Portfolio investment hits Sh10tr

Dar es Salaam. Tanzania’s portfolio investment is on the rise yet it is only a fraction of the money that is in the hands of custodian banks, a meeting heard yesterday.

Custodian banks are commercial banks that have special windows for such services as administering accounts, transactions, settlements, dividend collection and interest payment on behalf of their customers.

Much of the Sh10 trillion assets — mostly owned by pension funds and other institutional investors — are in the hands of brokers, a situation that raises a conflict of interest.

“This situation is not healthy. It is not the brokers’ duty to safeguard investors’ assets for their duty is to broker/negotiate a trading deal between the asset holder and a new investor….when brokers go under, they put at risk investors’ money as well,” the Dhow Financial chief executive officer, Prof Mohammed Warsame, told participants in the meeting here yesterday.

CRDB Bank, which was the first bank in the country to get into the business of custodial management over ten years ago, organised the event that was also attended by senior officials from the Social Security Regulatory Authority (SSRA), several social security funds and government officials among others.

Prof Warsame detailed how he personally lost money in Kenya, Uganda and Malawi when he invested in some assets that went under but with no custodian, he was either unable to get the right information or had to struggle with lots of paper work to arrive at what to do.

In Kenya, Prof Warsame injected some cash in some assets. Instead of going for a custodian, he entrusted his assets in the hands of Shah Munge & Partners stockbrokers.

The company went under in 2002 when it deposited the money in Eurobank that subsequently collapsed. Kenya’s National Social Security Fund lost about Ksh250 million (about 5.25 billion on the current exchange rate) while several other state corporations in the neighbouring country also lost collectively lose Ksh1.4 billion (about Tsh30 billion on the prevailing exchange rate).

In Uganda, he had similar experiences with MBEA Brokerages while in Malawi, the $5000 he injected into that country’s economy and entrusted Nicorp Securities Limited (which was later to be known as Trust Securities) can no longer be traced.