Points extracted from Jimnah Mbaru’s – Nairobi Stock Exchange Chairman - published statement on the growth of Kenya’s stock market.
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1. Increased individual domestic savings arising from increased incomes from the milk sector, sugar, maize and horticulture, among others. we must also bear in mind that many parents are no longer paying school fees for primary school education since the government implemented free primary education, hence, their disposable incomes are higher

2. Expansion in the size of funds held by pension funds following reforms that have been carried out by the retirement benefits authority (RBA) since 1988. Previously, most pension funds were overweight in property investments and underweight in equities. Many of these pension funds are rebalancing their portfolios in line with RBA’s regulations, hence, their push into equities market. It should be noted that the size of the pension funds is now in excess of KShs 200 billion and continues to grow annually.

3. Increased in investments in securities by the National social Security Fund (NSSF) as it tries to balance its portfolio as per the RBA guidelines. NSSF holds over KShs 50 billion mostly in real estate and treasury bonds

4. Increased insurance premiums as the sector has become more aggressive in marketing innovative life assurance products such as funeral policies, travel insurance, education plans and mortgage protection policies among others. insurance companies have also expanded with the neighbouring countries and continue to tap new premiums

5. Increased retained earnings by the corporate sector following improved profitability. This is evident from the many companies that have achieved substantial recovery after years of depressed growth including Kenya Airways, Kenya commercial Bank, Barclays Bank of Kenya, East African Cables and Mumias Sugar company, just to mention a few.

6. Increased profitability of small and micro enterprises due to improved market conditions including competition and greater transparency in the award of government tenders.

7. Rapid growth in mutual funds and unit trusts, giving small investors an opportunity to invest their small savings in large, profitable firms. Some of these mutual funds include Old Mutual and British American unit trusts. Currently, these unit trusts hold over KShs 10 billion.

8. Substantial remittances by Kenyans in the Diaspora, who are remitting back to Kenya an estimated USD 750 million – USD 1 billion (KShs 50-75 billion) annually through western union and commercial banks. Most of these funds find their way into the stock market and the real estate, among others.

9. Increased inflows from international investors, including speculators, dedicated emerging market funds and hedge funds. Presently, international investors contribute about 15 per cent of the stock market turnover. Most of these funds are remitted to Kenya through commercial banks who act as custodians for these investors. The Central Bank of Kenya keeps track of where these funds are coming from.

10. Availability of low interest rate and unsecured personal loans to individual investors and similar business loans to small and medium enterprises. The impact of this lending was demonstrated during the recent Kengen primary share issue

11. First time investors in the stock market. The Kengen issue, for example, attracted 240,000 investors, of which majority were first time participants in the equities market. These new investors include the youth and students who are at home with financial assets, as well as trading on the internet.

These sources of funds have not just developed by accident. They have expanded because of the attractiveness of the Kenyan economy due to economic recovery arising from better macro-economic management, which is demonstrated by low fiscal budget deficit, low inflation, low interest rates and a competitive exchange rate. The Kenya Revenue Authority has also increased its tax collections from about KShs 200 billion in 2003 to KShs 375 billion in 2006. The increased tax revenue has contributed to less borrowing by Government from the money market, hence, the low interest rate environment.

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