[2008-04-07]  Fear raised over influx of Safaricom IPO agents
The mushrooming of firms and individuals claiming to be agents of the Safaricom initial public offering is raising concern over their legality and the safety of public funds ahead of the landmark IPO.

A glance at the local dailies in recent weeks and reports from brokerage firms indicate the number of these outfits is on the rise, posing a potential threat to the integrity of the capital markets and exposing investors to fraudsters looking for a quick kill.

“Some of these agencies are out of control and although they might claim legality, they are not accepting liability for any losses that might occur,” says Mr Andrew Franklin, a CMA licensed investment advisor at Franklin Associates.

This has prompted some brokerage firms to publish names of their authorized agents; thereby absolving them of any liability should an investor be defrauded by an outfit purporting to represent the firms.

On Friday last week, CFC Financial Services published a list of all the agents the firm will be using across the country even as it emerged that a number of firms claiming to be agents were illegally collecting cash from customers.

Market analysts say that this move by to publish authorized agents highlights the responsibility taken by the principal (the broker) to account for the actions of their agents.

At the end of the day, it is the broker who can keep checks and balances on the agents acting on their behalf.

Kenya’s capital markets are already reeling from a credibility crisis following the suspension of the largest retail broker- Nyaga Stockbrokers- on allegations of fund mismanagement.

Nyaga’s suspension comes at a time when interest in the stock markets was picking up especially in the retail segment.

While the broker’s suspension has opened up a window of opportunity for rival brokers to cash in on Nyaga’s vast client base, it has also presented an opportunity for fraudsters masquerading as agents to pick off hapless investors.

With the long winding queues that have characterised the Safaricom IPO process and the complexities that may baffle a number of investors, some of these agencies are even offering to collect cash from the clients and even queue for them.

A short cut to beat the queues and the hassle associated with share applications may appeal to investors, but the risks that come along with trusting these agencies may be unforeseen, leaving a lot of investors with a bad taste in their mouths.

“There is real need in the market that agents are filling but investors have to be wary of rogue elements out there,” says Mr Titus Karanja, managing director at Mayfair Securities Ltd. The need to reach as many investors as possible ahead of the Safaricom IPO has led to partnership agreements between members at the Nairobi Stock Exchange (NSE) and agents.

Of the 18 member firms at the NSE, very few have physical branches spanning the whole country. The use of agents as well institutions with vast networks such as banks, lowers costs for the brokers while tapping the local market expertise that agents wield.

However, the lack of expert knowledge on the intricacies of stock trading by agents in areas outside Nairobi has limited the use of agents, making bank-brokerage partnerships favourable.

Several existing firms had started their own initiatives in taking stock brokerage services to the people largely through agents, while others have opened representative offices in towns proximate to Nairobi like Thika, Limuru and Machakos.

Provincial centres like Nyeri (Central), Nakuru (Rift Valley) and Eldoret Rift Valley have benefited from this expansion together with Mombasa and Kisumu.
Only a few brokerage firms have operations or offices outside the city with most relying on broker agents.

But while it might make business sense for brokers to tap the growing investor population in the provinces, the current shaky investor confidence has to be restored for any business to thrive.

Among the tips given to investors while selecting an agent is to request an original letter from the broker appointing them while making sure that the agents have a physical office. Office premises will usually give an indicator as to whether the agent is genuine or is a fly by night enterprise.


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