EGM Securities Limited is Kenya’s first regulated forex broker. As a non-dealing forex broker, they provide Kenyan forex traders with a local platform from which they can be able to interact with the global forex market.

We sat down with the EGM Securities CEO Kevin Nganga to understand more about the forex broker’s activities.

Take us through the journey of EGM Securities setting up in Kenya. How long did it take, what were the challenges?

Setting up EGM Securities was a four-year journey. This is because we were part of the team that lobbied the Capital Markets Authority (CMA) in a bid to change the CMA Act so as to enable the products offered under EGM Securities to be regulated. It was after this that the CMA Act was amended to include forex trading under its ambit.

The CMA also needed to work on the regulations and this took about two years. We were part of the process as well, whereby we helped the regulator to understand how to develop the regulations as this was a new product in Kenya. The regulations finally came out in August 2017 and this gave us the opportunity to apply for a license. We applied for our first license in October and got our first level approval in February this year and thereafter we went live in July. That means that we have been operational for three months now.

So far it has been a fulfilling period in that our engagement with the stakeholders has been very positive with everyone coming together to make this new product work. At EGM we are very excited about the investment opportunity that Kenyans can now enjoy from an alternative asset class.

Just like in any other business, they have been challenges. As you would appreciate this is a new product in the market. So there have been pitfalls that we didn’t anticipate in as much as one plans for the best. So far we have had challenges like delays in setting up the office. But these are normal business challenges which we have managed to overcome. At the moment we have 14 staff members and we are also conducting interviews with a view of recruiting about 20 members of staff. We are also anticipating to grow our head count over the next six months so as to accommodate the growth of the business.

However, I have to say that one of the biggest challenges that I am currently still grappling with is tax. Forex trading being a new product, we consider ourselves under financial services, however, when you look at the income tax act, it a grey area as there are no regulations in place. As such we are working hand in hand with the regulator for us to get a policy guideline on this issue. The other biggest challenge that I’m facing is education, that is market education or awareness by my audience. We find that people are interested and want come in but there’s a lot of work that needs to be done to educate the public.

So, basically, that has been our journey. The first two months were mostly about figuring out what our clients want, their feedback and how to tailor our products. We are now in the second phase where we’ve sort of grown the brand and continue to grow the brand.

What is the difference between a dealing and non-dealing forex broker?

That is an interesting question because everyone seems to pick on that. Basically, the CMA generally gives three licenses when it comes to forex. A dealing forex broker, a non-dealing forex broker and a money manager. A dealing forex broker is one who actually makes prices for their clients from their own account. This means that the client of a dealing forex broker doesn’t get to interact with the global liquidity providers hence there is no price transparency. The license requirements for this broker are higher and also the capital that one needs to put in is higher due to the risk of losses.

A non-dealing forex broker connects you to the global liquidity providers who are the international banks that quote the global currencies. What we do is provide you with a platform that enables you to interact with the international forex market. The global liquidity provider gives us the prices for the different currencies, we put in a small margin and thereafter give the prices to you. So a client gets to trade directly with the international liquidity providers through our platform. The advantage of using an non-dealing broker is that there is price transparency. This because what we simply do is aggregate the prices from many providers, so a client gets the best spreads.

A money manager on the other hand, is where an entity can trade on behalf of the clients. What a client does is open an account with the money manager and they trade on the international forex market on your behalf. As opposed to trading on your own behalf as with the other two brokers. What happens is that the money manager usually gets into a profit share, a management fee or performance fee arrangement with the client. As EGM we are keen on getting money managers on board because we have received feedback from clients that they would like us to trade on their behalf. However, our license currently does not allows to do that so we are working on getting maybe 10-15 reputable money managers to come on board. Once we get the license, this option will create a good opportunity for Kenyans to get a new revenue stream.

3. Take us through your business and the products you are offering, also how does one sign up, withdraw funds e.t.c

We offer four asset classes, the first one and the most popular being forex, here we give over 61 international currency pairs. The second asset class is precious metals, here we include the ability to trade gold, silver, platinum and palladium. The third asset class is commodities, here you can trade oil, natural gas and copper. The final asset class is global indices, these are the likes of Dow Jones, Nasdaq, S&P among others. This asset class is where in my opinion Kenyans should look into other than forex. For example, the Dow Jones has gone up 25% this year while the NSE has gone down 20%, so anybody who split their portfolio into local and global was able to negate the losses that were made in the Kenyan investment.

We have tailored our products into two that is an executive and a premier account. The executive account is for the entry level traders while the premier account is for the more experienced traders. The accounts are similar in nature with the only difference being the amount of deposit you can open with. For the executive account has to open the account with Ksh. 20,000 shillings equivalent to $200 while the premier is $5,000 or basically Ksh. 500,000. However, due to feedback that we have received from our clients, we are about to roll out a product which will have a lower entry threshold. This account will only require you to deposit about Ksh. 10,000 or 5,000.

How do you sign up? Signing up is actually quite simple. All you need to do is visit our website, either from mobile or desktop. We only need two items of documentation that is proof of your identity so we are taking your passport or your National ID. Then we have a proof of address which would includes things like a utility bill, an Internet bill, an electricity bill, Mpesa Statement or even a KRA PIN, so that we can onboard you. We have a simple form where you just fill out your personal details like date of birth among others. Then once you submit the documents, we are required to do an appropriateness test. This test is just to establish what’s your experience in transacting financial products. Once you pass the test, you get a password and a client portfolio and you’re ready to start trading.

For those who don’t have experience in trading, we have an academy which acts as the introduction to forex trading. Here you learn how to trade, use the trading platform, what to look out for, what is happening, emerging markets among others. Basically we ensure that we provide you with adequate information. We also have a demo platform, which is a dummy of the trading platform. We encourage our clients to first train with the demo to enable them to get familiar with trading. Here one is able to test your discipline, risk management and strategies. When one gets ready to trade that is when you can commit real cash.

How does one deposit or withdraw cash? We have multiple payment channels that enable our clients to fund their accounts. These channels include Mpesa, Airtel Money, Visa, Mastercard and one can also fund their account via RTGS. We have been able to integrate Mpesa to our system so a transaction only takes ten minutes, all one needs to do is key in the amount to deposit and enter your Mpesa PIN. However, for Mpesa we are limited to the transaction limit for the day which is Ksh. 140,000. For withdrawals one uses the same channels.

When a client signs up, they get two portals. One is for managing your money and the other one is for trading, so you get two passwords. The funds that have been put in the account by the client are available on demand. However, at the moment one can only withdraw money on Mpesa up until 11 PM but we are working on making this 24 hours.

Who are your main competitors and what would you say is EGM Securities’s competitive advantage?

Obviously, we are the only Kenyan broker, but there are very many international brokers. In Kenya we estimate that there are about 80,000 Kenyans who are actively trading in the forex market but using international brokers. So, our competition is these international brokers.

What is our competitive advantage? Well, there are a couple of things, one is that we are the only brokers who are regulated locally. This means that if you have a problem we can be able to resolve it more effectively being that we are located on Riverside Drive. Also, if you feel that your problem has not been handled adequately, we have a complaint handling procedure that allows a client to report us to the CMA. This in my opinion gives Kenyans comfort and the ability to transact in a transparent, orderly and regulated manner as there is recourse. This in contrast to a broker who say is based in Cyprus, sometimes a phone call does not help, an email might not get resolved. One might even end up taking two or three weeks to get their money.

Our second competitive advantages is on transactional cost. For one to deposit to into an account out there, you have to incur international money transfer charges. In case you are using a card, you will be charged a transaction fee. However, when you open an account with us, we carry all deposit costs so you don’t need to pay anything. The only time you would be charged is if you are sending money via RTGS because the money is being debited from your bank account.

We also offer a global market opportunity with local solutions and quick entry point and exit. For example, if say you are using an international broker and you identify an opportunity in the international market. You will need to fund your account say via a Swift transfer which can take up to 4 days to reflect in your account. Meanwhile the opportunity that you had identified will definitely be gone. However, when a trader has an account with us, he/she can identify an opportunity now, quickly fund the trading account via Mpesa and in 10 minutes you can take advantage of the opportunity.

The other advantage that I can say we have is customer service. We run a 24 hour, five days a week customer service support that has a global rotation. So if we are asleep here in Kenya and you have an issue we have a support office in the US. We also have a support office in New Zealand, Dubai and here in Kenya.

What is the current state of forex trading in Kenya?

Forex trading is till in a nascent stage but with humongous potential. There is a significant opportunity for the government to raise forex reserves. This is because currently, there are 80,000 people trading forex in the country, but they are using international brokers. This means that these are forex outflows, if these traders were to bring their money back home there would be significant forex reserves that will have returned.

Due to this we would like to encourage the government to allow Kenyans who are trading forex out there to bring their money back without asking many questions. At the moment, we are lobbying the government on this and explaining to them that this is trading money. We are also lobbying the government to have a favorable and predictable tax regime for our investors.

So what are your plans on pushing forex trading in Kenya?

We have an aggressive plan to educate and highlight the opportunities to Kenyans. As part of this we will be doing a number of road shows this month just to educate the public about what we do and the opportunities which are available. These road shows will visit towns like Eldoret, Kisumu, Nakuru, Mt. Kenya region. In November we will target the coastal region that is Mombasa, Malindi, North Rift. Basically, we are targeting to move around the whole country. We are also in partnership with the CMA during the investor week where we will be able to educate investors on the opportunities available in this market.

I have to say that It will be a long journey and we will have to continuously educate Kenyans on the opportunities that are in this sector. We will focus on media engagement where publishers can continuously produce content on our behalf for the consumption of their audience. This will help the general public improve their knowledge of the opportunities that can be found in this sector.

Other than Kenya, we are also looking at expanding the business into the Sub Saharan region of Africa. We are also in discussion with partners on how to open up the opportunity to East African investors.

What do you think is the future of forex trading in Kenya?

I think the future for, for forex trading is two things, a big employment opportunity for the youth and an alternative asset class for Kenyans to invest in using technology at lower transactional costs. My vision of forex trading is that every household in Kenya should be able to participate in global macro opportunities without having to incur significant transactional costs. It is our vision to educate every college/university student that there are global opportunities out there that they can start harnessing as individuals.

What is your opinion on the current business environment in Kenya?

One of the things that people need to appreciate is that there has been a super cycle of economic growth as from the 2008 election basically after the post-election violence. That means that we have seen the economy recover for about eight to nine years. What typically happens in economies is that there are what you call super cycles every ten years. We have been on a super cycle where you have seen property prices go up, bank profits have gone up, standards of living have also improved. However, at some point there has to be a correction of the super cycle, I believe that currently we are in a corrective state of the economy. The environment is going to be challenging moving forward and I expect businesses to tighten their belts. I also see a lot of consolidation happening in the different sectors of the economy.

What I am not very happy about is the predictability of the business environment. The tax regime is not predictable because we find that every year taxes are changing so as an investor this is a challenge. What I would expect from the government is to have medium term tax plan that says for the next three years this is what the taxes will look like. Currently we are talking about VAT on fuel, this will have an impact on inflation, disposable income and it is also going to have an impact on us being able to convert clients.

Another issue that will make the business environment challenging is the fact that government will have to put in place austerity measures to rein in debt. When these austerity measures are out in place, it means less money in circulation hence less productivity. As such I see businesses going through a rough patch over the next 6 months.

Is there support or policy that you wish existed that can make setting up or running a business like yours easier?

I think we need to be more connected from a multi-agency perspective. I would like to see a more coordinated effort from government to have inter department or inter agency collaboration when it comes to setting up a business. Currently one has to log into portals of the different government agencies to get things done. So, I think to make work easier, the government should look at seamlessly bringing all these things under one roof/portal where I can have a one stop shop for whatever I want. In as much as i do appreciate that the government has put in the effort to improve the ease of doing business. I still think that a more coordinated effort would have the effect of reducing costs, reduce on time and also improve the ability for people to quickly execute their business.