Ministry of Finance publishes draft rules for online financing

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economy

Ministry of Finance publishes draft rules for online financing


Finance Minister Ukur Yatani in his office in Nairobi on June 9, 2021, one day before the reading of the 2021/22 budget. PHOTO | JOAN PERERUAN | NMG

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Summary

  • The Treasury Department has published a draft rule designed to guide anyone raising capital through online investment portals or crowdfunding to curb the loss of investor money through unregulated investment products.
  • The new rules propose strict conditions for raising small amounts of capital from large numbers of individuals to fund a business venture, including setting a minimum capital of Sh10 million.

The Treasury Department has published a draft rule designed to guide anyone raising capital through online investment portals or crowdfunding in order to curb the loss of investor funds through unregulated investment products.

The new rules propose strict conditions for raising small amounts of capital from large numbers of individuals to fund a business venture, including setting a minimum capital of Sh10 million.

Any crowdfunding platform set up in Kenya or outside the country aimed at local investors must be licensed to operate by the authority.

The Treasury Department released the rules when the Capital Markets Authority (CMA) announced that it is currently processing around 500 cases involving investors about the loss of up to Shr 1 billion from online forex fraud, illegally pooled funds, cryptocurrency, real estate and complained about Ponzi schemes.

“A person who operates or wants to operate a crowdfunding platform must obtain approval from the authority to operate the crowdfunding platform,” said Finance Minister Ukur Yatani in the capital market-oriented crowdfunding regulations.

Investment-based crowdfunding is a growing alternative tool as Kenyans find other ways to grow their wealth. It’s about raising money from individuals or groups online or on a mobile platform to fund startups or small businesses in the form of debt or equity.

However, the regulator has raised concerns that some of the money will be raised and the promoters will go away with investors’ money.

The CMA cited cases where it intervened, including Women Investing in Entrepreneurship, Winnas Sacco, and Choice Microfinance, who raised capital from the public by issuing shares without the regulator’s nod.

According to the new rules, raising funds through crowdfunding platforms must be officially approved. The rules set the licensing application fee at Sh10,000 and an annual regulation fee of Sh200,000.

The license application must also include a deed of incorporation, evidence of a company’s financial health and capital adequacy, and a business continuity plan.

Crowdfunding plans are only allowed to raise money from experienced investors and less than Sh100,000 from individual retail investors.

Investors will be refunded their money after 48 hours if they withdraw their offer to buy securities or investment vehicles.

If a company cannot reach the minimum threshold for the targeted amount, the offer will be withdrawn and the crowdfunding platform operator will refund investors within 48 hours.

The regulator also said the platform must warn investors that investing through the platform is speculative and risky, that they may lose all of their investment, and that the money will be put into a growing company.

The platform must also disclose the fees and charges, prepare a monthly report on the details of the issuers, investors and the amount invested.

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