Municipal bond issuance guidelines to be published this month

The Office of the Prime Minister (OPM) is expected to publish regulations that will guide the issuance of municipal bonds this month, clearing way for districts to start raising development funds through the stock market.
Municipal bonds will help local governments become self-reliant. The New Times / File.
Municipal bonds will help local governments become self-reliant. The New Times / File.

The Office of the Prime Minister (OPM) is expected to publish regulations that will guide the issuance of municipal bonds this month, clearing way for districts to start raising development funds through the stock market.

According to Robert Mathu, the Capital Markets Authority executive director, the guidelines and regulations were sent to the OPM for publication some time back.

The government has been planning to issue district municipal bonds for about three years to help local authorities raise their own development finance and reduce reliance on central government for funding.

Through a municipal bond issue, a district can borrow funds from individuals or private firms, repayable with interest after a specified period.

“All districts have interesting projects but the ability of a district to access this kind of funding will also be determined by the levels of revenue that the local governments can generate on their own,” Mathu explained in an interview with Business Times.

Mathu said most districts have few sources of revenue and rely on taxes which limit their ability to invest in infrastructure.

“I was talking to a mining company and they told me that their mine is almost inaccessible because it lacks a good road, a bridge and electricity. So if districts can issue bonds and raise funds to develop such infrastructure, the private sector will be able to employ people, increase its production and pay more taxes,” he noted.

Mathu said the trust law passed two years ago was also critical in facilitating the establishment of the fund management industry in Rwanda. He said the law makes it mandatory for districts and other entities to have some form of collateral before they issue bonds to assure investors that it (bond) is risk free.

“A district can, for example decide, to put a piece of land as security under what is called a ‘special purpose vehicle’ such that just in case the district defaults, the land can be sold to pay back the lenders (investors),” he explained.

He added that they were working with the OPM to recruit investment professional service providers to advise and carry out the transactions on behalf of the districts.

Asked whether Kigali would take advantage of this avenue and issue municipal bonds to raise funds for its infrastructure projects, Fidel Ndayisaba, the City of Kigali mayor, said city hall would consider it once the guidelines are released.

 

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