CENTRAL BANK OF KENYA
Talking Notes By
PROF. NJUGUNA NDUNG’U
GOVERNOR
Central Bank of Kenya, Nairobi
Tuesday, July 6th, 2011

Governor’s Talking at the Launch of the Reconstituted Market Leaders Forum – July 6, 2011
Distinguished Chief Executives;
Directors;
Members;
Ladies and Gentlemen:
1. Thank you all for finding time to attend this inaugural meeting of the
reconstituted Market Leaders Forum.
2. As background information to our meeting today, I wish to mention that
the Market Leaders Forum, popularly known as MLF, was formed in 2001 to
promote and support the development of the Government Bonds Program. The
membership of the Forum was drawn from stakeholders in the Government
Securities Market that included Commercial Banks, Fund Managers,
Stockbrokers, Investment Banks and Capital Markets Authority.
3. The Forum meets monthly and is chaired by the Governor, Central Bank of
Kenya. The meetings of the Forum are purely consultative. The Bank takes into
account the recommendations of the MLF in making decisions on bonds
issuance, pricing and tenors and on other issues relating to the Financial
Markets, and more specifically Government Securities Market. But it is also a
good meeting to discuss macroeconomic situation policy issues.
Achievements
4. Since its inception, the Forum has contributed significantly to the
deepening and development of the financial markets in Kenya. Through the
cooperation and support of the Forum the financial market has realized great
milestones including:
i. Lengthening of Debt Maturity Profile: The initial objective of the MLF
was to lengthen the maturity profile of securities in the domestic debt
portfolio in order to minimize refinancing risks associated with short term
debt and to also deepen the local financial markets. This has successfully been
achieved with the ratio of Treasury bills to bonds in the portfolio currently at
23:77 from 70:30 in 2001 and average maturity of all securities standing at 5
years 11 months up from 8 months in 2001. The average maturity for bonds
alone is 8 years so far. In 2008, CBK issued the first long-dated paper of 20years maturity. This was followed by successful issuance of a 25-year bond in
2010 and a debut 30-year savings development bond in 2011.

Governor’s Talking at the Launch of the Reconstituted Market Leaders Forum – July 6, 2011
ii. Secondary Market Infrastructure Development: In 2008, the CBK in
partnership with the Nairobi Stock Exchange adopted the Automated Trading
System (ATS) for Treasury bonds. The Adoption of ATS has improved
efficiency and confidence in the Secondary bond market with the settlement
cycle shortening to T+3. This initiative and other debt market developments
have seen the secondary market activity improve with annual turnover
increasing from Ksh.84.14 Bn ($1.05 Bn) in 2009 to Ksh.466.07 Bn ($5.83
Bn) in 2010. In 2008, the Horizontal Repurchase Agreement was introduced
between commercial banks to improve liquidity in the market. The CBK
together with the MLF has also moved to diversify bonds portfolio, mobilize a
large mass of local and foreign investors to invest in government securities
and thus deepening the bonds market in Kenya. As a result of these successes,
the bond market has attracted private issuers of fixed income securities like
corporate bonds and thereby diversified the investment opportunities.
iii. The establishment and implementation of the benchmark bonds
program: In conjunction with MLF, CBK has spearheaded the
establishment and implementation of the benchmark bonds program in
2007. CBK adopted the introduction of a benchmark bond program to
address the problem of bond fragmentation and thereby improve liquidity at
the secondary market and firm up the yield curve.
iv. Infrastructure Bonds (IFBs) Issuance: A total of four infrastructure
bonds have been issued since 2009. Proceeds from these bond issues were
specifically meant for financing certain infrastructural projects. These
projects include those in the Transport Sector – e.g. Construction of
new roads and rehabilitation of old ones. Water sewerage and
irrigation – e.g. Construction of water supply and sewerage systems,
water reservoir dams, boreholes and irrigation schemes around the
country. Energy – e.g. Drilling of Electricity Generating Steam Wells
(geothermal), upgrading the National Grid System with New Transmission
Lines and expanding the Rural Electrification project. A debut IFB worth
Ksh18.5 bn (USD231.25 mn) was successfully issued in February 2009.
The largest successful single IB of USD 395mn issued in August 2010.
Three other IFBs of total value: USD 807.5mn issued so far. In 2011 the
CBK, in cognizance of the tenets of Kenya’s Vision 2030 of promoting
savings among Kenyans, successfully issued a debut 30-year Savings
Development Bond.
Appreciation

Governor’s Talking at the Launch of the Reconstituted Market Leaders Forum – July 6, 2011
It is with sincere delight that I commend and highly thank the exiting members
of the MLF for their invaluable contributions, support and cooperation without
which the aforementioned milestones would not have been realized. Thank you
once more.
Responsibilities
5. The Forum will continue to be advisory through consultative engagements
to advise the Bank on aspects of financial markets development including the
following:
i. Implementation of the Government Borrowing Programme.
ii. Review performance of Government Securities in the Secondary Market
and advice on issuance of Government Securities.
iii. Issues relating to trading of Government Securities in the secondary
market.
iv. Development of efficient financial markets through dissemination of
market information, marketing and investor education.
v. Deepening of money and capital markets and efficient functioning of
the financial markets.
vi. Peer influence among stakeholders on policy reforms in their sectors.
vii. Promote development and harmonization of financial markets and
practices in the region.
viii. Introduction of new financial markets products/developments for the
consideration of the Bank.
ix. Initiate, recommend and co-ordinate introduction of new financial
markets products/developments for consideration by the Bank.
Review of Forum Membership
6. As you have all observed over the last decade or so, the financial landscape
in Kenya has undergone many transformations. The sector has seen the entrance
of new players and stakeholders. For example, most brokerage firms converted
into investment banks with varying business focus.
7. These dynamic developments have shown the need to include other
emerging segments of the financial market in the Forum. Furthermore, change
dynamics in the financial market sector have precipitated high representation

Governor’s Talking at the Launch of the Reconstituted Market Leaders Forum – July 6, 2011
turnovers in the MLF. It therefore became necessary to re-constitute the Market
Leaders Forum to reflect the evolving financial landscape in Kenya and to
enhance the relevance and effectiveness of the MLF in stimulating the
government securities market in an expanding and dynamic financial market.
8. I congratulate all of you who have been nominated by your respective
institutions or umbrella organizations to the MLF membership.
9. It is my hope and expectation that reconstitution of the Forum will reenergize the relevant financial sector development debate to effectively address
emerging challenges in the financial markets and bring in new perspectives in
the approach to financial sector growth in line with the Government policy to
make Nairobi the Financial Hub for East and Central Africa.
Meetings
10. The Forum will meet monthly.
I warmly welcome the new members of the Forum and look forward to working
with them in the coming days. The Financial Markets Department will continue
hosting monthly technical meetings to review progress and provide advice on an
ongoing basis.
Thank you all very much for your time and for listening.