What pushes retail investors away from financial markets

An employee makes notes in front of an electronic stock information screen inside the Nairobi Securities Exchange Ltd. [Bloomberg]

Kenyans have given the capital markets a wide berth as a result of high transaction fees, low market awareness and a myriad of regulatory red tape.

A survey conducted by the Institute of Certified Investment and Financial Analysts (Icifa) on the challenges that retail investors face in Kenya's financial market also found the regulatory red tape and inadequate capital as major deterrents to investing.

"Out of the more than 15,000 respondents, 70 per cent proposed a raft of measures to restore confidence in the capital markets which include the introduction of more products, borrowing and lending of securities to retail investors, investor education, promoting ethics within financial services, and better enforcement by the industry regulators," said Icifa Chief Executive Diana Muriuki during the report's launch in Nairobi last week.

Others include free access to Nairobi Securities Exchange (NSE) market data, elimination of investment bureaucracy and improvement of investor relations.

Trickle-down model

Ms Muriuki said the survey was conducted to provide insights into the paradigm shift witnessed in the last General Election where the bottom-up economic model was favoured to replace the trickle-down model.

"The bottom-up model advocates for the enactment of policies that are favourable to SMEs, reduction of the taxation burden and creating cheap credit access to SMEs to facilitate entrepreneurship and innovation," she said.

"The bottom-up model advocates for an increase in entrepreneurship and innovation, therefore improving the gross domestic product of the country that will directly affect variables such as individual incomes, inflation and investment appetite."

She said with continued and active consumer education on products, services and procedures of the financial markets, retail investors can be better positioned to make sound investments in anticipation of the realisation of the bottom-up model.

Key players

The report recognises retail investors as key players in the market but notes that awareness of service or product providers and trading companies is low.

Speaking during the launch, Investment Promotion Principal Secretary Hassan Abubakar said his department would fully support innovation and reforms in the investments industry.

"I will be working closely with Icifa and all the other market players to ensure our capital markets open to retail investors within a conducive environment and offering tangible returns," he said.

The report classifies the Kenyan retail investor as an individual with or without professional knowledge of the financial sectors, with an average monthly income ranging between Sh50,000 and Sh200,000.

The retail investor is also both a long-term and short-term investor, and whose primary reason for investing is a combination of income and capital growth.