Exclusion in the Kenyan Capital Markets: a Critical Analysis of the Effect of Regulation on Financial Deepening

Abstract

This thesis analyses the role that the law plays in the exclusion that persists in the capital markets. It shows that the capital markets laws have provisions that act as barriers to entry thus stifling competition and innovation in the capital markets. This leads to the markets remaining shallow and excluding a large part of the population. The research argues that there are changes in the law that could be made to allow for more inclusion in the capital markets. It thus sought to identify the changes that should be made in the law to enhance inclusion. Through doctrinal research methodology, the research reviewed the legal framework critically to see the extent to which it contributes to the established causes of exclusion in capital markets. The research also adopted a comparative approach in identifying global trends towards regulation. It reviewed the approach used by the province of British Columbia, the United Kingdom and by the International Accounting Standards Board. The research found that the law is at the heart of the causes of exclusion in the Kenyan capital markets. That through an amendment to the law, the impediments to inclusion would be addressed and corrected. It further shows that there is a global shift from rule-based regulation towards a principle-based regulation in capital markets regulations and regulation generally. The research concluded that Kenya should adopt a principles-based regulatory approach. It further proposes several amendments to the capital markets and related regulations that should be amended towards this direction.