Municipal Bonds Issuance to increase long term capital

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Municipal Bonds Issuance to increase long term capital

Guidelines and legal frame work  to the issuance of municipal bonds  in the country are seen as a step to  boost the (tax free) capital  needed to   finance  long term  projects which have been crippled  by  limited long term capital.

Accordingly, a Municipal bond is a debt security issued by state, city/ municipality or a county to the public to finance its long term capital expenditures such as construction of highways, bridges among others.

“These guidelines will facilitate the issuance of Municipal Bonds in Rwanda and address the issue of limited long term capital to finance long term projects,” the Central Bank said in its monetary policy and financial stability statement issued this August.

This comes at the time the government registered success in its 3 years treasury bond with a face value of Rwf 12.5 billion whose deal received an oversubscription  by 140 percent  recorded in 56 applications as opposed to  less than  15 bids  registered  in average auction  in the past years.

“The intensive mobilization across the country and within the region has increased the participation of individuals, pension and insurance companies, microfinance institutions and regional investors,” said John Rwangombwa, governor of the Central Bank

With its advantage of  having favorable tax implications, municipal bonds whose guidelines for issuance and regulation for book building process were published in May this year are likely to attract more bids thus provide enough  log term capital for   project financing.

“You see it is common sense that most people or corporations  don’t like the idea  of paying taxes, so the Municipal bonds comes at the right time and considering the fact that they are most  common in  people in  high  income tax  range,” said  Davis Mukiza, business consultant.

Although both the bond and stock exchange in the country are still fragile, the Central Bank says that the recent move by regional capital markets to harmonize their legal frameworks will strengthen the local capital market but also implement the requirements of the Common Market Protocol in matters of free movement of Capital, and services in the bloc.

“These directives will facilitate cross border trading and free movement of services which will have a direct impact on the regional economies,” he added

The monetary policy and financial stability statement August 2014 from Central Bank says, “The harmonization will specifically facilitate access to capital at regional level, 45 increases trading thanked to linked platforms and will bring more efficiency and secure markets since the region will be operating as one market”.

So far, for the forts six months of the year alone, seven directives were developed and published by EAC Secretariat which include EAC Directive on Corporate Governance for securities intermediaries, EAC Directive on admission to secondary trading and the EAC Directive on listing, the EAC Directive on Public offers (Debt); the EAC Directive on Public offers (Equity); the EAC Directive on Public Asset Backed Securities; the EAC Directive on Collective Investment Schemes.



About the author

Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

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