‘Long term finance should be channel where it is needed most’

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By MARTIN LUTHER OKETCH

The Chartered Financial Analysts (CFA) Society East Africa has advised the companies issuing long term finance in the capital market to channel it in areas where it is needed by the investors in the market on grounds that it will enable investors to finance their projects without facing constraints. 

Long-term financing providers offer more strategic capital that supports lasting business growth and financial risk management.

Long- term finance instruments are either company shares or corporate bonds being issued by the organisations in the capital markets via stock exchanges and they typically serve as a complement to existing short-term bank financing, rather than replacing it.  

The CFA Society of East Africa argues that having access to long-term funds in Uganda is critical because it can allow governments and firms to finance large long-term investments as well as to reduce rollover risks and the potential for runs. 

The Chartered Financial Analyst Society East Africa says the benefits of long-term finance can accrue not only to borrowers but also to providers of funds (savers in the economy) and financial intermediaries (banks and institutional investors). 

Briefing journalist at the Golf Course Hotel about the significance of the patient capital to companies or investors, Ms Susan Khainza CFA, FMVA board member CFA Society East Africa founder Kayan Consultancy said companies that have potential to provide the long term capital should avail it because there several investors in the market looking for long term capital to finance their businesses. 

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“We want to see money for long term financing (patient capital) available in the market channeled where it is needed most, for example if it is for improving the quality of health let it be channeled there because there are very many investors in the market looking for long term financing,” she said.  

Ms Khainza said the future of patient capital in Uganda is bright but what is missing is the information for the investors in the market, especially the international investors looking for where to put their money.

She added that at the same time there are many big international companies willing to provide long-term capital in the capital market in the East African region. 

“There is a need of providing matching awareness of the existing long term capital in Uganda,” she said.

Ms Khainza said patient capital is mainly raised from the capital markets industry and not from the commercial banks, adding that in the capital market there are different types of investors such as institutional investors. 

 In the capital market, institutional investors can play a major role in fostering long-term investment and growth. While financial markets need actors with different investment horizons in order to function well. 

Capital markets, mostly comprising bond and stock markets, are another potential source of long-term financing for firms. Bond markets tend to be large and can provide funding at fairly long terms relative to banks. 

Equity can per se be considered long term as companies can determine when and how much dividends to return to shareholders, thus assuming no short-term risks. Mr Dickson Ssembuya director research and market Capital Markets Authority said the Capital Market Authority has designed programmes with the aim of having long term finance available to the investors.

 “We are reaching out with market based financing which is long term in nature that is a non-bank financing mechanism (patient capital) because it is cheaper for the investors,” he said. 

Mr Kenneth Owera portfolio manager equity at the National Social Security Fund (NSSF) said they are investing directly in equities and in fixed income (bonds).