Government suppliers owed a staggering Ksh110 billion may soon find relief if the government approves a bold new proposal involving the private sector. This plan, spearheaded by leaders in the pension and insurance sectors, aims to create a privately owned fund to pay off these pending bills, offering a lifeline to beleaguered contractors and suppliers.....CLICK HERE TO READ THE FULL ARTICLE>>>
The proposal, unveiled during the launch of the first Sharia-compliant bond at the Nairobi Securities Exchange, suggests a public-private partnership (PPP) arrangement. This innovative solution would see pension and insurance players investing their pooled resources in government debt, awaiting repayment on agreed-upon terms.
This approach promises a win-win situation, providing much-needed capital to the government without resorting to additional debt or increased taxation.
The government’s pending bill crisis, highlighted by the pending bill verification committee, has placed immense pressure on its expenditure. Contractors and suppliers are owed at least Ksh110 billion, a debt that has stymied government operations and strained its financial commitments.
Enter the pension and insurance sectors, which see an opportunity to mobilize resources to address this financial quagmire. By offering immediate payment to contractors in exchange for forgoing interest accrued, these sector players hope to alleviate the cash flow pressure on the government while benefiting from improved working capital and reduced credit risk.
Hosea Kili, the Group Managing Director and CEO of CPF Financial Services Ltd, is a key proponent of this model. “We wish to advance a model which we believe will solve this matter. Our proposed solution is modelled around the reverse factoring concept, which is a financial solution that allows suppliers or contractors to receive early payment of their invoices from a financier who purchases the invoices at a discount and offers to wait for the payment from the government,” explained Kili.
This financial stance aims to provide an efficient mechanism for funds flow between parties. Suppliers stand to benefit significantly from improved working capital and reduced credit risk, while the government will see eased cash flow pressure.
The fund, envisaged to be established under the special purpose acquisition vehicle regulations of the Capital Markets Authority Act, will consist of resources from pension schemes, insurance life contracts, and international investors seeking portfolio diversification and higher returns.
To make this proposal attractive to investors, suppliers and contractors may need to take a higher cut, possibly up to 30 percent, and forgo the default interest they are entitled to under contracts for delayed payments. This concession would be used as payment for the financiers.
Should the proposal gain traction, suppliers will receive their payments through the Central Bank, with the government providing an irrevocable standing order against revenues.
This ensures that 100 per cent of receivables will be paid at the agreed time and terms, creating a first charge on the County Revenue Fund and Consolidated Fund to pay the financiers.
The implications of this proposal are far-reaching. It represents a significant shift towards leveraging private sector resources to address public sector challenges, potentially setting a precedent for future government financing strategies....CONTINUE READING>>
