President William Ruto on Tuesday, January 30, while speaking in Rome, Italy revealed that Kenya was foregoing a Ksh161 billion ($1 billion) syndicate loan offered by the Trade and Development Bank (TDB).
The revelation was made a few hours after President Ruto called for a comprehensive reform agenda for Multilateral Development Banks and asked for increased concessional loans.
Syndicate loans entail more than one lender merging to offer a single large loan. This credit system can be expensive and complex to manage, unlike concessional loans offered at favourable rates that are sometimes lower than market value.
Ruto stated that his administration was no longer counting on the bank to deliver the loan as earlier agreed on October 2023.
It should be noted that before Ruto made the pronouncement, Kenya had already received Ksh34 billion from TDB.
The now turned-down Ksh161 billion syndicate loan from TDB was aimed at boosting Kenyan foreign reserves and further settling external debts maturing in 2024.
Putting faith in Kenya’s economic standing, Ruto remarked that it was no longer necessary to settle for an expensive syndicate loan.
“Because of the situation that we now see in the market, we believe that it would be a lot easier even for us to raise that money in the market, rather than through syndication,” he stated as quoted by Reuters.
A week ago, the Central Bank of Kenya announced the auction of infrastructure bonds worth Ksh70 billion (USD429 million) which will be used to finance development projects.
How a syndicate loan is acquired
A country like Kenya approaches a financial institution like TDB, Bank of China or J.P Morgan for a huge loan.
If the financial institution agrees to extend the loan, it assumes the responsibility of finding several lenders who will pool resources to raise the cash.
Kenya now pays the mobiliser of the syndicate loan who in turn compensates investors who raised the amount. Due to the complexities and risks involved, the mobilisers demand high-interest rates for such financial arrangements.
Source: Kenyans.co.ke