• The exchange will address constraints faced by both smallholder farmers and consumers
• The ministry has set aside at least Sh2 billion as authorised capital for the exchange
Investors seeking to trade in commodities at the Nairobi Securities Exchange will have to part with Sh5 million, according to Trade ministry principal secretary Chris Kiptoo.
A notice by the ministry said the money will be used to establish eco-system infrastructure for the Kenya National Multi Commodity Exchange (KOMEX).
It wants investors to subscribe to the equity shareholding of the exchange.
Kiptoo said the ministry has set aside at least Sh2 billion as authorised capital for the exchange which is expected to have government and private sector shareholding.
Those targeted include farmers and farm co-operatives, individual investors, institutional investors, financial institutions and foreign investors.
“Once established, KOMEX will launch a physical warehouse with commodities under a warehouse receipt system, with later introduction of derivatives trading in commodities,” Kiptoo said.
A warehouse receipt is a document that provides proof of ownership of commodities stored in a warehouse.
Some of the government and private-owned entities likely to be turned to warehouses include Kenya National Trading Corporation, the National Cereals and Produce Board, Kenya Farmers Association and Kenya Planters Cooperative Union.
Kiptoo said that at least 21 agricultural products were expected to be traded on the platform when it was the first launched last year.
It was expected to be up and running by last June but the Cabinet discussed and approved its operational this February.
The exchange is expected to address constraints faced by both smallholder farmers and consumers by providing an organised market through a single platform where buyers and sellers meet.
It will further ensure better farm gate prices for farmers. Other benefits include providing access to proper storage and warehousing especially for primary producers, miners, and farmers during bumper harvests.
Services to be facilitated by the exchange include facilitation of local, regional and international trade, enable price discovery, and offer risk management system.
Further, it will provide stability in product quality, guaranteeing better profit margins and reduce risks associated with lending to the agricultural sector.
According to the Capital Markets Authority, Kenya is ripe for the introduction of structured commodity markets, and derivatives market.
“Kenya’s financial market have reached the level of sophistication from which the country can move to the next stage…” the authority notes in its 10-year master plan.
Last year, parliament enacted the Warehouse Receipt Bill 2018 expected to realise the full potential of the agriculture sector.
This includes eliminating middlemen, streamlining the logistics sector, reducing post-harvest wastage and enabling ease of credit access to farmers.