Process Innovation and Retail Investors' Participation in The Nairobi Securities Exchange
DOI:
https://doi.org/10.53819/81018102t5422Abstract
Retail investor participation in capital markets is vital for market development, liquidity creation, and economic growth, but engagement levels vary significantly across regions. However, despite product innovations introduced by capital market intermediaries, retail investor participation in the Nairobi Securities Exchange has remained persistently low, with trading volumes declining from 0.95% in 2019 to 0.46% in 2024. This study examined the effect of process innovation on retail investor participation in the Nairobi Securities Exchange. The study was anchored on Schumpeterian theory of innovation. Theis study adopted a positivist philosophy and descriptive correlational design to examine the effect of process innovation by capital market intermediaries on retail investor participation at the Nairobi Securities ExchangeThe target population comprised 112 licensed capital market intermediaries registered with the Capital Markets Authority of Kenya, from which 336 respondents were targeted through a census approach. Data were collected using structured questionnaires, achieving a response rate of 97.33% with 292 usable responses from Chief Investment Officers, Heads of Marketing, and Heads of Innovation/Technology. The study found that process innovation by capital market intermediaries is positively and significantly related to retail investor participation (β=.761, p<0.05). The results implied that a unitary increase in process innovation by capital market intermediaries would increase retail investor participation in the Nairobi Securities Exchange by 0.761 units when other factors are held constant. The study concludes that process innovation by capital market intermediaries has a significant and positive effect on retail investor participation in the Nairobi Securities Exchange. The study recommends that capital market intermediaries should systematically adopt new technologies and automated processes to enhance retail accessibility at the Nairobi Securities Exchange. Intermediaries should implement end-to-end mobile trading platforms integrating M-PESA and other mobile money services, leveraging Kenya's mobile penetration to enable seamless funding, trading, and withdrawal without bank intermediation. Policymakers and regulators should ensure that process innovation cost savings by capital market intermediaries translate directly into enhanced retail investor participation rather than being captured as margin improvements.
Keywords: Process innovation, retail investors' participation, Nairobi Securities Exchange, Kenya
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