Effects of Operating Environment Factors on Infrastructure Finance Flows in the Capital Markets in Kenya

Abstract

Purpose – This study sought to establish the whether the operating environment factors affect efficient infrastructure finance flows in the capital markets in Kenya. Policy framework, legal environment, regulations and institutions are the operating environment factors which influence the infrastructure finance flows through the capital markets.

Methodology – The study was undertaken using descriptive research design where a questionnaire was used targeting a population of 100 infrastructure related institutions. The questionnaire used to collect quantitative data was on the Likert scale with numerical scores 1 to 5. Descriptive and regression analysis were conducted on the data to show how each independent variable of the operating environment factors influences the infrastructure finance flows.

Findings – Majority of respondents think that there are inadequate policies, laws and regulations while half of these respondents believe that the institutions lack the necessary capacity to operate efficiently and effectively. From the results, majority of these respondents agreed that there is need for an urgent review of the existing financial sector policies and institutions. Half of the respondents want the regulations revised but majority of these respondents believe that the existing laws do not require review. The results indicated that the policy framework, legal environment, regulations and institutions significantly affect the infrastructure finance flows through the capital markets in Kenya.  From the results, it can be concluded that there are no adequate policy, legal, regulatory and institutional arrangements to facilitate the uptake of infrastructure finance in the capital markets. Further, it can be deduced that the policy, legal, regulatory and institutional regimes are poorly configured to deliver financing of infrastructure projects in the capital markets of Kenya. Finally, it can be inferred that the financial sector policies, regulations and institutions are not strong enough to provide a supportive environment in delivery of infrastructure finance.

Implications – The financial sector policies, laws, regulations and institutions need to be reviewed in order to create a conducive operating environment for financing of infrastructure investments. Benchmarking studies are critical for enhancement of policies, laws, regulations and institutions based on the international best practices for efficient and effective delivery of infrastructure finance through the capital markets in Kenya. Further research is recommended on effects of operating environment factors on infrastructure finance flows in the capital markets in Kenya.