In 2008, bank liquidity shortages that resulted from the oversubscribed Safaricom initial public offer (IPO) and to an extent the preceding IPOs, namely, Kenya Re and KenGen, inadvertently helped birth the horizontal repurchase agreement market.
Owing to a legal obstacle surrounding ownership of title, the market has remained more or less inactive. Thanks to recent reforms however, data from the central bank show a resurgence.
With rates still pricey compared to average interbank rates, there is a suggestion that perhaps it’s time to allow other non-bank players — pension funds, money market funds, insurance funds and corporates — to participate, writes Rufus Mwanyasi, managing director of Canaan Capital.
Adding MMFs as repo players offers those with undeployed cash balances an option to invest cash on a secured basis. For banks, especially small banks, a broad and deep horizontal repo market will provide an alternate route to source relatively “cheap” short-term funding.