Asset-Backed Securities Coming to Kenya….

By kenyanentrepreneur Thursday, November 29th, 2007
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Many months ago I had a post on the topic of asset-backed securities. The post was prompted by experiences told to me by someone who had moved back to kenya about two years ago to work for a private bank that wanted to shore up their asset-backed security division. Things didn’t work out for this person and they left the country in frustration.

Today, I read this article about the Capital Markets Authority introducing new regulations to govern the issuance of asset backed securities (the article is mainly focused on the government using this “medium” to raise money to pay for infrastructure projects around the country. e.g. road building).

In my previous example, I mentioned that the person had tried to get parastatals like KTDA to use asset-backed securities as a way of obtaining needed cash for their organizations. I will offer a brief explanation of what I mean:

  • Let’s say you (moneybags) works for a private bank (Barclays). You know that KTDA will need money to buy expensive tea picking machines from England. So, you go to the MD of KTDA and you tell him that Barclays can give them the loan to buy the machines. However, in exchange for the loan, Barclays will need some collateral to protect itself. So, Barclays tells KTDA that they’ll have to “back-up” that loan with an “asset”. The asset in this case, would be KTDA’s tea. KTDA agree’s and Barclays gives them the cash loan (lets say it’s $5 million dollars).

  • Now, if KTDA goes under, Barclays has control of that “asset” (the tea) and they can resell and try and recoup their loan money. However, even if KTDA doesn’t go under, Barclays can do other things with that asset. They can repackage it and re-sell and get their money back right away, they can trade it on a commodity exchange and try and make money with the price fluctuations of that commodity it, etc, etc.

    • Anyway, my question is, will these new regulations expand the areas in which asset-backed securities can be used? How about in Kenya’s emerging mortgage industry? or any other parastatal that has a physical “asset” or commodity that can be resold (coffee, cement, cattle, flowers, heck… why not goats?). I shouldn’t ask questions because I seem to be talking to myself lately.

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    4 Responses to “Asset-Backed Securities Coming to Kenya….”

    1. bankelele
      December 5, 2007 at 7:50 am

      trade finance is there and practiced by local banks with commodities like oil and tea. ATI (www.ati-aca) has been instrumental in promotimg such alternative collateral processes

      #36916
    2. kenyanentrepreneur
      December 5, 2007 at 4:20 pm

      Banks:

      Interesting. I’ll check out that link. Thanks

      #36989
    3. gee
      December 5, 2007 at 6:53 pm

      I think ABS’s will work in Kenya as long as the economy remains strong. the ability of the securities to trade well largely depends on the payments received from the debtor. I think the mortgage market in Kenya can try this approach in order to free up cash to issue more loans…

      #37009
    4. bingo cards for mlf
      February 20, 2008 at 8:16 am

      bingo cards for mlf…

      refutation stolen amber subcomputation circumcise …

      #53162

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