The Treasury has halved its earlier proposed annual regulatory fee for companies seeking to raise capital through online investment portals or crowdfunding but retained a raft of other strict supervisory terms in a new law aimed at curbing the loss of investor cash through unregulated investment products.
Investment-based crowdfunding has been a growing alternative instrument as Kenyans find other avenues to grow their wealth.
It involves raising money from individuals or groups online or via a mobile platform to fund start-ups or small businesses in form of debt or equity.
In the newly published law, Treasury Cabinet Secretary Ukur Yatani said crowdfunding platforms will pay an annual regulatory fee of Sh100,000, down from the Sh200,000 that had earlier been set in draft rules circulated in July last year.
The application and licensing fees have, however, been retained at Sh10,000 and Sh100,000 respectively under the new rules that now make it compulsory for crowdfunding platforms to obtain regulatory approval from the Treasury before raising money from wananchi.
Capital adequacy
Application for a licence shall also include a certificate of incorporation, evidence of a firm’s financial state and capital adequacy, and a business continuity plan.
“Other fees…a transaction fee of 0.15 per cent of the value of the amount raised in each crowdfunding round facilitated through the platform,” said Mr Yatani.
The new rules propose strict terms for collecting small amounts of capital from a large number of individuals to finance a business venture including setting a minimum capital of Sh10 million.
Crowdfunding platforms will only be allowed to collect money from sophisticated investors and less than Sh100,000 from individual retail investors.
Investors will be refunded their money after 48 hours if they cancel their offer to purchase securities or investment instruments. This is envisaged where a business is unable to meet the minimum threshold for the targeted amount, necessitating withdrawal from the platform.
The Treasury also said the platform will have to warn investors that investing through the platform is speculative and risky, that they may lose their entire stake, and that the money will be put into a growing venture.
Promoters who vanish
The platform will also have to disclose charges and issue a monthly report on details of the issuers’ investors, and the amount invested.
The Capital Markets Authority has recently raised concern over crowdfunding promoters who vanish with investor cash.
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