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- Jan 20, 2016
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The International Monetary Fund (IMF) has recommended the formation of a cross-border bank-to-bank lending market, secured through physical surrender of collateral across eastern Africa.
The IMF said a secured interbank market would be a true repo (repurchasing agreement) market as the region lacks such facility between banks.
Small financiers are the most affected by the lack of a regional market for banks to lend and borrow from each other overnight, as they have to pay a hefty premium to get emergency funds from regulators or larger rivals.
IMF reckons banks could lend each other regardless of the location of the borrower in the region, especially as the countries race to set up structures for a monetary union in the next five years.
“A true repo market will be the safest way of integrating EAC money markets. The concept of a true sale is more uniformly understood (which) therefore makes cross-border trading easier.
"So, for example, a Kenyan bank is likely to feel much safer lending to a Ugandan counterparty if it receives outright legal title to Ugandan collateral,” said the IMF.
The IMF said a secured interbank market would be a true repo (repurchasing agreement) market as the region lacks such facility between banks.
Small financiers are the most affected by the lack of a regional market for banks to lend and borrow from each other overnight, as they have to pay a hefty premium to get emergency funds from regulators or larger rivals.
IMF reckons banks could lend each other regardless of the location of the borrower in the region, especially as the countries race to set up structures for a monetary union in the next five years.
“A true repo market will be the safest way of integrating EAC money markets. The concept of a true sale is more uniformly understood (which) therefore makes cross-border trading easier.
"So, for example, a Kenyan bank is likely to feel much safer lending to a Ugandan counterparty if it receives outright legal title to Ugandan collateral,” said the IMF.
