Strengthening and Deepening of Capital Markets in Kenya

Project Development Objective (PDO)

The purpose of this project is to support the Kenya Capital Markets Authority (CMA) to implement aspects of its strategic plan to strengthen and deepen the capital markets by creating a robust regulatory framework and institutional arrangements, strengthening investor protection, and deepening products and services.  


CMA aligned its 2013–2017 strategic plan, which is a detailed assessment of the Kenyan capital markets, with  “Vision 2030” objectives. The strategic plan identifies five areas that need further strengthening: (a) regulation and supervision of the markets, (b) access to market products and services, (c) investor education and public awareness, (d) the efficiency and integrity of the capital market infrastructure and institutional arrangements, and (e) the institutional capacity of the authority. Amid an increasing appetite for investment, especially from institutional and foreign investors, there is also a need to strengthen key areas of the regulatory framework, increase liquidity, improve investor protection, and take steps to promote new issuance. 
Against this background, CMA will address the specific regulatory concerns and corporate governance challenges through this project.


In close collaboration with CMA and other stakeholders, the project includes the following components:
Component 1: Legal and regulatory
The project is (a) drafting a regulatory framework and rules for securities lending and short selling, (b) providing measures to improve liquidity of the Nairobi Securities Exchange and drafting rules to implement these measures, and (c) drafting a regulatory framework for the over-the-counter (OTC) market.  
Component 2: Corporate governance 
The project team is updating the corporate governance regulatory framework, as proposed by the corporate governance blueprint and code, by providing CMA with draft (a) disclosure regulations, (b) corporate governance provisions for the listing rules, and (c) corporate governance regulations and guidelines for the growth enterprise market segment (GEMS) market. In addition, the team is developing training curriculum and materials for CMA to use with companies looking to access the GEMS market and with state corporations working to meet listing requirements and corporate governance standards of the equity market. The project team is also supporting CMA in drafting a stewardship code for institutional investors.

Expected Outcomes

The main expected outcomes of this project in the short to medium term are as follows: 
1.  Increasing liquidity in the stock market through the introduction of securities lending and short
     selling and measures to improve liquidity 
2.  Improving investor protection and increasing issuance pipeline through the improved and
     appropriate regulation of the OTC market 
3.  Expecting higher standards of corporate governance, investor protection, and investor
4.  Encouraging the development of an issuance pipeline for initial public offerings on the GEMS
     market by increasing the issuer’s capacity in corporate governance through a training program 
The expected long-term impacts and causal link of the new legal and regulatory framework are increased liquidity, depth, and diversity of the equity market through strengthened regulation, standards, and oversight environment. In addition, improved investor protection and governance will expand private sector financing.