Enhancing Capital Markets for Economic Growth: The Impact of BETA Regulations on MSME Funding and Corporate Governance

Capital Markets Regulations Revised to Support Economic Growth and MSMEs

In a move aimed at supporting accelerated economic growth and job creation, the Capital Markets Authority has reviewed the public offers and listing regulations to make capital markets a preferred source of long-term funding for micro, small, and medium-sized enterprises (MSMEs) in Kenya.

The Capital Markets (Public offers, Listings and Disclosures) Regulations 2023, which were approved by Parliament in April 2024, are aligned with the Bottom-up Economic Transformation Agenda (BETA) and aim to provide flexible capital raising options for MSMEs. These regulations mark a shift from a merit-based approach to a disclosure-based approach, in line with global best practices.

With MSMEs constituting over 95 percent of all registered businesses in Kenya, the regulations are pivotal in supporting their growth and contribution to the economy. The new regulations allow MSMEs to raise debt and equity capital without the need for a profitability track record, providing them with more opportunities for funding.

One of the key changes introduced by the regulations is the revision of capital raising and listing standards to be more inclusive and market-based. Entities are now able to raise finances based on market conditions, regardless of their size, sector, or incorporation status.

The regulations also promote the use of technology in capital markets, allowing for electronic initial public offerings (e-IPOs) and setting up specialist boards in licensed exchanges. These changes are in line with global trends and aim to streamline the fundraising process for issuers.

To further enhance corporate governance standards, the regulations include a revision of tenure for independent directors from nine to six years. This change aims to promote diversity of skills and experience in boards and prevent director entrenchment, ultimately fostering a culture of accountability within boardrooms.

Overall, the revised regulations are a result of extensive stakeholder engagement and aim to support economic growth, job creation, and MSME development in Kenya. By providing more flexible capital raising options and promoting best corporate governance practices, the regulations are expected to bolster the integrity of the capital markets and enhance investor confidence in the country.