors in the financial sector into buying shares and becoming stakeholders of ESX. It also announced that it would commence issuing licenses to capital brokers, dealers, and advisors in September this year.

Foreign and domestic investors can purchase 75% of the shares of ESX while the rest of the ownership goes to the Ethiopian Government through Ethiopian Investment Holdings. It is expected that ESX will become fully operational as of January next year.

It is to be recalled that the National Bank of Ethiopia (NBE) announced in May 2022 that three well known global companies were desirous to participate in ESX. Financial Deepening Africa (FSD Africa) has already signed an agreement to become a shareholder in the securities exchange. According to NBE, IFC has also shown an interest to participate in the securities exchange.

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Holland firm to offer corporate debt guarantees

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Holland-based fund manager Cardano Development has announced plans to establish a corporate debt guarantee company in Kenya to help firms raise funds from the capital markets.

The credit guarantee company set to be operational by year-end seeks to offer up to a 100 percent guarantee covering debt interest and principal for local currency capital market senior debt in the green (environmentally friendly) space.

Investors in Kenya’s corporate bonds have been relying on insurers to cover the risk of default by issuers while others take no protection, betting on borrowers to service their obligations as they fall due.

Kenya’s nascent debt guarantee space has mostly focused on bank loans, especially lending to small and medium-sized companies.

Cardano’s entry comes after it launched similar firms in Nigeria and Pakistan, targeting broad sectors including public and private infrastructure, financials such as saccos and corporates mostly in the form of commercial paper.

“About a year ago we decided to engage together with InfraCo Africa, to jointly develop with the assistance of FSD Africa a Kenyan guarantor which we hope will be operational by the end of this year,” said Cardano Development chief executive Joost Zuidberg.

InfraCo Africa is a European fund while FSD Africa is a research and advocacy firm specialising in the financial sector.

The yet-to-be-named firm has raised Sh6 billion in capital provided by eight founding providers including four international development finance institutions (DFIs) and four local private investors.

Aside from Kenya, the guarantee company will cover Uganda, Tanzania, Rwanda and Zambia, aiming to reach a guaranteed portfolio of Sh50 billion within five years.

Its value proposition is in better pricing, scale and superior products owing to the fact that it will be a locally-based company empowering domestic savings.

“It is a private sector institution with ultimately the aim to completely become local, presumably even be listed in the stock exchange,” said Mr Zuidberg.

He made the remarks during a roundtable by FSD Africa themed on mobilising long-term capital for sustainable development in Kenya.

FSD Africa has provided financial and technical support in establishing guarantee companies including developing business plans, engaging with institutional investors in the market and advising on the regulatory environment.

Kenya requires $61.7 billion to meet its global commitment to climate change by 2030 with the country’s annual infrastructure financing gap currently standing at $1.8 billion.

“There is a need for risk sharing and innovation in order to enable the private sector to play its rightful role and mobilise financing at a scale that is required for Kenya’s various needs,” said FSD Africa chief executive Mark Napier.

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FMDQ Group, FSD Africa help bridge gender finance gap in Africa

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FMDQ Group Plc and Financial Sector Deepening (FSD) Africa – the Implementing Partners of the Nigerian Green Bond Market Development Programme (the Programme) – organised a two-day event in Lagos, to introduce the concept of gender bonds to key market players within the Nigeria financial markets space. The event examined the state of gender equality in Nigeria and discussed the opportunities for Nigerian issuers and investors to use gender-sensitive/intentional approaches in bridging the gender finance gap in Nigeria. Also, it afforded potential issuers an opportunity to learn from the Tanzanian experience in navigating the issuance process of a gender bond.

External shocks such as pandemics, climatic disruptions, and economic downturns, have continuously had adverse impacts on humanity, with vulnerable groups, such as women, and their businesses being badly hit. Consequently, financial market players globally, as well as in Africa, are now empowering women and expanding their access to finance and economic inclusion through a debt market instrument that seeks to support the advancement and equality of women – the gender bond. Although at its emerging stage, understanding the gender bond framework for Nigeria’s debt market can play a crucial role in supporting the efforts to attain the United Nations (UN)’s 2030 Sustainable Development Goals (SDGs) 5 and 10 – Gender Equality and Reduced Inequalities, respectively.

In attendance at the event were Ben Llewellyn-Jones OBE, Deputy High Commissioner, British Deputy High Commission, Lagos, Beatrice Eyong, United Nations Women Country Representative to Nigeria, Bola Onadele. Koko, Chief Executive Officer, FMDQ Group Plc, Ruth Zaipuna, Chief Executive Officer, NMB Bank Plc, Mary Njuguna, Principal Specialist, Capital Markets, FSD Africa, as well as other market stakeholders.

The first day featured a Breakfast Session for C-Suite Executives and highlighted the impact sustainable finance can have in driving women’s economic empowerment, as well as increased participants’ knowledge and awareness of gender bonds.
Welcoming participants to the event, Bola Onadele. Koko, Chief Executive Officer, of FMDQ Group Plc gave a broad overview of the Programme’s achievements from its inception in 2018 till date in the areas of policy advisory, technical support for green bond issuances, and market capacity building. He challenged everyone within their individual areas of expertise to be encouraged by the progress of the Programme as it relates to green bonds and similarly, push the envelope with gender bonds as we continue to develop and entrench the principles of sustainability in the Nigerian capital markets whilst facilitating prosperity for all.

The Breakfast Session featured a panel discussion themed, “The Role of Financial Markets in Strengthening Gender Financing in Nigeria”, with panellists including the Chief Executive Officer of NMB Bank Plc of Tanzania, a representative of British International Investment PLC, an Associate Director of PwC Nigeria, a representative of FMDQ Securities Exchange Limited, a Deputy Director of the Securities and Exchange Commission, Nigeria, and the Gender Network Manager, FSD Africa.

The panellists established the business case for investing in women-owned/led businesses, women-focused initiatives and the urgency for closing the $ 42 billion gender financing gap in Africa. Also, the panellists reiterated the importance of leveraging sustainable and innovative financial instruments such as gender bonds in financing women-owned/led businesses.

The second day presented a Masterclass which featured a deep dive into the modalities surrounding the issuance of NMB Bank Plc’s first gender bond in Tanzania (Jasiri Bond). The Treasurer of NMB Bank Plc, during his session, stirred the zeal of potential issuers to the impact of women empowerment through a gender bond as he shared the stories of the beneficiaries of the NMB Bank Plc’s Jasiri Bond.

According to Sustainalytics, a global leader in Environmental, Social and Governance (ESG) research, and a technical partner for the gender bond awareness sessions, the key steps required for a gender bond issuance include the development of a framework, disclosure of information to an external reviewer, documentation of a second opinion, development of a pre-issuance report, and annual documentation of the impact of the gender bond.

The event ended with the Implementing Partners of the Programme reiterating their commitment to support institutions willing to bridge the gender finance gap, as well as other sustainable financing gaps in Nigeria, through financial instruments like sustainable or sustainability-linked bonds that is, gender bonds, green bonds, blue bonds, social bonds, and others. The Programme was launched in 2018 to create awareness and education on green finance, whilst serving as the primary vehicle to explore and implement initiatives geared towards accelerating the development of the Nigerian Green Bond Market and supporting broader debt market reforms that impact green bonds, through its Implementing Partners, FMDQ Group and FSD Africa.

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Kenya’s corporate bond market depressed – agency

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In Summary

  • The Capital Markets Authority (CMA) has attributed the drop to slower economic growth, insufficient investment growth and macroeconomic instability.
  • Financial Sector Deepening Africa (FSD Africa) has however singled out readily available bank loans and disclosure issues as a major challenge.

Private firms and major corporates are not tapping opportunities in Kenya’s bond market, according to a financial markets agency.

This, it says, notwithstanding huge opportunities mainly in climate-friendly investments.

Financial Sector Deepening Africa (FSD Africa) cites readily available bank loans and avoidance of disclosures by private entities as the main drawbacks in issuance of corporate bonds

A corporate bond is a fixed income instruments issued by a company in order to raise capital.

The corporate bond market in Kenya enables companies’ access long-term capital at competitive rates, enhancing their growth and development.

Latest Nairobi Securities Exchange barometer shows bonds turnover recorded a 47.17 per cent decline in April, from Sh70.66 billion in March 2023, to Sh37.33 billion.

In the first quarter of the year, turnover fell 14.9 percent year-on-year with investors trading bonds worth Sh162.51 billion in the period, down from Sh190.9 billion in the first quarter of last year.

The Capital Markets Authority (CMA) has attributed the drop to slower economic growth, insufficient investment growth and macroeconomic instability.

“Most issuers don’t want to disclose, because when you come to the market with a corporate bond, the idea is you get less stringent requirements but in exchange for that, you offer to become more transparent,” director of capital markets Evans Osano said.

He spoke during a round table in Nairobi on Wednesday which brought together capital market stakeholders including potential issuers in both banking and non-banking sectors, intermediaries, fund managers and other sector players.

There have been little activities in the bond market in recent years despite their ability to raise long-term capital at affordable rates to fund growth.

Corporate bonds are less risky and less volatile compared to other asset classes.

Recent activities include the Kenya Mortgage Refinancing Company’s seven-year tap issue and Kenya’s first green bond by Acorn Holdings Limited.

The Sh5.7 billion green bond programme, partially guaranteed by GuarantCo, was cross-listed on the International Securities Market (ISM) of the London Stock Exchange, and at the Nairobi Securities Exchange (NSE) in 2020.

Others were East African Breweries five-year fixed-rate instrument floated in 2021 to repay debt with a maturity date of October 2026, Family Bank’s five and a half-year bond floated on 2021, and Centum Investment’s bond floated in 2020 with a maturity date of this December.

“The process of going to the market, including approvals and listing is discouraging some of the potential issuers. We have to make the process as seamless and cost effective as possible so that it is not a barrier or excuse for not coming to the market,” Osano said.

Data analysis and financial expert Mihr Thakar however notes rising interest rates have lead to losses for existing bond holders.

“New buyers from the secondary market will bid in a way that would result in losses for sellers of the older securities. A standoff between buyers and sellers results in lower bond turnover at exchange,” Thakar told the Star yesterday.

FSD Africa called for tapping into green investment bonds in the country saying they provide a huge opportunity.

Some of the potential sectors include built environment, ICT, telecommunication, agriculture (climate smart), green manufacturing and carbon markets.

Fund managers, who are said to be conservative, need to switch from looking at risk returns towards green opportunities, the agency notes.

The outstanding corporate bonds in Kenya are 0.2 per cent of GDP, of which 99 per cent is from banks and a mere one per cent from corporate bonds.

CMA has since committed to accelerate growth of the capital markets.

“The Capital Markets Authority will continue to develop and enhance its regulations to support and accelerate the growth path of Kenya’s capital market enhancing mobilization of domestic resources and international capital in Kenya through the NSE,” chairman Nicholas Nesbitt notes.