This archive report was first published on 10 September 2019.
Kenya's Capital Markets: A Catalyst for Economic Growth ¶
Kenya's capital markets play a vital role in the country's economic growth, but they are not yet well-developed compared to those of other economies.
According to the ABSA Africa Financial Markets Index, South Africa was ranked first in 2017 and 2018, with a well-functioning financial system that ensures the best investment opportunities receive the necessary funding, while inferior opportunities are denied capital.
South Africa's Johannesburg Stock Exchange (JSE) is the largest exchange in Africa, with over 400 listed firms and a market capitalization of USD 13.7 trillion, which is 236.2% of GDP.
Kenya's capital market faces numerous challenges, including a small economy, lack of sound macroeconomic policy frameworks, and inadequate market infrastructure.
Factors affecting Kenya's capital markets include a lack of access to information, inadequate efficient market infrastructure for issuing, trading, clearing, and settlement, and lack of investor awareness.
To address these challenges, there is a need to innovate in terms of financial products and services available, put in place efficient market structures to attract investors, and improve the knowledge of retail investors on investment products and the benefits of saving.
Furthermore, the economy needs to shift reliance away from bank loans towards capital market instruments to ensure better use of capital markets.
Regulatory reforms are also necessary, including reducing the minimum amount investable in all Real Estate Investment Trusts (REIT) to ensure that REITs are affordable, expanding tax relief for regular savings towards home purchases, and amending the Home Ownership Savings Plan (HOSP) to allow fund managers to be HOSP-approved institutions.
