How to Invest in Kenya With as Low as Ksh100

  • File image of Kenyan bank notes
    File image of Kenyan bank notes
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  • Most African countries have a low saving culture of around 17 per cent of their Gross Domestic Product (GDP), according to the World Bank notes.

    In the last five years, Kenya has ranked lower with around 9 to 11 per cent of GDP, despite existing avenues where individuals can invest with as low as Ksh100.

    This can be done through retail trading, which involves buying and selling securities for personal accounts through stockbrokers at the Nairobi Securities Exchange (NSE). 

    “The retail market with huge potential to become a top asset class for a growing middle class and other income groups," Muathi Kilonzo the Director, Frontier Equity Sales and Head of Equities Kenya at EFG Hermes says. 

    Person rings the bell on the floor of Nairobi Stock Exchange (NSE)
    An official rings the closing bell on the floor of Nairobi Stock Exchange (NSE).
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    “Equity and bond markets are a liquid way for individual investors to put aside some money and diversify their investments beyond traditional asset classes such as land, cars, or other “get rich quick” schemes,” Kilonzo noted.

    Speaking to Kenyans.co.ke, Somakazi CEO and Tax and Financial expert, Nicholas Gachara, added that with as little as Ksh100, low-income earners can save and invest in securities. 

    “The minimum number of shares you can buy in Kenya is 100. Some companies sell shares as low as between Ksh0.98 to Ksh2. With Ksh100 one can buy shares and not bonds. 

    “The returns will be in the form of dividends - these are a distribution of company profits to its shareholders and are paid semi-annually (most common) or capital gains - this refers to an increase in a capital asset's value and is considered to be realized when the asset (shares) are sold,” Gachara states. 

    The financial analyst added that for Ksh100, returns may take time but one will benefit more on capital gains as compared to dividends.  

    Currently, it’s easier for retail investors to access the NSE through mobile apps offered by financial service corporations in Kenya. 

    How much money is needed to trade securities? 

    Gachara agrees that money differs from one stock broker to another and from asset to asset and that premium assets cost more. 

    Some brokers charge monthly maintenance fees like Ksh100 and account opening fees like Ksh1,200, while some do not. He adds that brokers earn on commission and would thus trade easily on free accounts to attract retail traders. 

    “Such accounts are good for boda boda riders and other low-income earners who can raise up to Ksh1,000 in a week. They can invest some amount on shares, wait for dividends and also benefit from capital gains.” 

    Beginners Steps toward Investing in the Securities Market

    a. Conduct Financial Self-Examination

    Analyze your financial objectives, your income sources, constraints and risk tolerance. Consider whether you are financially ready to invest in the capital markets. Beginners are advised not to borrow loans to invest in the capital market. There are higher chances of losing and trading requires expert skills and growth. 

    Kenyan Currency notes.
    Kenyan currency notes.
    File

    b. Deal With Licensed Entities & Stockbrokers 

    Identify your financial investment advisor and open an account with them. Your investment advisor, be they an Investment Bank, a stockbroker or any other firm advising you on investment, must be a licensee of the Capital Markets Authority (CMA).

    c. Open a Central Depository System (CDS) Account

    A Central Depository System (CDS) is a computer system operated by the Central Depository and Settlement Corporation (CDSC), which facilitates the holding of securities in electronic accounts opened by shareholders. It manages clearing and settlement of all financial instruments traded through the NSE (including shares and bonds) in a safer, faster and easier manner.

    You can pay into the broker-client account with mobile money, mobile points and cheques. 

    d. Seize Control of your Trading Account

    Ensure that your stockbroker/ Investment Bank does not trade on your account without your knowledge.

    Receive and store all relevant documents from receipts, transactions, statements, purchase and sales contracts and CDS account statements. 

    To confirm the status of your account or obtain a statement from your stockbroker/ Investment Bank or CDSC. You can also register for CDSC SMS service by sending the word “Register” to 2372. 

    Qualities of Good Shares 

    Regular and generous dividends.

    The company is managed productively, transparently and is accountable to shareholders.

    No wastage in the use of resources.

    The company respects its shareholders and their opinions.

    Easy to buy and sell quickly in the market.

    The company abides by all rules, regulations and laws

    A client using an ATM.
    A file image of a client using an ATM.

    Benefits of Investing in Securities

    They may be used as a guarantee for borrowing loans from cooperative societies and banks.

    A way of saving your money for the future. 

    A relatively easy and quick asset to buy and sell.

    Buying at low prices and selling at high prices generates profit.

    A solution to increase financial activity and economic growth.

    “Participating in the retail market will also boost financial literacy by spreading knowledge of the basic principles of money management, including how to set budgets and manage cash flow. This includes creating personal savings plans to support short, medium, and long-term self-actualisation goals like saving for a home, school, or retirement plans,” Kilonzo advises.