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Under-Utilization of the Kenyan Money Markets

The Kenyan money markets this year has witnessed an introduction of newer financial instruments at the Nairobi Securities Exchange, a feat which as most connoisseurs would agree, was long overdue. On July 11th 2019, the NEXT derivatives market was unveiled at the bourse and in effect paved the way for the investors to channel more resources into the financial markets.

The Kenyan financial market is a home to over 60 actively listed companies, REITs, bonds and most recently the newly introduced derivatives of single stock futures and equity index futures which are based on the NSE 25 share index, a metrics that represents the performance of blue chip firms and that was launched by the exchange in October 2015. These instruments enable individuals and institutions to invest and grow their wealth, besides being used as instruments of hedging against unfavorable asset price movements. Moreover, it also serves as a gate way through which the listed companies are able to pool together the required capital and thus initiate large development projects in their line of industry.

The significance of the whole financial markets system to our economy cannot be underestimated. A vibrant financial market is a key indicator of an improving economic performance of the country. This is majorly because it is a channel through which the economy is stimulated through investments, job creation, redistribution of resources and promotion of local industries through the Growth Enterprise and Market Segment (GEMS).

However, there is a worrying disconnect between what is happening in the financial markets and what the public ought to be knowing. It is a blue state of affair to note that to an average Kenyan the idea of the financial markets and the available trade instruments is still superfluous. Recent studies on the uptake of financial products in both the money markets and the capital markets has indicated a snail-paced uptake, with majority of individuals not knowing the modes of operations of the markets, the various products available and how to grow their wealth from these markets.

Financial markets aficionados indicate that up to 70% of the investments at the NSE are majorly done by large corporations such as pension funds, insurance houses, banks and High Net worth Individuals (HNWI). The rest of the investments are done by foreign firms who pose the risk of capital flight to the economy. Individual investors who have no privilege of access to a substantial amount of capital are disinclined to investing in the financial markets with the key reason being the lack of understanding of the products and the markets itself. The seeming complexity of the market coupled with obstinate information asymmetry, inability to value the risk-return conundrum and the rather high cost of market data are some of the impediments towards achieving an above average uptake in financial market products.

To conclude, the onus is on the financial markets policy makers such as the market itself i.e. the NSE, the regulator, CMA and other agencies that are directly involved to initiate and intensify public financial markets literacy programs to demystify the financial markets. The government should also formulate a framework that warrants incentives to new individual investors so as to boost market participation. Efforts such as the annual NSE investment challenge, a partnership between NSE and Smart Youth Ltd and the financial markets training in partnership with Abojani institute are laudable but yet to be completely effective.

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