Kenya Moves To Unlock Billions In Idle Shares By Easing SLB Rules

There’s a strange thing sitting inside Kenya’s stock market: billions of shillings in shares that just sit there. Investors own them, have no plans to sell, and get nothing extra out of them beyond the occasional dividend. Regulators think that’s a waste, and they’re now rewriting the rules to change it.

At issue is something called Securities Lending and Borrowing, or SLB, a facility that has technically existed on the Nairobi Securities Exchange for years but has never really taken off.

The Capital Markets Authority and the Central Depository and Settlement Corporation are now pushing changes that would let lenders and borrowers cut their own deals directly, instead of being boxed in by rigid, one-size-fits-all terms.

The headline change is doing away with the fixed requirement that borrowers post collateral worth 110% of the shares they want to borrow, a rule many in the market blame for killing the product before it ever got going.

What Actually Is Securities Lending

Strip away the jargon, and it’s a fairly simple idea. Say you own shares in a company and have no intention of selling them anytime soon. Rather than letting them just sit in your account, you can lend them out to another investor for a set period, in exchange for a fee.

You still keep your economic stake in the company- dividends, upside, all of it; you’re just temporarily handing over the shares themselves, with an agreement that equivalent shares come back to you later.

CDSC likes to frame it as putting “idle securities to work.” Picture an investor sitting on 100,000 shares of a listed company with zero plans to touch that position for a year or two.

Instead of that stake doing nothing, it gets lent out, the owner earns a fee, and the borrower gets to use the shares, commonly for short selling, or to plug a settlement gap, or for other trading strategies that require holding stock they don’t actually own outright.

Every SLB deal has four moving parts: a lender, a borrower, a contract, and collateral. The borrower puts up the collateral as insurance in case the shares never come back, pays a lending fee on top, and returns the securities once the agreed term is up. Ownership never permanently changes hands; it’s a loan, not a sale.

Why Hasn’t This Taken Off Already

This is where it gets interesting. Kenya built a screen-based platform meant to automatically match lenders with borrowers through licensed agents, and it has essentially gone unused. By some accounts, not a single trade went through on that platform between 2024 and 2026. Not slow. Not modest. Zero.

The collateral rule is widely seen as the main culprit. Wanting to borrow Ksh10 million worth of shares? Under the old 110% requirement, you’d need to park roughly Ksh11 million in collateral to do it an extra Ksh1 million just sitting there as a buffer. For an investor without deep pockets or spare liquidity, that math simply doesn’t work.

There’s also a market-conditions problem layered on top. Kenya’s stock exchange has been in a long-running bull run, and short selling, one of the main reasons anyone borrows shares in the first place, only really makes sense if you think a price is going to fall.

Few traders want to bet against a rising market, so demand for borrowed stock has stayed thin even where the shares themselves were available. Pension funds and insurers, which hold enormous blocks of stock, have reportedly struggled to find a workable way into the lending market at all.

Let People Negotiate Directly

Rather than tweaking the automated matching system, regulators are leaning toward a bilateral model, essentially cutting out the middle layer and letting a lender and borrower deal with each other directly.

Under this setup, the two sides negotiate the fee, the duration, and crucially, the collateral itself, rather than having a fixed formula imposed on them.

That does come with a trade-off. In a bilateral deal, there’s no central body automatically guaranteeing that the trade settles properly, which means both sides need to do real due diligence on who they’re dealing with. More flexibility, but also more responsibility.

Under the emerging framework, collateral wouldn’t disappear; lenders would still want protection, but the amount and type could flex based on the specific deal and the risk involved.

There’s also talk of widening what counts as acceptable collateral beyond cash, to include government securities and other highly liquid stocks, which would spare institutional investors from having to lock up large cash piles just to participate.

CDSC’s chief executive, Jesse Kagoma, has said the goal is squarely to tackle the collateral bottleneck and get more people actually using them.

Dormant share accounts in Kenya jumped 28% to roughly 1.54 million between 2022 and 2024. Not every share sitting in those accounts would qualify for lending, but the number gives a sense of just how much capital is parked on the sidelines, doing nothing.

If even a fraction of that becomes lendable, the effects could ripple outward. More shares available to borrow could support more short selling and market-making activity, which in turn could make the NSE more appealing to the kind of institutional investors who need to be able to move in and out of positions efficiently.

Long-term holders pension funds, insurance companies, ordinary investors sitting on shares for years get a new, low-effort income stream. Brokers get more transaction volume. It’s the kind of change that, if it works, quietly makes the whole market function better without anyone having to sell a single share they didn’t want to sell.

Kenya isn’t inventing this from zero, either. CDSC first tested a screen-based SLB platform back in 2020 under the CMA’s regulatory sandbox, with the explicit goal of boosting liquidity. It just never gained real traction; CDSC itself has pointed to low investor awareness and weak participation from custodians and depository agents as part of the problem.

Now there’s also a fresh platform in the pipeline: FourFront Management, a Standard Investment Bank subsidiary, began a six-month sandbox pilot with CDSC on August 1, 2026.

The Retirement Benefits Authority has separately given CDSC the green light to bring pension schemes into the lending market, a potentially significant pool of institutional capital that’s largely stayed out until now.

None of this is a guaranteed fix. Scrapping the 110% collateral rule removes one obstacle, but investors still need to actually understand the product and feel comfortable with the counterparty and market risks involved in dealing bilaterally.

There’s also a simple supply issue: securities lending tends to work best where there’s a healthy bench of liquid, actively traded stocks, and it’s not clear Kenya has enough of them to sustain a deep market. And that bull run cuts both ways; it may be exactly what’s kept demand for short selling so muted in the first place.

Whether this reform actually turns SLB into something people use, rather than a facility that technically exists on paper, will come down to three things: whether investors understand what they’re being offered, whether institutions are actually willing to lend out their holdings, and whether borrowers see enough upside to bother. Fixing the collateral rule was the easy part.

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