Investors on the Nairobi Securities Exchange (NSE) are snubbing a scheme that allows for lending and borrowing of securities, put off by a rally in share prices.
The scheme, also known as the Securities Lending and Borrowing (SLB) programme, is a regulated financial process where an investor temporarily transfers shares or bonds to another party for a fee.
Under this arrangement, commonly referred to as ‘short-selling’, traders borrow shares to sell them immediately, hoping the price will drop so that they can buy them back cheaper and make a profit. But with the prolonged bull market run on the NSE, borrowing shares has become risky, and investors are scared that if they borrow a stock, its price could jump even higher the following day, forcing them to buy it back at a massive loss.
Data by the Central Depository and Settlement Corporation (CDSC) shows that the SLB programme, which was introduced in 2020, has concluded only 23 successful transactions over the last six years.
The transactions were executed on six blue-chip companies – Safaricom, KCB, NCBA, EABL, Equity and KPLC- moving a total of 402,200 shares during the period 2020 to 2023.
About 22 transactions were registered but failed to match the borrowers to the lenders during the period (2020-2023), and from 2024 to date (2026), no single transaction has been concluded on the securities lending and borrowing platform.
Market analysts say activities on the securities lending and borrowing platform have not picked as expected largely due to the small nature of the Kenyan capital markets compared to the developed markets, small pool of active shares available for lending and relatively inefficient and transparent market, compounded by the share price rally which began in 2024.
‘Short-selling as an investment strategy is yet to pick up momentum domestically, and that has led to low uptake of securities lending and borrowing. Furthermore, the ongoing bullish sentiment in the equities market has dampened SLB’s appeal,’ says Churchill Ogutu, Head of Research at Capital A Investment Bank.
New products
Another analyst who didn’t want to be quoted says Kenyan capital markets are fairly small and fairly inefficient and less transparent compared to the developed markets, which makes it difficult for securities lending and borrowing to flourish.
‘It is still a market that is growing, but I tend to believe we need more securities actually into the market through IPOs (initial public offerings) or maybe listing by introduction; we need more companies, and that is how the market will attract the new products. Having more companies brings more options into the market where investors can borrow shares,’ the analyst says.
‘Looking at our market it is still pretty small, looking at the companies that we have, if you are looking at 66 companies and the most active companies are around seven stocks. Short selling works based on intelligence and it best works in advanced markets where you find that the markets are efficient or let’s call them semi-efficient because we normally say there is no market that is perfectly efficient.’
In April this year CDSC chief executive Jesse Kagoma said the share rally that began in 2024 adversely impacted lending and borrowing of shares on the NSE.
‘Being a new product and penetrating a new Kenyan market, that is something I can say we really tried to crack, but at the same time, from 2024 we have not had any transactions in the market. In 2024, the market started going up, and now anybody or everyone in the market anticipated the prices to continue going up, and you can notice the difference between those years and from 2024,’ Mr Kagoma said in a presentation to a securities lending and borrowing forum in Nairobi in April this year.
‘In 2024, I can tell you there were some lenders already in the market, but there was no one to borrow from those lenders. I think in 2025 that is where we didn’t have many of the lenders; in fact, at some point, like nine months, we didn’t have any lender in the market.’
The CMA has allowed the lending and borrowing of shares to boost trading at the Nairobi bourse, especially on dormant stock whose owners have no intention to sell in the short term.
The platform, which is owned by CDSC, allows investors to borrow and lend shares for a profit, akin to bank deposits, in a move aimed at boosting liquidity and trading on the Nairobi bourse.
Under the arrangement, an investor borrows shares with the intention of selling at a higher price to make a profit from the capital gains or stock appreciation.
The lender will get back the shares within one year, expecting to make a paper profit from the stock appreciation and a negotiated fee ranging from one percent to 12 percent of the value of the security at the point of lending.
NSE is keeping millions of inactive share accounts that have not recorded transactions for a continuous period of 24 months.
These inactive share accounts grew by 28 percent to 1.54 million between 2022 and 2024, according to data from the CDSC.
Usually, inactive shares reduce equity trading activities on the Nairobi bourse, which in turn denies the exchange, CDSC and brokers revenues in terms of trading commissions and levies.
CMA approved a securities lending and borrowing platform owned by CDSC in 2020 on a trial basis before allowing its full rollout in February 2022.
According to CDSC, the volume of shares lent and borrowed during the period 2020 to 2024 ranged from 100 shares to 1,020,400 shares, at lending rates of between one percent and 12 percent.
These shares were borrowed for periods ranging from 30 days to 365 days.