Kigali City Council (KCC) is to issue the first ever municipal bond in Rwanda to raise Frw5 billion required to modernise the city.
If placed on the Rwanda Over The Counter (OTC) market, it will be the financial instrument with the highest interest rate.
The Vice Mayor for Economic Affairs, Dieudonné Rumaragishyika said KCC opted borrowing from the public because it is cheaper. “We are borrowing this money from the public to expropriate 150 hectares of land at Muhima and 60 hectares at Kimihurura,” he said.
Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities to raise money to finance long term projects for the public good.
Rumaragishyaka said that the money is for putting up infrastructures like roads, electricity, water and sewage systems in demarcated land for both commercial and residential purposes.
This land will later be sold to private individuals and companies at a higher value in order to recoup the costs of capital to finance the loan repayment.
He said they have not yet come up with the coupon rate (interest rate) but expects it to range from 10 per cent and 12 per cent for a period of one to two years.
The Rwanda Commercial Bank’s (BCR) corporate bonds has interest rate of 9 per cent while some two government bonds have interest rate of 8 per cent each for a period of tow years. Another government treasury bond has coupon rate of 8.25 per cent and has maturity period of three years.
KCC’s move is a step forward to increase the volume of local capital investment in support of essential infrastructure and services.
“We are working with the Capital Markets Advisory Council (CMAC), National Bank of Rwanda and the Ministry of Finance and Economic Planning,” Rumaragishyaka added.
The CMAC is already upbeat about the new product to be issued saying this will give Rwandan investors various investment and savings options.
“It is a very significant development since we are having more products issued on the market,” said Robert Marthu, the Executive Director (CMAC).
CMAC was launched on January 31, this year. Municipal bonds are still unexplored as a mechanism of financing capital projects of municipalities in East Africa.