Given the lack of IPOs, especially with respect to SMEs, Kenyan capital markets authorities have sought to open the market to more companies. In 2013, the NSE launched a junior board, the Growth Enterprise Market Segments (GEMS), to provide more options for SME finance. The GEMS operates under listing requirements that are tailored to SMEs. For example, the GEMS can admit companies that have been in operation for only a year. Also, the market does not impose a requirement for having turned a profit before listing. As of the end of 2016, six firms had listed on the GEMS, although one of those companies has since been suspended from trading. While the exchange has announced plans to increase this to 19 listings by 2017, and to 39 listings by 2023, the viability of this plan remains unclear.

Despite the lack of dynamism of the Kenyan GEMS to date, examples from other markets demonstrate that a junior board can serve as a meaningful tool in tailoring the benefits of a public market to the needs of SMEs. Since 2009, Jamaica has operated the junior market, which upon opening, rose rapidly to become a popular resource for Jamaican SMEs and a model for effective small business finance in the Caribbean region more broadly. Companies are permitted to list on the market for up to 10 years (split into two fiveyear stages), or until surpassing a maximum shareholder’s equity capital capitalization of J$500 million (US$3.8 million), after which point they are required to list on the main exchange. As of June 2017, the junior market had 34 listed companies, including firms in sectors such as manufacturing, retail, financial services, tourism, culture, and logistics. According to interviews conducted with leaders at the Jamaican Chamber of Commerce and the Jamaica Stock Exchange, the junior market is considered to be a critical element of the stock market’s future sustainability.

The main board of the Nairobi Stock Exchange also presents challenges to companies aspiring to execute on an IPO due to the poor performance of recent IPOs. The recent performance of companies that have debuted on the exchange has not been encouraging: Of <mark>the 12 companies that went public between 2000 and 2016, four are trading below IPO price as of 2017 and one has been delisted, while another has stopped trading pending completion of deregistration.</mark><sup>28</sup> <mark>Moreover, the</mark> NSE has not performed well over the last six years, with its main index, the NSE 20, falling over 40% from early 2015 to the end of 2016.

**Table 14: NSE Trends 2010-2016**

|||||**Year End**||||
|---|---|---|---|---|---|---|---|
||**2010**|**2011**|**2012**|**2013**|**2014**|**2015**|**2016**|
|**NSE 20 Index (Points)**|4,433|3,205|4,133|4,927|5,113|4,040|3,186|
|**NASI (Points)**|98|68|95|137|163|145|133|
|**Equity Turnover (KSh Bn)**|110.3|78.1|86.8|155.8|215.7|209.4|N/A|

_Source: Nairobi Securities Exchange_ In addition to the poor performance of the NSE, investors also perceive listing on the exchange to be both cumbersome and costly.<sup>29</sup> In 2016, in response to these concerns, the Kenya Capital Markets Authority cut listing fees with hopes of encouraging more firms to list their shares. Companies now pay a maximum fee of Sh30 million (US$290,000), down from 0.15 percent of the total value of the offer.<sup>**_30_**</sup> While this reduction in fees could offer an incremental incentive for companies to consider the NSE, the performance of the market remains a hurdle.

> 28 Alushula, Patrick (February 14, 2017). " <mark>Most new faces in Nairobi bourse drop below IPO price".</mark>

> 29 Teche, Enos (June 29, 2016). "Firms reject IPOs, seek investors in divesture – study".

> 30 Ibid.

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