THE WORLD BANK’S private sector lending arm, the International Finance Corporation (IFC), says that its Rwf15.5 billion bond was oversubscribed by more than 110 percent. This is IFC’s first debt issued in a local currency in the region and its success is proof that the local finance market is liquid enough to provide cheaper and long-term financing for key sectors of the economy such as infrastructure, energy and housing. When IFC borrows from the domestic market in local currency and lends to Rwandan companies in Francs, the borrowers are cushioned against foreign exchange risk. When a company earning in Francs borrows in dollars today when the exchange rate is Rwf690, five years later, if the dollar rate is Rwf710, that company will lose Rwf20 for every dollar paid. Factor in interest and the cost of credit skyrockets to unmanageable levels. There is no doubt that access to cheaper long-term financing remains the biggest constraint to business in Africa. There is a plan, at least on paper, for local governments/municipal authorities to sell bonds and raise funds for infrastructure development. Following the success of the IFC bond, there should not be any more sitting on the fence. The IFC bond has indeed tested the market and discovered a huge appetite among investors. Although the IFC bond was open to all, it was mainly subscribed by local investors (individual and institutional), a clear signal to local companies that they need not look far for investment capital. Small and medium enterprises should therefore take advantage of this to not only get cheaper working capital, but also help inject vibrancy in our capital markets. Vibrant capital markets are a known source of cheaper funds for our small and medium enterprises whose growth will create more jobs for the young people and also expand the country’s tax revenue.
