A financial system is a network of financial institutions and markets e.g., the money markets and stock markets, dealing in a variety of financial instruments such as bank deposits and shares. A financial system is engaged in money transmission activities and the provision of loan and credit facilities.

Most modern economies, including Kenya’s, are organised in a capitalistic setting. Kenya’s financial system is multiregulated, with the Capital Markets Authority (CMA) overseeing investment services, the Insurance Regulatory Authority (IRA) overseeing the insurance sector, the Retirement Benefits Authority (RBA) regulating pension products, and the Sacco Societies Regulatory Authority (SASRA) for saccos. In comparison to other sub-Saharan financial systems, Kenya’s is the third-largest financial sector in the region.

In 1954, the Nairobi Stock Exchange was enrolled under the Societies Act as a voluntary association of stockbrokers. In 2011, the exchange changed its name to The Nairobi Securities Exchange (NSE). It is charged with developing the securities market and regulating trading activities. Kenya’s capital market has experienced erratic periods over the years with both high and low periods. Currently, there are 62 companies listed in the NSE, including the Fahari I-REIT and the ABSA New Gold ETF.

In the past few years, the Kenyan capital market has broadened in the range of products and services available to issuers, investors and market intermediaries. The Capital Markets Authority (CMA) has facilitated the introduction of products such as derivatives, equity or credit-linked notes, Real Estate Investment Trusts (REITs), exchange-traded funds (ETFs), Asset-Backed Securities (ABS), online forex trading, Global Depository Notes/Receipts, and Shariah-compliant products, among others.

Generally, product uptake has been low. This can be partly attributed to hindering factors such as low liquidity levels, regulatory obstacles, macroeconomic factors, competition from other sectors/instruments, lack of coordinated strategy towards the introduction of new products and services, reluctance of market intermediaries, and limited capacity of investors in understanding the product among others.

The NSE has experienced a six-year IPO drought, coupled with several de-listings and suspensions, which have hurt the market’s equities offerings to investors. Despite this limited activity for new equities, the debt market has been active, with the latest listing of the Acorn Green Bond and a steady growth of treasury bonds over the years. The limited equities activity falls short of the Capital Markets Master Plan. which had a target of at least four listings per year on the NSE.

Standard Investment Bank Ltd (SIB), as a market intermediary, is committed in providing innovative products and services ensuring the growth of the Kenyan capital market. SIB has participated on key strategic private and government transactions for organizations that include National Bank of Kenya, KenGen, the NSE, Co-operative Bank of Kenya, Scangroup, KCB Group and KenolKobil, among others. Our transactions are diverse, cross-border and include privatizations, public bond offers, initial public offers, public offers without listing, private placements, trade sales, balance sheet restructuring, and employee share ownership plans.

For public and private institutions looking for advisory on strategic growth, structuring balance sheets, raising capital and restructuring enterprises, email us on advisory@sib.co.ke

Jacktone Odoyo is a Corporate Finance Associate at Standard Investment Bank.

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