steven maseka 
Small businesses will access affordable funding after the Capital Markets Authority (CMA) gazetted a new crowdfunding regulation.
The Capital Markets (Investment-Based Crowdfunding) Regulations 2022 is pursuant to Section 12 (1) (d) of the Capital Markets Act, CAP 485A.
The regulation is set to benefit approximately 15 million Micro, Small and Medium Enterprises (MSMEs), enabling them to raise alternative capital in cheaper ways.
“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,”
“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,” CMA Chief Executive Officer Wyckliffe Shamiah said.
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) 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.
Other forms of crowdfunding not regulated by CMA are equity crowdfunding, loan-based crowdfunding, donation-based crowdfunding, and reward-based crowdfunding.
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.
To obtain a licence from the Authority, eligible crowdfunding platform operators will require to pay an application fee of Sh10,000.
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 through the authorisation of Lelapa Fund to operate an equity-based crowdfunding platform and later, through the establishment of the CMA Regulatory Sandbox.
Following the gazettement of the regulation, 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.
