NAIROBI (Xinhua) --
Kenya has been advised to diversify its funding
mechanisms to avoid over-reliance on commercial banks, which is
hurting access to credit for businesses.
In Kenya, 95
percent of all funding is from banks, with only 5 percent coming
from non-bank institutions, an indication that the economy
heavily relies on the banking sector.
The experts from Cytonn, a Nairobi-based investment firm,
pushed for capital market products as alternative for the
funding of businesses.
"Investment managers and the capital markets regulators need
to look at how to enhance non-bank funding like high yield
The products offer investors with cash a chance to invest at
a rate of about 18 percent per annum, an equivalent to what the
fund takers, such as real estate developers, would have to pay
to get funds from the banks, said Cytonn in a brief on Monday.
With the investment alternatives, instead of savers taking
money to the bank and getting negligible returns, they just
invest in a funding vehicle where the business would pay the
same 18 percent per annum that they would pay to get the same
money from the bank.
"For the saver, it helps improve their yields, at best 7
percent per annum, to as high as 18 percent per annum, and for
the business seeking funding, it helps them access funding much
faster to grow their business.
"Promoting alternative funding is also essential to the
affordable housing piece of the Big Four government agenda,
which requires capital markets funding," said Cytonn.
However, the firm noted such models need a change in
legislation, especially at the capital markets to promote
competing products to help tap into funding models that are more
flexible and pocket-friendly.
According to Cytonn, in developed economies, 40 percent of
business funding comes from the banking sector, with 60 percent
from non-bank institutional funding.