Functions of the Nairobi Stock Exchange

The basic function of a stock exchange is the raising of funds for investment in long-term assets. While this basic function is extremely important and is the engine through which stock exchanges are driven, there are also other quite important functions.

1. The mobilization of savings for investment in productive enterprises as an alternative to putting savings in bank deposits, purchase of real estate and outright consumption.
2. The growth of related financial services sector e.g. insurance, pension and provident fund schemes which nature the spirit of savings.
3. The check against flight of capital which takes place because of local inflation and currency depreciation.
4. Encouragement of the divorcement of the owners of capital from the managers of capital; a very important process because owners of capital may not necessarily have the expertise to manage capital investment efficiently.
5. Encouragement of higher standards of accounting, resource management and public disclosure which in turn affords greater efficiency in the process of capital growth.
6. Facilitation of equity financing as opposed to debt financing. Debt financing has been the undoing of many enterprises in both developed and developing countries especially in recessionary periods.
7. Improvement of access to finance for new and smaller companies. This is futuristic in most developing countries because venture capital is mostly unavailable, an unfortunate situation.
8. Encouragement of public floatation of private companies which in turn allows greater growth and increase of the supply of assets available for long term investment.

There are many other less general benefits which stock exchanges afford to individuals, corporate organizations and even the government. The government for example could raise long term finance locally by issuing various types of bond through the stock exchange and thus be less inclined to foreign borrowing. Stock exchanges, especially in developing countries have not always played the full role in economic development.

(Visited 112 times, 1 visits today)
Share this:

Written by