By 
The Cabinet Secretary for National Treasury and Planning has published regulations that require all persons who operate or intend to operate an investment-based crowdfunding platform, to obtain approval from the Capital Markets Authority (CMA).
The draft Capital Markets (Investment Based Crowdfunding) Regulations, 2021 require that to be eligible for licensing an applicant for a crowdfunding platform operator licence shall be a company limited by shares with a minimum paid-up capital of KSh 10 Million. CMA says it will grant a license to a crowdfunding platform operator upon meeting all the requirements including an application fee of KSh 10,000 as well as Licensing and annual regulatory fees of KSh 200,000.
The Authority may suspend, restrict or revoke a crowdfunding platform operator licence in accordance with Section 26 and 26A of the Act. According to the Authority, a person operating a crowdfunding platform in Kenya without a license commits an offence under these Regulations is liable for a penalty under section 34A of the Act.
A crowdfunding platform operator shall not cease to operate as such without prior adequate notice to the Authority who may impose any terms and conditions to ensure an orderly cessation of business of the crowdfunding platform operator.
Eligible crowdfunding participants include micro or small enterprises incorporated in Kenya with a minimum of two years’ operating track record and a good corporate governance record shall be eligible to raise funds through a crowdfunding platform in exchange for the issuance of shares, debentures, or such other investment instrument as the Authority may determine from time to time.
Also listed as issuers are start-up entities with a good operating track record and a good corporate governance record.
The aggregate amount of investment instruments that can be offered by an eligible issuer within a twelve months period shall be a maximum amount of KSh 100 Million for medium-sized enterprises; KSh 50 Million for small enterprises and KSh 5 Million for micro-enterprises.
A crowdfunding platform operator that seeks to raise more than the set limits within the given duration must obtain approval from CMA.
Crowdfunding is the act of raising small amounts of money obtained from a large number of individuals or entities to either finance or re-finance a project or business through a crowdfunding platform.
A crowdfunding platform is a website, internet-based portal or application operated by a crowdfunding platform operator which facilitates crowdfunding.
Financial pledges can be made and collected through the crowdfunding platform. Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign has been successful.
Publicly listed firms and their subsidiaries, entities with poor corporate governance records and those that intend to raise funds for onward lending or invest elsewhere, are prohibited by the new rules from raising funds through a crowdfunding platform.
Only sophisticated individuals are allowed to participate in crowdfunding investments while retail investors cannot put in more than KSh 100,000. Investment instruments allowed for purposes of Crowdfunding shall include shares, bonds or debentures or any other instruments approved by the Authority.
Investors shall also have a cooling-off period of forty-eight hours from the date of close of the offer within which they may withdraw their investment. Where an investor cancels the offer or agreement to purchase securities or investment instruments, all funds, which may have been debited from or blocked in the account of the investor shall be refunded or released within forty-eight hours of the request to cancel.
A crowdfunding operator shall be required to develop a standardized offering document for entities offering securities on its platform which shall include key information on the issuer; use of proceeds; nature of its existing or proposed business, business plan, amount to be raised and the duration of the offer.
A crowdfunding offering shall not remain open for more than sixty days. Where an issuer is unable to meet the prescribed minimum threshold for the targeted amount, the offer shall be withdrawn and the crowdfunding platform operator shall effect a refund of the monies to the investors within 48 hours.
The issuer may only commence a fresh crowdfunding offering not earlier than ninety days after the said withdrawal. Where the crowdfunding transaction is successful, the crowdfunding platform operator shall make the funds available to the issuer within 24 hours after the close of the offer.
In a public notice, CMA and Treasury are seeking stakeholder and public feedback on these draft Capital Markets( investment-based Crowdfunding) Regulations 2021. Comments can be submitted on these draft regulations to the CEO, Capital Markets Authority by 11th August 2021.
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