Likewise, insufficient or none existence of pooled funds in some economies like Tanzania means that the private sector can not access the capital markets effectively, according to the East African Development Bank (EADB) Resident Manager in Dar es Salaam, Mr Andulile Mwakalyelye.
The manager told a workshop on credit ratings, asset backed securities and structured finance in the city yesterday that, “Slow growth of capital markets in the region might be due to policies, regulations and practices which are unfriendly to the market and investors.”
He also said insufficient liquidity in the secondary market which would allow quick exit of investors, give rise to price discovery and the regression of credible yield curves were lacking. Consequently, most bonds are held to maturity due to absence of an active secondary market.
The Metropol Corporation Ltd Managing Director Mr Sam Omukoko said improper flow of information on the benefits of investing on capital markets is also a reason for the underdevelopment of debt markets in the region.
Instead he said majority people have been depositing money to the commercial banks which offer an average of two per cent interest but surprisingly lends the same amount at above 20 per cent. “Commercial banks engage in the supply of long term capital which impact negatively on the high cost of capital, production and ultimately high prices of the goods and services to the consumer,” he said.
Mr Omukoko cited huge volume of liquidity going unregistered in the informal economy which offers extensive potentials for the Capital markets to penetrate and harness them, only if proper mechanism is established. “Concerted efforts are needed for the capital markets to provide right information which shows the reasons why people should invest in the debt market instead of putting their money in the banks,” he added.