In recent months, the Kenyan government has stepped up efforts to promote diaspora investment flows into the country’s capital markets to boost trading and enhance liquidity.
Financial services sector has welcomed these measures particularly coming on the back of local and international economic headwinds that have eroded the margins for companies across several sectors.
Kenya’s capital markets, like many across Africa, are still relatively underdeveloped when stacked against economies in Europe and Asia. There is broad consensus on the need for new investment products to stimulate participation among local and retail investors.
This is part of reforms by the authority and the NSE to encourage more firms to list and break the market concentration that is at the heart of East Africa’s biggest bourse.
In 2022, the CMA scrapped the restriction of IPO listings to public firms that are limited by shares and registered under the Companies Act. Other proposed reforms include relaxing strict profitability benchmarks that discouraged new start-ups from raising capital through the bourse.
These reforms will stimulate participation at the country’s capital markets with technology playing a central role in bridging the gap.
Online trading platforms now spare investors the manual and cumbersome process of opening trading accounts with purchase of securities made possible anywhere in the world in real time. A process that used to take two weeks now lasts only minutes on a mobile phone. This presents an opportunity for diaspora remittances, which now accounts for the largest proportion of foreign exchange surpassing tourism that was traditionally the highest earner.
Diaspora remittances have been instrumental in cushioning the country’s trade deficit, and during Covid-19 pandemic, thousands of Kenyan households relied on monies sent from abroad to survive.
A diversified investment portfolio at the NSE means Kenyans abroad have a wider range of solutions to choose from in meeting their financial goals.
Service providers such as Absa Kenya are channeling billions of shillings in long-term investment into platforms that support citizens in the diaspora in achieving their financial goals including saving, investing and acquiring property.
Absa’s Unit Trust Fund launched in 2021 today reports significant traction among investors. The firm’s strategy includes identifying correctly priced and/or undervalued assets and strategically embedding them in the appropriate economic cycles for maximum returns within acceptable risk tolerance levels.
Remittances are not dissimilar to other banking services where the goal is to have active and painless interactions between clients and their service providers.
In fact, the diverse nature of currencies, financial jurisdictions and intermediaries mean service providers need to invest more deliberately in customer service and retention.
This means sustained investor education on different products available to potential investors and gains to be made. There is much room for improvement with market indicators pointing to an investor appetite in government and corporate debt.
According to CMA the value of corporate bonds traded at the NSE surged from Sh11.8 million in the second quarter of 2023 to Sh107.6 million in the third quarter. Financial service providers continue to roll out consumer awareness programmes that complement initiatives by the Central Bank of Kenya, (CBK) and the Kenya Bankers Association, (KBA).
It would also be interesting to have more innovative products targeting the diaspora market arise from the regulatory sandboxes and incubation programmes ran by the, CMA and NSE.
There is a need to leverage region-wide initiatives such as the African Diaspora Finance Corporation (ADFC) and the advantages of scale that they provide.
The ADFC is a legacy project backed by African Union States and is widely endorsed as an independent, continental finance institution working together with other African and global finance, development, and diaspora institutions.
Among its first missions involves exploration and development of remittance match funding mechanisms and the issuance of diaspora bonds and mutual funds.
The goal is to coalesce region-wide efforts to harness and channel diaspora savings and resources into socially responsible and impactful ventures in priority sectors in Africa.
Governments and industry players should work together to facilitate the anticipated gains of the ADFC within practical timelines.
The initiatives applied by both State actors and the private sector to have more Kenyans in the diaspora invest back home while commendable, are just the beginning of what should be a deliberate and sustained effort.
The looming mass-adoption of innovations such as crypto-assets and the emergence of new trading blocs such as the African Continental Free Trade Area, AfCFTA signal new dynamics in cross-border securities investment.
A more diversified NSE portfolio is not only necessary to remain competitive, but also necessary to facilitate the seamless connection that Kenyans in the diaspora seek when they decide to invest back home.
The writer is the CEO of Maudhui House Limited, a public affairs consultancy.
