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XINHUA NEWS SERVICE REPORTS FROM THE AFRICAN CONTINENT

 
Financial experts suggest divergence of funding devices in Kenya

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 solutions.

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.

           

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