Crowdfunding rules published to help MSMEs raise capital

Micro, Small and Medium Enterprises (MSMEs) will now be able to raise affordable credit from investors through licensed crowdfunding platforms operating in Kenya.

This follows the gazettement of Capital Markets (Investment-Based Crowdfunding) Regulations 2022 by the Capital Markets Authority.

According to the regulations, licensed crowdfunding platforms are required to have an issued and paid-up capital of Ksh 5 million and a liquid capital of a minimum of Ksh 10 million or 8pc of its liabilities, whichever is higher.

The firms will also be required to pay application fee amounting to Ksh 10,000.

The move now means MSMEs in need of affordable finance will be able to raise cheap finnace from individual investors through the crowdfunding platforms to fund their operations and innovations.

“Noting the key role that MSMEs, start-ups and businesses have in spurring economic development and promoting innovation, 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,” said Wyckliffe Shamiah, CMA Chief Executive Officer.

Shamiah says crowdfunding platform operators will be responsible for supervising its users, issuers and investors through its rules, which shall be approved by the CMA during licensing.

Crowdfunding is the collection of funds from investors through a technological platform.

It involves the issuer (fundraiser, a legal entity) and the investor (donor of funds) and the crowdfunding technology platform operator who 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 with an expectation for a financial return on investment, thus fitting within the context of offering securities to the public.

“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,” added Shamiah.

Following the gazettement of the regulations, all existing investment-based crowdfunding platforms in Kenya will be required to comply with the Regulations within one year of the commencement date of the Regulations.

However equity crowdfunding, loan-based crowdfunding, donation-based crowdfunding, and reward-based crowdfunding are not part of the Regulations.

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