How to Improve Kenya’s Capital Markets and Stimulate its Growth

The Capital Markets Authority (CMA) of Kenya has set maximum and minimum share buyback price in new guidelines for listed companies.

Provide Support to Fund Managers:

We believe that the regulator, Capital Markets Authority (CMA), needs to include market stabilization tools as part of the regulations/Act that will help Fund Managers meet fund obligations during times of distress – such as mass withdrawals.

We do commend the regulator on its role in protecting investor interests.

However, since Fund Managers also play a key role in the capital markets, the regulator should also be able to protect the brand image of various fund managers in the industry.

We believe that working together with industry players to resolve matters rather than alienating and publicly ostracizing industry players facing challenges may not particularly be in investors’ interest.

Allow for sector funds:

The current capital markets regulations require that funds must diversify.

Consequently, one has to seek special dispensation in the form of sector funds such as a financial services fund, a technology fund or a real estate UTF fund. Regulations allowing unitholders to invest in sector funds would expand the scope of unitholders interested in investing.

Reduce the minimum investments to reasonable amounts:

Currently, the minimum investment for sector-specific funds is Kshs 1.0 mn, while that for Development Real Estate Investment Trusts (REITs) is currently at Kshs 5.0 mn.

The high minimum initial and top-up investments amounts are unreasonably high given that the national median income for employed individuals is estimated at around Kshs 50,000.

It, therefore, locks out a lot of potential investors. Additionally, these high amounts discriminate against most retail investors, giving them fewer investment choices.

This is the key reason why the listed REITS to Market cap ratio for Kenya remains at 0.04% compared to South Africa at 1.61% and US at 3.11%.

Eliminate conflicts of interest in the governance of capital markets:

The capital markets regulations should enable a governance structure that is more responsive to market participants and market growth.

Specifically, restricting Trustees of Unit Trust Schemes to Banks only limits choices, especially given that banking markets and capital markets are in competition.

Create increased competition in the market by encouraging different players to set up shop and offer different services such as the opening up of Trustees to non-financial institutions:

Competition in capital markets will not only push Unit Trust Fund managers to provide higher returns for investors but will also eliminate conflicts of interest in markets and enhance the provision of innovative products and services.

Improve fund transparency to provide investors with more information:

Each Unit Trust Fund should be required to publish their portfolio holdings on a quarterly basis and make the information available to the public so as to enhance transparency for investors.

Providing investors with more information will help both investors and prospects make better-informed decisions and subsequently improve investor confidence.