The Nairobi Securities Exchange (NSE) is set to introduce fractional investment in stocks by December 31, 2024. This development is expected to reshape the accessibility of the Kenyan stock market, enabling more retail investors to participate by lowering the barrier to entry.
The idea of fractional investing at the NSE has been in development for several years, driven by the need to address the challenges faced by the Kenyan stock market. The NSE’s poor performance in 2022, when it was ranked among the worst-performing major stock markets in Africa, highlighted the need for innovation. The market’s decline was partly due to foreign investor capital flight and the high costs associated with buying shares, which made it difficult for many potential investors to participate.
To address these challenges, the NSE began exploring the concept of fractional investing. We first saw the launch of the Hisa app which offered a solution by allowing users to engage in fractional investing for over 6,000 US stocks and Kenyan stocks. This marked the first significant step towards making the stock market more accessible to the broader population.
In December 2022, the NSE officially announced its intention to introduce fractional investing in Kenyan stocks. This would allow investors to purchase less than a full share of stock, significantly lowering the cost of entry. For instance, before this change, buying 100 shares of a stock priced at KES 500 required an investment of KES 50,000, a prohibitive amount for many retail investors.
The model that the NSE is adopting draws inspiration from South Africa’s EasyEquities platform. In this model, stockbrokers or fund managers purchase and hold shares, while allowing investors to buy fractions of these shares. Although fractional investors may not have voting rights or be directly recognized by listed companies, they still benefit from price movements and dividends proportional to their investment.
The introduction of fractional investing is expected to increase market liquidity by enabling more people to invest in stocks that were previously out of reach due to high costs. It also promises to boost trading activity by making the market more accessible to a wider audience.
The initiative gained further momentum in 2023 when the NSE reaffirmed its commitment to rolling out fractional shares trading. Geoffrey Odundo, the CEO at the time, emphasized that this move would attract more retail investors by reducing the amount of capital required to invest in the stock market.
In 2024, the NSE saw a change in leadership with Frank Mwiti taking over as CEO. Mwiti has been instrumental in pushing forward the fractional investing agenda as part of his broader five-year strategy aimed at revitalizing the Kenyan capital markets. Under his leadership, the NSE has focused on enhancing market accessibility and innovation, with fractional investing being a key component of this strategy.
What to Expect with Fractional Investing
As the December 31, 2024, deadline approaches, the NSE is finalizing the infrastructure needed to support fractional trading. This new platform will allow retail investors to purchase percentages of stocks rather than whole shares, addressing the long-standing issue of high entry costs.
Currently, investors are required to buy a minimum of 100 shares, which has limited access to high-priced stocks. The introduction of fractional investing at the NSE is expected to align Kenya’s capital markets with global trends, where similar models have been successfully implemented in countries like India and South Africa. The benefits include increased affordability, diversification, and the potential for long-term investment growth, even with smaller initial investments.
Discover more from Techish Kenya
Subscribe to get the latest posts sent to your email.
