Geoffrey Odundo Chief Executive Officer Nairobi Securities Exchange [Photo/File].

Kenya set the stage for the country’s first green bond with new rules on Wednesday, part of efforts to diversify its capital markets.

Like other African nations, Kenya needs to raise billions of dollars to invest in infrastructure projects including roads, water and irrigation, railways and power generation.

“The legal framework is now in place and the rules are now out there,” Geoffrey Odundo, Chief Executive Officer of the Nairobi Securities Exchange, said.

So-called green bonds are fixed income securities that raise capital to help finance projects in renewable energy, energy-efficiency, green transport and wastewater treatment.

“We are introducing a verifier component, because there is need for verification of green assets and green financing ... it’s what makes it possible for issuance of green bonds,” Odundo said, adding that the target was to issue one in 2019 to provide “traction” for other issuers.

“The government of Kenya have come up strongly, that they are looking at doing a green bond and its one of the ones we are keenly talking to,” he said.

In January, HSBC said global green bond issuance is seen at $140-$180 billion this year, from $149.2 billion in 2019.

Nuru Mugambi, director of public affairs at the Kenya Bankers Association, said that there are two strong potential issuers from the banking sector with one at an advanced stage.

But commercial lending rates capped in September 2016 at 4 percentage points above the central bank’s benchmark rate, may make it difficult for banks to price the products.

“The rate cap is making it difficult for banks to come into the capital markets to raise capital, therefore it’s limiting the bonds, but more so it’s limiting the potential that we see within the green bonds space,” she said.

Last week, Kenya Electricity Generating Company said that it plans to raise funds from the market later this year and it may opt to issue the country’s first green bond.

In 2018, finance ministry officials said that there was room to raise funding through green bonds for infrastructure projects, with an initial aim of about $50 million.