International Journal of Finance and Accounting

Securitization Enhancing Liquidity in Kenya

Margaret Kibera — 2023-11-01

Purpose: This paper aims to explain the benefits of securitization in Kenya’s economy that is to both the government, the private sector, and the Kenya capital market. The paper provides a road map on how the government and private sector can diversify their funding sources, lower borrowing costs, improve liquidity, and transfer risk. It will help offer clear policy direction to government policymakers in efforts geared towards the introduction of asset securitization in the country which will increase liquidity, economic growth, and expansion of capital in the country. The regulator of the financial market Capital Market Authority (CMA) will therefore formulate guidelines and regulatory requirements that can enhance the performance of the securitization industry. The paper will also be useful to corporate strategists of companies as they seek to optimize return considerations in driving shareholder wealth margins. The paper is expected to motivate and be a key reference for future research work in the securitization industry in Kenya. Securitization is one of the innovative products that may be used by government and private firms and investors to increase wealth.

Methodology: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library

Findings: Securitization will bring benefits in terms of growth in the economy and expansion of capital markets and hence wealth creation. Securitization involves the conversion of a pool of assets with a regular and predictable cash income such as mortgage repayments receivables, and credit card receivables e,t,c into a security or marketable instrument that allows the institution to transact a large number of its assets, which would otherwise not be attractive as individual. The originator who will be the financial institution or the government then creates a legal entity known as a Special Purpose Vehicle (SPV). The special purpose vehicle may be in the form of a Limited Liability Company, a trust, a partnership, or even a subsidiary of the Originator. These selected receivables are then transferred to the special purpose vehicle which then becomes the owner of these receivables. The securities to be issued by the special purpose vehicle are usually rated by a rating agency. This is due to the fact that such instruments are unsecured, which will require that investors are protected.

Unique Contribution to Theory, Practice and Policy: Profit maximising theory and theory of innovation can be used to anchor future studies on securitization enhancing liquidity. If the Government or the financial institution wants to issue 'AAA' rated asset-backed securities or mortgage-backed securities, collateralized mortgage securities, or collateralized debt obligations (CDOs)then they must choose first-class loans not prone to prepayment and default risk where originators conduct their own rating, they select all the best asset bundles for investment. In order to get a favorable rating, the special purpose vehicles can provide credit enhancement to the securities.

Foreign Equity Portfolio Investments and Market Returns at the NSE20 Share Index; Kenya

O. Oyucho — 2023-10-30

Purpose: Foreign portfolio investments have continued to play an important role in the world today because investors are more interested in investments that will give them higher returns for their investments. The purpose the study was to establish the effect of foreign portfolio investments and market returns in Kenya. The specific variables studied were foreign equity portfolios, foreign bond portfolios, foreign portfolio of treasury bills and foreign portfolio of exchange traded funds and how they affect the market returns at the NSE20 share index in Kenya.

Methodology: The research methodology applied panel regression for inferential findings and Langrage multiplier test done to determine the pooled effect with the aid of STATA 18 software. Secondary data was sourced from the NSE annual reports, CMA bulletins, CBK websites of the respective companies listed in the index for the period between 2013 to 2022.

Findings: The study findings indicated a positive and significant relationship of foreign equity portfolios, foreign portfolio of T Bills and foreign portfolio of ETFs with market returns at the NSE20 share index. Conversely, foreign bond portfolio exhibited a negative significant relationship with market returns at the NSE 20 share index.

Unique Contribution to Theory, Practice and Policy: The study supported Modern Portfolio Theory(MPT) that suggests that for an investor to maximize returns, an investor will choose from a wide array of portfolios that will suit his needs and risk profiles and Neoclassical Theory of Investment that suggests that investors will take advantage of location differences to profit from arbitrage opportunities and Total portfolio theory that suggests that combination of securities posits a higher performance due to significant diversification benefits linked to a basket of securities. The Modern portfolio theory measuring market return seemed to hold in that it will give an investor an understanding of the most efficient portfolio that will give the largest returns at a given level of risk. The theory was suggested for future related research because it will give an investor a strategy for successful portfolio investments.

Influence of Internal Capabilities on the Performance of Micro and Small Enterprises (MSEs) in Mogadishu, Somalia

Ahmed Mohamed — 2023-11-10

Purpose: The main aim of this study was to determine the influence of internal capabilities on the performance of Micro and Small Enterprises (MSEs) in Mogadishu, Somalia

Methodology: The research paper adopted a descriptive research design. The target population in this study was undefined given that the number of MSEs in Mogadishu, Somalia operate under no regulatory framework. The researcher used snowballing sampling techniques, where one MSEs was requested to introduce the researcher to another MSE until the sample size of 120 MSEs was reached. The collected data was then subjected to analysis using descriptive and inferential statistics. The researcher included statistical tools such as SPSS and MS Excel to provide a comprehensive description of the data. The findings were presented using tables.

Findings: The findings revealed that financial, marketing and HR capabilities had a positive and significant influence on performance of MSEs in Mogadishu, Somalia. Where, financial capabilities (β=0.547) had the highest statistical influence, followed by marketing capabilities (β=0.428) and lastly HR capabilities (β=0.415).

Unique Contribution to Theory, Practice and Policy: The study recommended that owners of Micro and Small Enterprises (MSEs) prioritize investing in skill training and the recruitment of expert professionals to bolster the knowledge base and capabilities of their enterprises. The study findings discuss a deeper understanding of the determinants of MSE performance, and how this knowledge can be translated into targeted actions by business owners, policymakers, and other stakeholders. This not only supports the practical application but also illustrates its value in informing policies that promote the growth and sustainability of MSEs in the region.

Interest Rate and Volatility of Share Prices of Firms Listed at the Nairobi Securities Exchange, Kenya

Petronilah Kengere — 2023-10-21

Purpose: The study sought to establish the effect of interest rate on volatility of share prices of companies listed at the NSE. The study was anchored the loanable funds theory.

Methodology: The study employed a descriptive research design. The population of the study was the 20 companies listed at the NSE that forms the NSE share index as of December 2022. The study applied census where all the accessible population of all the 20 NSE share index was used. Data was gathered from secondary sources by the aid of a secondary data collection sheet. Data was obtained from financial and statistical reports released by the CBK. Data was analyzed using descriptive and inferential statistics. The descriptive statistical tools included frequencies, percentages, means, variances and standard deviations. Inferential statistic tools included Pearson’s Product Moment correlation and the multiple regression analysis.

Findings: The findings indicated that interest rate (β₃=0.52939, P=003) have significant positive effect on share price volatility. The study recommended that the monetary committee at CBK should maintain stable interest rates in order to encourage borrowing as it would foster investment in the NSE and other sectors.

Unique Contribution to Theory, Practice and Policy: The recommendation is in line with the Loanable Funds Theory, as it seeks to establish a reliable and advantageous climate for borrowing. This approach allows businesses and investors to make more effective investment plans, as they can predict the cost of borrowing over time. Additionally, the monetary committee at the Central Bank of Kenya (CBK), responsible for setting the policy rate, should take into account how their decisions influence short-term interest rates in the economy. This consideration is important for the well-being of businesses, investors and the Nairobi Securities Exchange (NSE).