In a sign of sub-Saharan Africa's maturing economies, two African banks have executed a $25 million repurchase agreement (repo) transaction, the first of its kind in East Africa.
The process, which was completed in March, saw Commercial Bank of Africa received funding of $25 million from Standard Bank of Southern Africa, using Kenyan government bonds as collateral. The loan will need to be paid back in one year's time.
Repo transactions are important to the functioning of financial markets by helping to broaden, stabilise and provide an efficient source of lending to money markets, according to the International Capital Markets Association (ICMA).
The repo markets in Europe and the U.S. are much larger and more developed in comparison to Africa. According to ICMA, the total value of outstanding repo contracts in Europe was 5,612 billion euros ($6,383 billion) as of June 2015.
"This repo transaction has allowed us to term out our funding by a considerable magnitude thereby infusing the much needed stability to our balance sheet," said Raphael Agung, head of treasury at Commercial Bank of Africa, in a press release.
"We were able to transact under global industry-standard documentation," said Reggie Mlangeni, regional head of client solutions for East Africa at Standard Bank, in a press release.
"We see this type of transaction as key to developing deep and liquid financial markets in Kenya and across Africa as a whole."