News Column

Educate the Public About Municipal Bonds

May 7, 2014

The planned gazetting of municipal bond issuance regulations this month will come as a major step forward in the country's bid towards self-reliance as underlined in the growth blueprint, EDPRS II.

The Capital Markets Authority has finally confirmed that the guidelines will be published after a three-year wait.

The bonds are an innovative tool designed to help districts raise funds on the stock market to finance development programmes, which will ease pressure on the central government budget. Districts can raise funds for, say, infrastructure projects and other community-based development initiatives through bonds.

The beauty of this approach is that it involves communities in the development of their areas both as investors and project implementers. This means more jobs, increased household incomes and improved livelihoods since local authorities will more likely fund projects that empower residents and facilitate trade.

When districts start issuing bonds, the local bourse will be revitalised, thanks to the increase in investor figures. The Rwanda Stock Market presently has only five firms listed on the stock exchange, with just a few public or corporate bonds trading at the bourse.

However, as we wait for the legislation, concerned authorities should sensitise the masses and local governments to prepare them to participate. It's important to note that some district leaders do not know anything about bonds or how they can use them to raise development capital. The onus is now on the Capital Markets Authority, Rwanda Stock Exchange and the Government to educate citizens on financial markets so they can participate fully and meaningfully.

Local authorities will also have to look for credible collateral to benefit from the initiative and prevent such scenarios as the fate of US city of Detroit which last year filed for bankruptcy, leaving municipal bondholders and other stakeholders in shock.

Let's have safeguards against such risks to benefit maximally.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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