The Stock Exchange Market in Kenya

The Stock Market is a market which deals in the exchange of shares of publicly quoted companies, government, corporate and municipal bonds.

The Nairobi Stock Exchange( N.S.E) was formed in 1954 and 54 years later it is now one of the most active markets in Africa. When one person buys a share he/she owns a fraction of the company; whereas when one person buys a bond he/she becomes a creditor of the company. A shareholder is allocated a fraction of the profits in terms of dividends, bond holders will be paid a percentage interest on their bond value in agreed interval until the bond reaches maturity.

The N.S.E is listed with more than 51 listed companies and has a capitalization of about Kshs.1.31 billion. There are 70 securities including Common Shares, Preferred Shares, and Debt Securities listed on the N.S.E. The Capital Markets Authority approves the issue price, the timing of sales and the allotment plan for shares. The Government has also liberalized the Capital Market to allow foreign participation.

The N.S.E Market plays an important role in the process of Kenya's economic development in the following ways:

i) The N.S.E market enhances the inflow of international capital.

ii) Companies can also raise extra finance essential for expansion and development by issuing shares.

iii) It helps mobilize domestic savings thereby bringing about reallocation of financial resources from dormant to active agents.

iv) It also facilitate government’s privatization programmes.

v) Securities represent amounts of wealth, and can be used as collateral to secure financing such as loans from lending institutions.

vi) Shares are traded in units that are affordable by investors of different income levels.

vii) Shares and bonds are easily transferable at low transaction cost as compared to other assets such as real estate.

viii) The range and variety of securities listed in the Nairobi Stock Exchange provide investors an opportunity to minimize their exposure to specific company risk by spreading their investments across a wide selection of securities.

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In 2008, Safaricom's much-hyped public offering will undoubtedly test the capacity of players in capital markets to manage and handle an issue that will bring in a massive 10 billion new shares in a market with 14 billion shares. The sale of the Government's 25 per cent stake in Safaricom, the country's most profitable company, is scheduled for March 28 and the IPO has been priced at Sh5 per share for a minimum of 2,000 shares per person. It will close on April 23, with shares expected to start trading at the Nairobi Stock Exchange (NSE) on June 9.

The fate of more than 100,000 investors whose shares are suspected to have been irregularly sold by the troubled Nyaga Stockbrokers is unknown. Finance minister Amos Kimunya's silence over the credibility issues in the capital markets has further continued to raise eyebrows. The new approach of buying Safaricom IPO shares via internet is expected to reduce long queues at brokerage houses. To apply for shares online, an investor will be required to have a CDS account. Applicants will log onto www.kenyaipos.co.ke to place an application. Online application of shares is a practice well entrenched in the developed world and has helped reduce the IPO processing time to a minimum of four days.

The Safaricom IPO is expected to push the NSE market capitalization to more than the Sh1 trillion mark, from the current Sh860 billion. The Government is offloading 25 per cent stake or 10 billion shares through the NSE, an offer expected to net at least Sh50 billion in gross proceeds to finance development programmes. The offer has been divided into two pools - domestic and international. Domestic investors have been allocated 65 per cent while international investors will take the remaining 35 per cent.