New loans window opened for counties

The Capital Markets Authority has come up with a scheme that will enable counties to borrow money from the public and repay it without straining their budgets.

The Asset Backed Security scheme allows regional governments to set aside part of their recurrent income — such as rental revenue — for a period of time to enable them to finance a bond or a loan.

Mr Luke Ombara, CMA’s head of regulations, policy and strategy, Tuesday said bonds were not available to counties in the past because they were restricted by their balance sheets and had no surety for creditors.

“The Asset Backed is a special security for counties and investors will no longer fear lending them.

“Counties will also gain capital for investment without interfering with constant revenue flow,” Mr Ombara said during a media briefing at the Kisumu Hotel.

He said all a county needs is to create a Special Purpose Vehicle (SPV) to enable it to set aside some of its income as security for bonds.

“A county, for instance, can decide to set aside Sh5 billion of its income collections every financial year to the SPV and use it as a surety to issue a bond of Sh70 billion to willing lenders.

“But the county must convince its creditors; tell them the kind of investment it intends to undertake and how it plans to pay them back. The parties have to sign an agreement,” Mr Ombara said.

The CMA created the scheme in an effort to attract counties to the capital markets. Kisumu is the fourteenth region its officials have visited.

Mr Ombara represented CMA acting chief executive Paul Muthaura at a meeting in Kisumu, which was aimed at educating the youth and women on finance, saving and investment.

The Capital Markets Authority is a statutory agency created in 1989 under the Capital Markets Act to regulate capital markets and ensuring their compliance with laws.