Apr 27, 2025

The Nairobi Securities Exchange (NSE) last recorded an Initial Public Offers (IPOs) in 2015, when Stanlib Investments issued an IPO of the first Real Estate Investment Trust (Fahari-IREIT) at the bourse, managing to raise Kshs 3.6 bn against the target of Kshs 12.5 bn, 28.8% success rate. This translates to an eight-year IPO drought, with the most recent activity at the bourse being the listing by introduction, meaning no money was raised) out of the Local Authority Pension Trust (LAPTRUST) Imara Income Real Estate Investment Trust (I-REIT) under the Restricted Sub-Segment in December 2022. LAPTRUST holds 100.0% of the Imara I-REIT shares with no initial offer to the public. Currently, the bourse has 66 listed securities with a total market capitalization of Kshs 2.0 tn as at 25^th April 2025. The bourse continues to be Safaricom-dominated, with Safaricom’s market capitalization of Kshs 689.7 bn equivalent to 34.9% of the entire market capitalization. Additionally, Safaricom (34.9%) and Banks (43.7%) make up 78.5% of the total bourse, leaving all other local sectors to share the remaining 21.5%, as of 25^th April 2025. The Capital Markets Authority (CMA) raised concerns that Kenya has been unable to achieve its projected listings targets as articulated in its Capital Markets Master Plan released in 2016 which envisioned at least four listings on the NSE every year; by its own masterplan CMA is now behind by 32 listings. To cure for this, the President in September 2022 set a target of 10 listings in one year, however this has not been achieved as of 2025. The chart below highlights the composition of stocks at the Nairobi Securities Exchange;

Source: Cytonn Research

Given that a few large cap stocks, namely Safaricom PLC, Equity Group Holdings, KCB Group Ltd and Absa Group Plc hold almost 54.9% of the total market capitalization, the market remains volatile, which presents a risk of a market collapse due to concentration risk.

It is important to note that capital markets development is crucial for the growth of the Kenyan economy for several reasons; Firstly, the capital markets increase the proportion of long-term savings (pensions, life covers, etc.) that is channelled to long-term investment. Capital markets enable the contractual savings industry (pension and provident funds, insurance companies, medical aid schemes, collective investment schemes, etc.) to mobilize long-term savings from small individual household and channel them into long-term investments. In this way, the capital markets enable corporations to raise funds to finance their investment in real assets. In addition, capital markets development increases the efficiency of capital allocation. Efficient capital allocation means that funds are allocated to the investment projects or firms that bring the most value to the economy; the marginal product of capital value is the highest.

Given the significant role that the capital markets play, we shall then focus on Unlocking Kenya’s Capital Markets. As such, we shall cover;

1. Current State of the Nairobi Securities Exchange (NSE),
2. Current State of other Components of the Kenya Capital Markets,
3. Challenges facing Kenya’s Capital Markets, and,
4. Recommendations and Conclusion.

Section I: Current state of the Nairobi Securities Exchange

A. The structure of the Nairobi Securities Exchange

Based in Kenya, the Nairobi Securities Exchange is one of the leading securities exchanges in Africa. It was founded in 1954 in order to facilitate the trading of financial products through the provision of a trading platform for listed securities. The NSE was demutualized and listed in 2014 and it operates under the jurisdiction of the Capital Markets Authority (CMA) of Kenya and is charged with the responsibility of developing the securities market and regulating trading activities, with the most recent key developments being:

1. In July 2019, NSE launched NEXT derivatives markets, which made it the second African exchange to launch a derivative market after the Johannesburg Stock Exchange. The derivative market was to enhance investors’ portfolio performance through availing risk management tools,
2. In May 2021, NSE officially launched its Unquoted Securities Platform (USP) which facilitated the trading, clearing, and settlement of securities of unquoted companies in Kenya. The platform provided access to capital and introduced capital market transactions easing the possible transition of the issuers into the primary quoted market. The USP also helped to reduce settlement delays as well as allowing surveillance by the bourse and the regulator, thereby protecting investors in the market. Acorn Holdings Limited became the first company to tap into the market infrastructure to trade shares by quoting its Income and Development Real Estate Investments Trusts on the USP,
3. In June 2021, the NSE launched the mini NSE 25 share index futures contracts which was meant to appeal to retail investors due to its low initial margin cost. The segment was to help increase liquidity as well as promote exposure to the Kenya equities market through the equity index futures contracts,
4. Launch of Environmental, Social and Governance (ESG) disclosure governance manual. In November 2021, the NSE published an ESG manual for Kenya listed companies meant to provide detailed guidelines on the implementation of ESG metrics in organizational strategy, as well as the collection, analysis, and reporting of ESG performance. The move was to raise standards on ESG practices by companies thereby enhancing competitiveness of Kenya's capital markets in the global market space,
5. The launch of day trading. The NSE launched day trading in December 2021 as part of its strategy to enhance market liquidity following the approval by the Capital Markets Authority (CMA) of Kenya. The move made Kenya the first frontier market to implement day trading. Day trading which refers to the practice of purchasing or selling a security within a single day or trading session or multiple times over the course of the day. To complement the initiative, NSE approved an incentive structure whereby investors who participate in day trading received a 5.0% discount on subsequent trades,
6. NSE announced in 2022, the introduction of fractional investing which allowed investors to purchase less than a whole share of a security. The move was to help to increase market activity by opening up access to stocks that would be out of reach due to high price,
7. The Capital Markets Authority, in February 2024, granted approval to EABX Public Company Limited to operate as an “Over The Counter” Securities Exchange and recognized it as a Self-Regulatory Organization (SRO). The approval enables EABX to operationalise the Exchange by rolling out its electronic trading platform to its members in Kenya, with a plan to expand operations into the wider East African region in the near future,
8. In May 2024, NSE announced the admission of Linzi Sukuk on the NSE Unquoted Securities Platform (USP) making the product the first Shari’ah compliant product to be admitted on the platform. The Linzi Sukuk, issued by Linzi FinCo Trust, is a Kshs 3.0 bn Islamic residential lease-based security with a 15-year maturity and an internal rate of return of 11.13%. The funds will support the construction of affordable institutional housing under the Government of Kenya’s Affordable Housing Program,
9. NSE in August 2024, announced the addition of Co-operative Bank of Kenya as a constituent counter in the MSCI Frontier Markets Index bringing the total number of companies listed on the Nairobi Securities Exchange PLC (NSE) and incorporated in the MSCI Frontier Markets Index to five, i.e. Safaricom PLC, Equity Group Holdings, KCB Group PLC, East Africa Breweries PLC and Co-operative Bank of Kenya. In addition, the MSCI has also included the following four companies listed on the NSE in the MSCI Frontier Markets Small Cap Index namely, British American Tobacco Kenya, Diamond Trust Bank Kenya, KenGen PLC and Kenya Reinsurance Corporation. Further in February 2025, MSCI added Standard Chartered Bank Kenya to its Frontier Markets Index and HF Group to its Frontier Markets Small Cap Index, increasing visibility of Kenyan stocks to foreign investors,
10. Nairobi Securities Exchange (NSE) announcedthe suspension in the trading of Bamburi Cement shares, effective February,27 2025 until May, 9 2025. The suspension on trading Bamburi Cement PLC shares was enacted following the company’s successful 96.5% acquisition by Amsons Industries (K) Ltd. The suspension was put in place to facilitate the squeeze out process for Amsons to acquire the remaining 3.5% of Bamburi’s shares.

The NSE equities market segment is the premium listing location for companies seeking to raise equity capital to support their growth needs by offering issuers a deep and liquid market that enables them to access a wide range of domestic and international retail and institutional investors. The NSE equities market is comprised of four listing segments, each specifically designed to meet capital, liquidity as well as regulatory requirements for issuers of all sizes. Namely; Main Investment Segment, Alternative Investment segment, Growth Enterprise Segment, and Fixed Income Securities Segment. Below is a list of the NSE’s market segments and the requirements to list on each of the segments.

1. Main Investment Market Segment: This is the premium platform for large and well-established companies in Kenya and the region. The segment currently has 50 listed stocks with a total market capitalization of Kshs 1.9 tn, as at 25^th April 2025, equivalent to 99.4% of the total NSE market capitalization. It is suitable for bigger companies that have been around for a longer period of time. For a company to be listed in this segment, it must submit at least 5-years of audited financials, 3 of which should be profitable years, and must have at least Kshs 50.0 mn worth of fully paid ordinary share capital and at least Kshs 100.0 mn in assets. At least 25.0% of shares are to be held by not less than 1000 shareholders excluding employees of the issuer,
2. Alternative Investment Market Segment: This market segment is better suited for medium-sized companies that have at least Kshs 20.0 mn in assets and Kshs 20.0 mn of fully paid up share capital at the time of listing. The company must also have been in existence in the same line of business for a minimum of two years and demonstrate good growth potential. This segment currently has 9 listed companies with a market cap of Kshs 11.3 bn as at 25^th April 2025, equivalent to 0.6% of the total NSE market cap. Listing fees for this segment are 0.06% of securities value to be listed, subject to a minimum of Kshs 100,000 and a maximum of Kshs 1.0 mn,
3. Growth Enterprise Market Segments: It is a market segment introduced to facilitate the trading of securities of start-ups, small, and medium-sized companies. The requirements of listing in this segment are designed to be less stringent in order to enable firms in their growth phase to raise substantial capital and accelerate their growth within a regulatory environment. In this segment, there is no minimum firm asset value and profitability record requirement, a minimum of Kshs 10.0 mn in paid up share capital. This segment currently has 5 listed stocks, with a total market capitalization of Kshs 0.9 bn as at 25^th April 2025 equivalent to 0.05% of the total NSE market capitalization, and,  
4. Fixed Income Securities Market Segment: This segment was designed to incorporate listing and secondary market trading of fixed income securities, mainly corporate and government bonds.

Other companies listed in the bourse are under the Exchange Traded Funds and the Unquoted Securities Platform namely; the New Gold Kenya ETF and the Acorn Holdings LTD respectively.

B. Types and Requirements of Listings

Securities may be admitted to listing at the exchange through the following methods;

1. Initial Public Offer (IPO): This is the most common type of listing. It involves a company issuing new shares while listing on the selected stock exchange that will result in a new set of shareholders from the public buying the shares at a specified share price, and hence the company raising capital from the exercise,
2. Listing by Introduction: This type of listing occurs when a company takes its existing shares and lists them on an exchange. Since only existing shares are listed by introduction, it follows that no new shares will be issued and no additional funds will be raised. This type of listing only provides the company with a regulated environment within which to operate and a platform to trade shares with public investors in the capital markets. The recent listing by introductions at the bourse was the listing of the Local Authority Pension Trust (LAPTRUST) Imara Income Real Estate Investment Trust (I-REIT) under the Restricted Sub-Segment in December 2022. LAPTRUST held 100.0% of the Imara I-REIT shares with no initial offer to the public,
3. Cross Listing: This occurs when a company that is already listed on one stock exchange decides to list on another stock exchange other than its primary or original exchange. Cross-listing is advantageous in that it gives the listed company a larger scope of access to capital from different jurisdictions and different investors. No new shares are issued. Atlas managed the first cross-listing between the London Stock Exchange and the NSE raising Kshs 450.0 mn, by offering 10% of its 393.9 mn total issued shares for cross-listing on the NSE at a price per share of Kshs 11.5 with a minimum subscription of Kshs 1.0 mn per investor, and,
4. Reverse Listing: This is a rare kind of listing strategy also referred to as back door listing where a company that is not listed on any exchange purchases a listed company and becomes automatically listed by virtue of this transaction. It is common when a company that wants to have access to the capital markets also wants to avoid the time and cost spent in a regular listing. The listing of I&M Bank for instance, was through the reverse acquisition of City Trust Limited (CTL) in 2013.

As above mentioned, the NSE is categorized into different market segments approved by CMA. The segments as stipulated have different eligibility, trading restrictions, and disclosure requirements, prescribed by CMA that companies planning to publicly offer shares through listing have to abide by. Below is a summary of those requirements:

Cytonn Report: Requirements for Public offering of shares and listing
Requirement	Criteria for the Main Investment Market Segment (MIMS)	Criteria for The Alternative Investment Market Segment (AIMS)	Criteria for the Growth Enterprise Market Segment (GEMS)
Incorporation status	It should be a public company limited by shares and registered under the Companies Act
Share Capital	The issuer should have a minimum of Kshs 50.0 mn of authorized issued and fully paid up ordinary share capital	The issuer should have a minimum of Kshs 20.0 mn of authorized issued and fully paid up ordinary share capital	The issuer should have a minimum authorized and fully paid up ordinary share capital of Kshs 10.0 mn and must have not less than 100,000 shares in issue
Net Assets	Net assets immediately before the public offering or listing of shares should not be less than Kshs 100.0 mn.	Net assets immediately before the public offering or listing of shares should not be less than Kshs 20.0 mn	N/A
Free Transferability of Shares	Shares to be listed should be freely transferable and not subject to any restrictions on marketability or any pre-emptive rights
Availability and Reliability of  Financial records	The issuer should have audited financial statements complying with IFRS for an accounting period ending on a date not more than 4-months prior to the proposed date of the offer or listing for issuers whose securities are not listed at the securities exchange, and 6-months for issuers whose securities are listed at the securities exchange. The Issuer must have prepared financial statements for the latest accounting period on a going concern basis and the audit report must not contain any emphasis of matter or qualification in this regard		N/A
Solvency and adequacy of working capital	The issuer should not be insolvent and should have adequate working capital		The issuer should not be insolvent and should have adequate Working capital. The Directors of the Issuer shall also give an opinion on the adequacy of working capital for at least 12 months immediately following the share offering, and the auditors of the issuer shall confirm in writing the adequacy of that capital.
Share Ownership Structure	Following the public share offering or immediately prior to listing in the case of an introduction at least 25.0% of the shares must be held by not less than 1,000 shareholders excluding employees of the issuer. In the case of a listing by introduction, the issuer shall ensure that the existing shareholders, associated persons or such other group of controlling shareholders who have influence over management shall give an undertaking not to sell their shareholding before the expiry of a period of 24 months following listing and such undertaking shall be disclosed in the Information Memorandum	Following the public share offering or immediately prior to listing in the case of an introduction, at least 20.0% of the shares must be held by not less than 100 shareholders excluding employees of the issuer or family members of the controlling shareholders. No investor shall also hold more than 3.0% of the 20.0% shareholding. The issuer must ensure that the existing shareholders, associated persons or such other group of controlling shareholders who have influence over management shall give an undertaking to the Authority not to sell their shareholding before the expiry of a period of 24 months following listing and such undertaking shall be disclosed in the Information Memorandum.	The Issuer must ensure at least 15.0% of the issued shares, (excluding those held by a controlling shareholder or people associated or acting in concert with him; or the Company's Senior Managers) are available for trade by the public. An issuer shall cease to be eligible for listing upon the expiry of 3 months of the listing date, if the securities available for trade by the public are held by less than 25 shareholders (excluding those held by a controlling shareholder or people associated or acting in concert with him, or the Company's Senior Managers) The issuer must ensure that the existing shareholders, associated persons or such other group of controlling shareholders, who have influence over management, shall give an undertaking in terms agreeable to the Authority, and the Securities Exchange restricting the sale of part or the whole of their shareholding before the expiry of a period of 24 months following listing.
Track record, profitability and future prospects	The issuer must have declared profits after tax attributable to shareholders in at least three of the last five completed accounting periods to the date of the offer	The issuer must have been in existence in the same line of business for a minimum of two years one of which should reflect a profit with good growth Potential.	N/A
Dividend policy	The issuer must have a clear future dividend policy.		N/A

Source: NSE

C. Reasons for the low number of listings

Since 2016, Kenya has failed to attract any IPOs and the last time it recorded an IPO was in 2015 when Stanlib investments issued an IPO of the first Real Estate Investment Trust (Fahari I-REIT) at the bourse, which raised Kshs 3.6 bn against the target of Kshs 12.5 bn. The most recent activity at the bourse was the listing by introduction, where no money was raised, of the Local Authority Pension Trust (LAPTRUST) Imara Income Real Estate Investment Trust (I-REIT) under the Restricted Sub-Segment in December 2022. Some of the key issues we believe the Authority needs to undertake in order to attract more IPOs are as follows;

1. Shallow market: The Nairobi Securities Market is regarded as a shallow market since it only offers few instruments and limited liquidity, leaving firms with minimal financing options. The strength of securities markets that make them crucial in the growth of an economy, is their capacity to mobilize long-term savings for financing long-term projects and encourage broader ownership of firms. The intermittent trading of only a few stocks held by a small number of investors makes the NSE less efficient. In comparison to other nations like South Africa, which has a total of 274 listed companies, NSE still lags behind having only 66 listed companies. Moreover, the market still lags behind in terms of liquidity due to overreliance on a few stocks thus discouraging listing as companies with the potential to list stay away out of fear of having failed IPOs,
2. Rigid regulatory framework: The regulatory structure in Kenya’s capital market has been a key impediment to the penetration of capital market products as well as the introduction of new IPOs. The current regulations governing the capital markets securities, public offers, listing, and disclosure is the Capital Markets Regulations Act 2002 do not meet the needs of the ever-evolving market. However, the authority announced that is fast-tracking reforms to update the regulations and has issued the Draft Public Offers, Listing and Disclosures seeking to address emerging issues and market dynamics in order to provide a more enabling environment in the Kenya’s Capital Markets that will spur more listings in the Nairobi Securities Exchange. Moreover, costs associated with compliance with the regulatory and corporate governance framework requirements have been a barrier to potential companies going public. Additionally, most potential companies are reluctant to list since compliance with some of the regulations exposes the company to the public realm which they regard as a loss of competitive advantage,
3. The rise of Private Equity firms providing easily accessible capital: Kenya’s private equity sector has been thriving, with raising capital through private equity companies on the upswing, making companies shy from listing due to the readily available capital. According to the 2024 African Private Capital Activity Report, total volumes of private capital deals in Africa in 2024 rose by 7.7% to 485 from 450 in 2023, demonstrating the resilience and growth of private equity in the continent at large. Private equity funding is more appealing than public floatation for many companies primarily because it allows companies to stay private as they continue to finance their businesses for expansion thus preserving the kind of decision-making power of its shareholders that is typically lost when businesses seek public listing, 
4. Perceived high cost for listing: Most small and medium-sized companies shy from listing shares due to the perceived high direct cost in particular the annual listing fees of 0.06% of the market capitalization subject to a minimum of Kshs 200,000.0 and a maximum of Kshs. 1,500,000.0. Additionally, due to a lack of awareness, the small and medium-sized enterprises which are dominant in the Kenyan economy, depend mainly on bank loans despite raising capital through the capital markets being cheaper. According to a study by the CMA, the percentage cost of floating securities in the capital markets is comparatively lower than bank lending rates. Moreover, IPO costs have ranged from 1.9% to 10.6% from 2012-2016, with the floatation of Eveready at 10.6% being the highest while Deacons in 2016 at 1.9% being the lowest, compared to bank lending rates averaging at 15.1% as of February 2025 according to CBK. Additionally, compared to bank loans, which are annual costs over the tenure of the relevant loans, the cost of floatation is a one-off cost,
5. Size of companies: The Kenya economy is dominated by small and medium-sized companies, the perception that mature companies are the ones that are in good position to issue IPOs makes the small and medium-sized companies reluctant to list for fear of having unsuccessful IPOs. This is an indication that startup companies are not growing enough to the capacity that would make them attractive to investors during IPOs which is the main reason the informal sector still dominates the economy, and,
6. Loss of control: Many companies particularly those that are family-owned or closely held are reluctant to list due to fear of dilution of ownership as well as losing their voting control. The companies typically rely on bank finance to raise additional capital when required. Additionally, most companies avoid going public due to constant pressure from public shareholders. Unlike the original owners, public shareholders usually take a short-term position and they are more concerned with seeing constant rises in the stock's price so they can sell their shares for a profit.

D. Performance of the Nairobi Securities Exchange

The Kenya's stock market experienced a notable turnaround in 2024, with the market witnessing a substantial gain of 34.1% in its all-share index (NASI) to 123.5 in December 2024 compared to the 92.0 recorded in January 2024, a reversal from the 27.7% loss recorded in 2023. This gain was attributed to factors such as alleviated inflationary pressures with the average inflation for 2024 coming in 4.5%, 3.3% points lower than the 7.7% average in 2023, coupled with the 17.4% appreciation of the local currency compared to the 26.8% depreciation in 2023. The chart below shows the performance trend of the Nairobi All Share Index over the last 5 years;

All these combined led to improved foreign inflows into Kenya’s domestic equities markets as investors were drawn by the improved investment opportunities. The improved macroeconomic outlook boosted investor confidence and positioned the market as an appealing frontier for capital allocation. Foreign investors remained net sellers for a fifth consecutive year with the net selling position however decreasing significantly by 81.6% to USD 16.9 bn in 2024 from a net selling position of USD 92.0 bn recorded in 2023. The chart below shows the net activity foreign positions over the last 5 years and 2025 YTD:

The performance of Kenya's stock market relies significantly on a select group of key players, notably Safaricom, the nation's leading telecommunications company. Safaricom, a magnet for foreign investors, constitutes a substantial 34.9% of the index as of 25^th April 2025. According to Emerging Africa Group, this concentration resulted in notable disruptions during the year, as foreign investors, enticed by more promising opportunities elsewhere, divested their holdings. This led to a significant decline in the value of Safaricom shares by 44.5% to Kshs 13.7 per share as at the end of 2023 from Kshs 24.5 per share recorded at the end of 2022. Similarly, other heavily capitalized stocks such as commercial banks, also experienced substantial losses.

Section II: Current State of Other Components of Kenya’s Capital Markets

A. Real Estate Investment Trusts (REITS)

Real Estate Investment Trusts (REITs) serve as pooled investment vehicles enabling individuals to invest in real estate ventures by purchasing units within a trust. Kenya adopted REIT frameworks in 2013, following the footsteps of Ghana and Nigeria, which implemented similar structures earlier.

However, the Kenyan REIT market has struggled to gain momentum since its inception due to several challenges. These obstacles include stringent requirements for trustees, which demand significant capital of Kshs 100.0 mn, limiting participation primarily to banks. Additionally, the process for REIT approval is protracted, and the minimum investment threshold of Kshs 5.0 mn acts as a deterrent for potential investors. Furthermore, there is a lack of awareness and understanding among investors regarding this financial asset class. Consequently, Kenya's REIT market capitalization remains notably lower compared to its counterparts in other regions. The underdeveloped capital markets in Kenya has continually failed to provide alternative means of financing Real Estate developments. Due to this, most property developers rely on conventional sources of funding such as banks, compared to other developed countries. As a result, Kenya’s REIT Market Capitalization to GDP has remained significantly low at 0.1%, compared to other countries such as South Africa with 1.9%, as shown below;

Source: European Public Real Estate Association (EPRA), World Bank, Cytonn Research

Most property developers in Kenya continue to rely on traditional funding sources, such as banks, unlike in more developed markets. Since the establishment of REIT regulations, four REITs have been approved in Kenya, all structured as closed-ended funds with a fixed number of shares. However, none of these REITs are actively trading on the Main Investment Market Segment of the Nairobi Securities Exchange (NSE). Following the recent delisting of ILAM Fahari I-REIT, LAPTrust Imara I-REIT is the only listed REIT in the country, quoted on the restricted market sub-segment of the NSE's Main Investment Market. It is important to note that Imara did not raise funds upon listing. The ILAM Fahari I-REIT, Acorn I-REIT and D-REIT are not listed but trade on the Unquoted Securities Platform (USP), an over-the-counter market segment of the NSE. The table below outlines all REITs authorized by the Capital Markets Authority (CMA) in Kenya:

Cytonn Report: Authorized REITs in Kenya
#	Issuer	Name	Type of REIT	Listing Date	Market Segment	Status
1	ICEA Lion Asset Management (ILAM)	Fahari	I-REIT	July 2024	Unquoted Securities Platform (USP)	Trading
2	Acorn Holdings Limited	Acorn Student Accommodation (ASA) – Acorn ASA	I-REIT	February 2021	Unquoted Securities Platform (USP)	Trading
3	Acorn Holdings Limited	Acorn Student Accommodation (ASA) – Acorn ASA	D-REIT	February 2021	Unquoted Securities Platform (USP)	Trading
4	Local Authorities Pension Trust (LAPTrust)	Imara	I-REIT	March 2023	Restricted Market Sub-Segment of the Main Invesment Market	Restricted

Source: Nairobi Securities Exchange, CMA

B. Secondary Bond Market

Activity in Kenya's secondary bond market improved significantly in 2024 with secondary bond turnover increasing by 55.7% in 2024 to Kshs 1,505.9 bn from Kshs 666.9 bn in 2023, attributable to increased investor appetite for fixed income securities driven by the high interest rates. So far in 2025 activity in Kenya’s secondary bond market has been on an upward trajectory recording a 45.4% growth in Q1’2025 to Kshs 667.8 bn, from Kshs 459.3 bn in Q1’2024. The growth in activity can be attributed to increased market liquidity, as investor lock in the attractive rates in anticipation of further rate cuts as the yield curve normalizes. The charts below show the secondary market bond turnover and the yields on Kenya’s 10-year Government bond;

 

This decline in yields reflects a significant shift in investor sentiment driven by successful debt management strategies. Key factors contributing to this positive outlook include the government’s timely repayment of the USD 2.0 bn Eurobond that matured in June 2024, which alleviated concerns about potential default and demonstrated fiscal responsibility.  In February 2025, the Kenyan government continued its proactive debt management by initiating a USD 900.0 mn buyback of the 2019 Eurobond maturing in 2027. This buyback was financed through a new USD 1.5 billion Eurobond with a 9.5% coupon rate, maturing in 2036. The move aimed to smooth out the country's debt maturity profile and reduce refinancing risks. Additionally, the stronger Shilling, the eased inflation and improved foreign exchange reserves have collectively enhances investor confidence, reducing the risk premium associated with Kenyan sovereign assets

Section III: Challenges Facing Kenya’s Capital Markets

Kenya's capital market has developed and reached several significant milestones over time, which have spurred the country's economic expansion. Some key developments in the capital markets over the last year include:

1. The Capital Markets Authority (CMA) introduced the Draft Capital Markets Regulations, 2025 which seek to establish a comprehensive governance framework for market intermediaries in Kenya’s capital and commodities markets. Issued under the Capital Markets Act, the regulations mandate rigorous standards on board composition, independence, accountability, internal controls, risk management, and transparency. Key provisions include mandatory independent directors, restrictions on related-party representation, fit-and-proper criteria, robust internal audit and compliance systems, and clear separation of powers between the board and management. The framework also enforces detailed reporting requirements, ensures alignment with global best practices, and holds individuals personally liable for non-compliance signaling a strong move towards greater integrity, investor protection, and sustainable market confidence. CMA is currently seeking comments from stakeholders and the general public on the draft Regulations,
2. The Capital Markets Authority (CMA) approved new rules to curb speculative trading in troubled firms listed on the Nairobi Securities Exchange (NSE). Key changes include cutting the daily price movement limit from 10.0% to 5.0% for such companies and establishing a dedicated Recovery Board (RB) to host firms facing financial or governance issues. Affected firms will be given two years to recover or risk delisting, with a mandatory minimum trade size of 100 shares to reduce market manipulation. This move aims to enhance investor protection and market integrity.
3. Morgan Stanley Capital International (MSCI) added two more Kenyan firms to its frontier markets indices, boosting investor confidence in the Nairobi Securities Exchange (NSE) as it seeks to sustain growth after years of decline. Standard Chartered Bank Kenya joined the main frontier markets index alongside existing firms like Safaricom, Equity Group, and EABL. Additionally, HF Group was added to the frontier markets small-cap index, joining other notable firms such as BAT Kenya and KenGen.,
4. The Court of Appeal refused to suspend a High Court ruling that blocked the sale of 11 state-owned enterprises. The government had planned the privatizations to reduce losses and ease the burden on public finances. However, the judges found that the National Assembly failed to show sufficient public interest to justify overturning the decision,
5. Centum Investment company announced plans to set up Kenya’s first dollar denominated income Real Estate Investment Trust (I-Reit) at its Two Rivers special economic zone in Nairobi. The initial investment will be an office tower at its Two Rivers International Finance and Innovation Centre
6. In January 2025, the NSE lifted the suspension on trading Kenya Airways shares after 4.5 years, following the airline’s return to profitability and the withdrawal of the National Aviation Management Bill 2020. The trading of the group’s shares was suspended in July 2020 mainly due to implementation of the National Aviation Management Bill 2020,
7. The East African Securities Exchanges Association (EASEA) launched the East Africa Exchanges (EAE) 20 Share Index. The EAE 20 Share Index comprises of the top 20 listed companies in Kenya, Tanzania, Uganda and Rwanda securities exchanges.

Despite the major advancements in the Kenya capital markets, Kenya still lags behind the capital markets of developed countries. This is evidenced by the low Kenya’s Mutual Funds/UTFs to GDP ratio that came in at 2.6% at the end of FY’2024, significantly lower compared to an average of 50.6% amongst select global markets an indication of a need to continue enhancing our capital markets. Additionally, Sub-Saharan African countries such as South Africa and Namibia have higher mutual funds to GDP ratios coming in at 61.5% and 43.1%, respectively as at end of 2020, compared to Kenya. The chart below shows select countries’ mutual funds as a percentage of GDP:

*Data as of December 2024

Source: World Bank Data

Some of the barriers that hinder the growth of the capital markets in Kenya include:

1. Restrictive regulatory framework - The current regulatory framework governing capital market securities, public offers, listing, and disclosure is established by the Capital Markets Regulations Act of 2002. However, it fails to adequately cater to the evolving needs of the market. In response, the regulatory authority has announced plans to expedite reforms aimed at updating these regulations. A Draft Public Offers, Listing, and Disclosures was issued to address emerging issues and market dynamics, with the goal of creating a more conducive environment for Kenya's Capital Markets. The objective is to encourage more listings on the Nairobi Securities Exchange. Additionally, the costs associated with compliance to regulatory and corporate governance requirements have posed a significant barrier for potential companies considering going public. Moreover, many potential companies are hesitant to list due to concerns that compliance with certain regulations could expose them to public scrutiny, potentially undermining their competitive advantage,
2. Unfavorable conditions for Private Offers - Unregulated markets operate under agreements between participating parties and thus lack oversight from a specific regulator. However, the offering process typically adheres to defined rules and guidelines. Regrettably, the expansion of unregulated products in Kenya's capital markets remains restricted due to the absence of regulatory backing. This situation has perpetuated the misconception that private offers pose safety risks, discouraging investor participation and constraining businesses from utilizing private offers to secure funds,
3. Dependence on Banks for Funding over Capital Markets - In developed economies, the majority of businesses secure funding through capital markets, where capital market financing comprises 60.0%, while funding via banks stands at 40.0%. However, in Kenya, the situation is reversed, with capital markets contributing only 1.0%, while banks account for 99.0%. Beyond the statistical data, there is a perception that banks, rather than capital markets, dictate the economic agenda, leading to an imbalance in their respective roles in driving economic growth. Additionally, inadequate knowledge among some investors and general public has led to less participation in the capital market and overreliance on bank funding,

Source: World Bank

4. Low Investor Participation - Despite efforts to promote investor education and awareness, there remains a significant portion of the population that is not engaged in the capital markets. Factors such as low financial literacy levels, cultural attitudes towards investment, and a preference for traditional savings methods contribute to this issue,
5. Challenges in the approval process for issuers and market participants - The expenses and intricacies involved in obtaining approval for issuing securities on the Nairobi Securities Exchange (NSE) have deterred potential issuers from participating in the capital market. The lack of clear process of adherence to the approval framework, creates delays and affects growth of the market. This is evident from the fact that only 62 companies have been listed on the NSE since its official declaration, and,
6. Previous corporate failures - Certain investors have experienced financial losses in the capital markets previously. This has resulted in a negative perception of the market for some, making it challenging for them to engage in new offerings should they arise.

Section IV: Recommendations and Conclusion

From the issues identified, we are of the view that the following should be done to facilitate growth in the number of new listings as well as development of Kenya’s Capital Markets:

1. Remove Specific Obstacles to Capital Formation from Capital Markets: Under-developed capital markets make it harder to develop pools of capital focused on projects, particularly in the private markets, to complement efforts by the government. In Kenya, the main source of funding for real estate developers is banks which provide close to 99.0% of funding as compared to 40.0% in developed countries. This implies that capital markets contribute a mere 1.0% of real estate funding, compared to 60.0% in developed countries. To increase funding from capital markets, we will need to open our capital markets from the current restrictive rules and regulations, which serve to constrain capital markets development. Specifically, we need to;

• Enable Unit Trust funds to have as many bank custodians as necessary to serve their clients,
• Reduce the minimum investment required for development REITs from the current Kshs 5.0 mn, which is too high given the current median income of just Kshs 50,000 per month,
• Expand room for private offers to increase the diversity of funding available in the market,
• Allow for specialized collective investment schemes so that investors can invest in funds focused on housing, as current rules only allow up to 25.0% investment into one asset class, and,
• Reduce the capital requirements for a REIT Trustee from Kshs 100.0 mn, which has limited the REIT trustees to less than 4 players.

2. Fast track Privatization of State-Owned Enterprises: In October 2023, the government published the privatization act of 2023 which sought to address the long processes of approval of State-Owned Entities (SOEs) for privatization and provide a new framework for the process. The act was declared unconstitutional by the high court last year a decision that was upheld by the court of appeal. The repeated legal setbacks highlight the need for a more robust and constitutionally sound approach to reforming the privatization process.
3. Mode of appointment of the Chief Executive Officer of the Capital Markets Authority: The current CMA Act states that the CEO shall be appointed by the Minister and shall hold office on such terms and conditions of service as may be specified in the Act. Given the importance of the capital markets and its role in supporting the growth of the economy, the appointment should be done by the President with the approval of the Parliament, similar to how the Central Bank of Kenya (CBK)’s Governor is appointed. Additionally, the Parliamentary vetting process will promote transparency as the capital markets players, investors and Kenyans in general will be able to participate in the appointment,
4. Promote investment in Small and Medium Sized companies with growth potential: Following the increasing number of Small and Medium Sized companies, financing them through the securities exchange is key to the growth of an economy. However, the challenge usually arises in onboarding investors who are willing to take the risk in these types of companies given some of them have low-profit history while others are less liquid. However, some of the ways that can be used to promote and expand small and medium-sized enterprises, include the introduction of tax incentives for investors willing to invest in small and medium-sized companies to facilitate financing and boost liquidity and growth,
5. Investor compensation levy for CIS and REITs: Investor compensation levy for CIS and REITs: An Investor Protection Fund, in relation to a financial market, is a fund consisting of contributions made by the market participants or financial levies by the market’s regulators. Its main purpose is to ensure the protection of investors' investments against the loss sustained or adverse impact of the breach on the person or persons claiming compensation or restitution. The solution is to stimulate capital markets as a complementary alternative to banking markets, and hence the intended revision of the current CIS regulations has come at an opportune time,
6. Market Transparency: The degree to which markets are transparent affects investors' decision making. Transparency of trading allows efficient price setting and thus increases confidence in the market. Therefore, it is key for the regulator to enforce measures that raise the level of transparency in the market in order to make it more attractive to investors. This will help to boost its liquidity and consequently attract potential companies who are reluctant to go public due to the inefficiency in the market,
7. Create a Culture of Participation in the Stock Market: It is essential to disseminate knowledge of having a candid stock market through a listing of more companies in order to broaden the financial markets. This can be implemented by having a specific day in a calendar for financial education where the general public is educated on the importance of investment and financial culture,
8. Improve Tax Incentives for New Listings: The authority needs to develop measures that are favourable to going public that will enable it to attract more companies and have a powerful and more developed securities market. In order to attract more listings, the authority needs to improve its tax treatments for dividends as well as capital gains,
9. Train and offer Independent and free assessment to companies: In order to attract more listings, the authority needs to offer training on matters of financial transparency, sustainability, and corporate governance to potential companies as well as offer free assessment in order to help them position themselves for transitioning to the public markets, and,
10. Simplify regulations and make it easier to access listing at the securities exchange market: The simplification of obtaining listing can encourage companies to go for listing at the stock market and take advantage of public finance in the market to gain size and boost growth than private financing through risk or venture capital. The general cost of listing should also be reduced in order to make it more favourable and appealing for IPOs.

We firmly believe that the implementation of these recommendations will not only address the current challenges hindering capital market growth but also pave the way for a more vibrant and resilient financial ecosystem. Additionally, they will help increase the market efficiency and consequently boost investors’ confidence. Having an active capital market is paramount for fostering economic growth, driving innovation, and enhancing financial stability. Vibrant Capital Markets are also key to attracting SMEs to the capital markets structure, given that they form the bulk of businesses in Kenya.

Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.