When Kenyan infrastructure firm TransCentury wanted to issue a $75 million corporate bond, it was forced to look to the Indian Ocean island of Mauritius, Africa's leading offshore financial center some 3,000 km (1,900 miles) away.
Kenya is already a growing gateway for foreign investment into East Africa and now has ambitions to become an international banking and financial hub in its own right.
But to have any hope of coming close to rivaling the continent's pre-eminent financial pull of Johannesburg, or even Mauritius, backers of the proposed Nairobi International Financial Center must overcome multiple hurdles.
These range from the lack of an effective legal system, deficient company and land registries, and the absence of working double-taxation arrangements with neighboring states.
Taking TransCentury's bond dilemma as an example, Oliver Fowler, a partner at Nairobi law firm Kaplan and Stratton, sees Kenya's aim to raise its financial profile as work in progress.
"Why would you go to Mauritius when you are a Kenyan company to list a debt security? You do it because they are efficient and we are not," Fowler told Reuters.
Kenya's judiciary has undergone reforms since 2011, and progress in this area was credited by diplomats with helping to deliver a smooth and peaceful outcome to the hotly-contested presidential vote won by Uhuru Kenyatta in March this year.
But decades of political patronage and graft in Kenya, characterized by the "my turn to eat" political culture, means the country's legal system will have to work hard to gain the credibility needed to attract more investors.
Plans are underway to improve the efficiency of the Kenyan legal system for business by creating arbitration panels where parties can resolve commercial disputes quickly. Kenyan courts are still notorious for long delays despite the reforms.
"We are going to work with the City of London to ensure that we address any gaps that we have in our legal system to bring it in line with international best practice," said Geoffrey Mwau, economic secretary at the ministry of finance.
One of Mauritius' biggest selling points as a business center is that commercial parties in dispute can appeal rulings made locally to Britain's Privy Council, legal experts said.
According to Transparency International's Corruption Perception Index for 2012, Mauritius has one of the best African rankings at 43, while South Africa was 69 and Kenya lagged at 139, tied with Nigeria, Africa's top oil producer which struggles with an image of graft-plagued government.
Razia Khan, head of research for Africa at Standard Chartered in London, said Kenya's financial sector status would grow, but "to pitch itself against the international competition at the outset may be difficult."
Luring foreign banks
Undaunted, proponents of Nairobi as a financial hub point to the arrival of major international banks, including South Africa's FirstRand, Bank of China, and HSBC Holdings, which have been licensed to open representative offices in the Kenyan capital.
Kenya has converted its bourse into a securities exchange, and plans to set up a commodities exchange.
To compete for listings that typically head to Johannesburg or London, reforms are needed to make it easier to list locally.
Another big drawback is Kenya's failure to put into effect double-taxation treaties — designed to prevent firms from paying the same tax in two countries — signed with Uganda and Tanzania.
"There is no way that a company here is going to use Kenya as a base even for its east African operation if there is no double taxation relief across the East African Community, let alone anywhere else," Fowler said.
The community bringing together Kenya, Uganda, Tanzania, Rwanda and Burundi is working towards a single currency to increase trade after forming a common market in July 2010. This is an opportunity that Kenya can take advantage of.
For its part, Mauritius has already signed double-taxation treaties with nearly all African countries to raise its profile as a finance channel for investment in Africa.
Kenya's private equity house Catalyst Principal Partners, which has raised $125 million for investment across the region, chose to be registered in Mauritius.
"Even investing cross-border Kenya to Uganda, it is more efficient to invest in Mauritius and then come back from Mauritius to Uganda," said Yida Kemoli, head of strategy and finance at TransCentury.
Businessmen complain that it takes 6 to 8 weeks to set up a company in Nairobi. A global survey released this year by the World Bank on the ease of registering a company showed Kenya was ranked 126 out of 185 countries, with Mauritius at 14.
Kenyan bank executives ranging from multinationals such as Barclays to home-grown lenders like Equity, say registering collateral takes far too long because the country's land ministry relies mostly on manual records.
The ministry says it plans to have digitalized all its records by mid-2014, which will help cut the scope for backhanders at a land registry widely criticized for corruption.
Banks also worry about costs incurred to install backup generators to cope with unreliable power supply in Kenya.
In addition to these drawbacks, backers of Nairobi's ambitions as a financial hub have also had to parry criticism by financial transparency campaigners that Kenya may be looking to turn itself into a new tax haven.
Mauritius has faced similar accusations, but rejects allegations that it is a major conduit for illicit transfers, for example between India and Africa.
"An international financial center is not a tax haven. Is the UK a tax haven? ... They don't know what they are saying. The most important thing is to reduce the cost of doing business," the Kenyan finance ministry's Mwau said.