Credit Default Swaps

CDS as they are more popularly known is basically a form of insurance that cushions your losses should your borrowers default. Default can be
they stop repayments, they go bankrupt or even companies restructuring
e.g. Uchumi getting a strategic investor.
In return for the protection, the CDS buyer will pay a periodical premium for an agreed period or until the credit event occurs.
Its a useful financial instrument because it in effect creates collateral on a loan that you may learnt. The main buyers tend to be regular lenders
such as banks who may want to reduce required regulatory capital against a borrower
and thus be able to lend more. For the CDS seller typically another bank, but also (lately hedge funds, insurance companies, any sucker coming late to the party) will receive the premiums and in most cases will not have to payout.
The above is a plain vanilla CDS aka single-name CDS, so-called because the reference borrower will be one known company or even govt bond. Today there also multi-name or default baskets which are basically a CDS composed of different corporate bonds (ranging from 5 to 125+ in a CDS index) on which you as protection buyer would take a bet on whether there will be a default within the group or not. A special variation of this type of CDS is the nth to default CDS. Here as a seller of the CDS, you get an opportunity to choose after which number of defaults you'll have to payout. The difference with the multi-name is that your payout for the nth to default is unlimited to the actual name that defaults.

The product should have an appeal to the fast-lending Kenyan banks and especially those who lend to corporates, the only downside being the usual trust issues.