CMA moves to regulate crowdfunding in Kenya

Players required to comply with new rule within one year.

In Summary

•The regulations are applicable primarily to crowdfunding platforms operating in Kenya.

•To obtain a licence from the authority, eligible crowdfunding platform operators will require to pay an application fee of Sh10,000.

Capital Markets Authority CEO Wyckliffe Shamiah.
Capital Markets Authority CEO Wyckliffe Shamiah.

The Capital Markets Authority (CMA) has spelt out new  crowdfunding regulations in Kenya aimed at taming risks such as fraud, doubtful returns, and vulnerability to hacker attacks.

All existing investment-based crowdfunding platforms will be required to comply with the regulations, within one year of the commencement date.

The regulator announced the gazettement of the Capital Markets (Investment-Based Crowdfunding) Regulations, 2022 on Tuesday.

Crowdfunding is the collection of funds from the population (crowd) through a technological platform and comprises three parties; the issuer (fundraiser, a legal entity) and the investor (donor of funds).

The other party is the crowdfunding technology platform operator which facilitates interaction between issuers and investors.

In exchange for their financial support, investors may receive different tangible or intangible returns, depending on the crowdfunding model.

In the investment-based crowdfunding model, issuers who raise money from the crowd will offer investors with either shares or a debt instrument and the investor (crowd) will give money to the issuer.

This is with an expectation for a financial return on investment, thus fitting within the context of offering securities to the public.

Other forms of crowdfunding not regulated by CMA are equity crowdfunding, loan-based crowdfunding, donation-based crowdfunding, such as M-Changa, and reward-based crowdfunding.

It paves way for Micro, Small and Medium Enterprises (MSMEs) to raise affordable funds for business growth and innovation.

This is in line with the government’s objectives of supporting the sector which employs approximately 15 million people.

"These regulations are instrumental in providing access to affordable and alternative finance to this sector that is unable to raise capital through existing securities issuances,"CMA chief executive Wyckliffe Shamiah said in a statement.

Going forward, they will be able to raise money from members of the public in exchange for capital markets investment instruments to help finance their activities,  Shamiah stated.

The regulations are applicable primarily to crowdfunding platforms operating in Kenya.

Such companies are required to have an issued and paid-up capital of Sh5 million and a liquid capital of a minimum of Sh10 million, or eight percent of its liabilities, whichever is higher.

To obtain a licence from the authority, eligible crowdfunding platform operators will pay a Sh10,000 application fee. 

Under the regulations, the authority places a duty upon crowdfunding platform operators to supervise its users, notably, issuers and investors through its rules, which shall be approved by the Authority at the point of licensing.

CMA’s recognition and development of crowdfunding started in 2015 through initiatives to create a conducive environment for uptake, notably through the authorisation of Lelapa Fund to operate an equity-based crowdfunding platform.

Later, the authority established the CMA Regulatory Sandbox.


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