The Over The Counter (OTC) market is a greatly untapped market in Kenya. As it currently is in Nairobi, the market is veiled in secrecy and thus a great majority of the potential participants are unaware of it. OTC markets are exchanges in which small and medium sized companies can trade their shares. Examples all over the world include the MESDAQ in Malaysia, AltX in Johannesburg, NASDAQ in the USA and the AIMS in UK. The most appealing in this case are the pinksheets which are found in the USA one can check them out at However, the AltX in Johannesburg would be a good template ( due to its proximity.

A study commissioned by the Capital Markets Authority (CMA) and carried out by Vas Consultants found that 63% of individual investors and 67% of potential OTC companies were aware of the presence of the OTC market. However, these stats have their shortcomings as the studied sample size was not large enough to warrant any inferences. It should be noted that a good number of both individual investors and potential OTC markets are unaware of this presence. So why should they be aware? and why should they even care?

One of the biggest benefits to small and medium sized companies is that they can raise cheap capital. Currently, the interest rate environment in Kenya makes it very costly to raise capital. The latest CBK monthly bulletin puts commercial bank lending rates at around 14.7%. Furthermore, their informal means of raising capital are usually tested in such economic conditions. The fundamental thing about business is the cost of capital and cheaper capital would be welcome news for everyone involved. The capital raised can be used for expansion and investment. Hopefully this will also lead to banks lowering their rates as they try to compete for capital. This would lead to a robust monetary climate that would benefit the Kenyan business community.

However, personally the greatest benefit would be to investors. I have always been of the belief that the best companies in Kenya are unlisted and can be considered to be medium/small companies. For investors the ability to buy into these companies would offer enormous chances for wealth creation. My time working in Industrial area albeit for a very short time exposed me to the real face of Kenyan business through seeing companies like Double White, Lino Stationers, Kenya Grange Vehicle Industries and others. These very profitable companies would be the potential OTC participants. Furthermore, the same study by VAS consultants found that a formal OTC market would offer an exit route for investors who no longer want to have part ownership of the company. As it is, the informal market makes it hard for investors to sell of and move on. Finally, the formal market would lead to increased quality and responsibility in financial reporting that would offer a sense of safety for investors.

As this blog is mainly concerned with chances for capital accumulation, I strongly recommend that the CMA expedite their creation of the formal OTC market so that potential investors can participate and own part of Kenya. Please leave your comments and suggestions on this issue.