Governments and regulators in East Africa are facing a herculean task of expanding and deepening financial markets to spur sustainable economic growth.
A survey of stockmarkets in 17 African countries showed that only Kenya's financial markets rank among the top five leading markets on the continent.
According to the Africa Financial Markets Index (AFMI) ranking by Barclays Africa Group, although Kenya's financial market is the most advanced in the East African region, it ranks behind South Africa, Mauritius, Botswana and Namibia on the continent.
The index, which measures Africa's financial markets based on depth and breadth, access to foreign exchange, transparency, tax and regulations, macro economic opportunity, legality and enforceability, ranks Rwanda at position eight, Uganda at 10 and Tanzania 11.
Kenya emerged the leading in East Africa due its strong contract enforcement policies, market depth as well as the capacity of local investors.
The country also led its East African peers market depth pillar, which focussed on the range of financial products, currencies and hedging options, and capacity of local investors' parameters.
Kenya is also ranked ahead of economic giants like Nigeria, Ghana and Egypt due to the ongoing reforms in its financial markets.
"African financial markets have traditionally suffered from a lack of depth relative to other regions. This has been a key factor holding back the ability of firms and investors within and beyond the continent to exploit expansion opportunities," said Barclays managing director and head of markets, George Asante.
Although Ethiopia is one of the fastest expanding economies in the world, it was at the bottom of the ranking owing to the lack of a securities exchange, minimal local investor capacity and low enforceability of contracts.
In Africa, South Africa has the most vibrant financial markets despite its macroeconomic challenges with Mauritius which has one of the strongest financial legal frameworks as well as a favourable tax environment and market transparency coming second.
"A vibrant, well-functioning, sound, efficient and stable financial system is a catalyst for broad-based sustainable economic growth and development," said Barclays Bank Kenya managing director Jeremy Awori.
He added: "By broadening and deepening their understanding of the requirements of local and international investors, Africa's leaders can develop robust markets - a prime condition for sustainable, inclusive growth."
The index concludes that the challenges facing the continent's financial markets include fragmentation and little push towards encouraging regional bourses, cross-border listings and harmonised regulatory standards.
In East Africa, for instance, Kenya has opted out of the regional capital markets project that is part of efforts to establish a single financial market.
Other challenges facing Africa's financial markets include lack of capacity among local investor, lack of access to foreign exchange and low levels of liquidity.
"Development of local investor capacity and ability to attract foreign capital are key points of focus for African economies," notes the index which provides countries with valuable insights and tools to improve the state of their financial markets.