Regulation of asset-backed securities in Kenya : a comparative analysis

Abstract

Kenya has had a substantive legal framework for asset-backed securities (ABS) since 2007 but is yet to see its first ABS issuance to date. The Capital Markets Act, Chapter 485A, Laws of Kenya, as well as the Capital Markets (Asset-backed Securities) Regulations, 2007 have been decried as being inadequate; but without significant study into the legal and regulatory inequities thereof. ABS are securities that entitle investors to a return principally based on the cash-flows attributable to underlying securitised receivables. Such receivables may include mortgages, car and student loans, which when amassed may pose liquidity challenges to their originators. Thus an efficient ABS market would provide diverse wider financing options for originators and possibly ease access to credit. This dissertation then seeks to investigate the failings of Kenya?s regulatory landscape on ABS, with a focus on the intricacies of the true sale of the receivables, choice and structuring of special-purpose vehicles (SPVs), bankruptcy-remoteness of SPVs, taxation obligations and other legal and policy perspectives. The review is compared against the lessons gleaned in Africa?s largest securitisation market, South Africa, while recognising the difference in legal systems with Kenya. The United Kingdom is an additional comparator due to the common law similarities as well as the development of its capital markets. The dissertation identifies key conflicts and ambiguities in Kenya?s ABS framework, as well as critiquing current attempts at remedying them. Summarily, it provides an unexplored view into the potential workings of ABS as a source of finance in Kenya.