Kenyan Capital Markets Still Regulated by 2001 Regulations
Kevin Namunwa  |  Oct 1, 2020

In a proper set up, Capital Markets can help turn around the economy of a country. It has already been evident in developed countries where Capital Markets have helped improve through the jobs creation and funds collection.

In Kenya, however, this is not the case as Capital Markets have not yet been discovered as a possible solution to the economic issues ailing the country. Banks are seen as a better option to collect and/or provide funds over Capital Markets.

According to Cytonn Group Chief Executive Officer (CEO), Edwin Dande, the main reason why Capital Markets are not providing enough solutions to the Kenyan Economy is because of how they are regulated.

The Cytonn CEO says that the constitution used to regulate Capital Markets in Kenya should be updated to allow Capital Markets to play its part in building the economy.

Mr. Dande went ahead to pinpoint the aspects of Capital Markets regulation that need to be changed.

Expound Trustee Eligibility and Allow Kenyans to Invest Any Amount

“Trustees for Collective Investment Schemes must be a bank, and currently in Kenya, only 5 banks are authorized to be Trustees for all the Collective Investment Schemes run by Fund Managers,” Dande said.

“It’s unconstitutional because it favors banks and also because it’s inconsistent with the Trustees Act, and has huge conflicts of interest as some Trustees are also Money Market Fund providers,” he firmly added.

He further noted that the minimum amount Kenyans are allowed to invest in some Capital Markets products locks out many.

The current minimum for investing in high yield funds is Ksh 1 million, while the minimum to invest in a Development REIT is Ksh 5 million. For a country where the median income is Ksh 50,000, the above limits are too high. They seem designed to exclude the regular investor from capital markets.

“High investment minimums discriminate against the investors who actually need the benefit of regulated structures to protect their investments, especially in alternative asset classes,” the Cytonn CEO commented adding that investors should decide their own minimums.

Conflict of Interest

In Kenyan Capital Markets, there are players in the banking sector who make key decisions on Capital Markets. This is another issue that the Cytonn CEO thinks is stalling the growth of Kenyan Capital Markets.

“We can’t have players in the banking sector firmly controlling the capital markets sector. Just as we have liberalized the banking sector and the political arena, we need to rework the governance of the capital markets to get rid of conflicts of interest,” Dande noted, “We should also allow for Mutual Fund / CIS structures where investors elect their Board.”

The Cytonn CEO concluded by calling for the rules and regulations that exist to be taken seriously for a start.

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