Small businesses and start-ups can now raise funds to start or expand their operations through online or mobile platforms.
This is after the Capital Markets Authority (CMA) came up with regulations for crowdfunding – opening up yet another source of capital for the millions of micro, small and medium enterprises that have had difficulties accessing credit from banks due to their high risk.
“Investment-based crowdfunding is one of the more compelling and promising financial technology innovations that provide a source of alternative finance through the capital markets,” reads the regulations.
With investment-based crowdfunding, investors can buy shares, debt securities or any other investment instruments approved by CMA through an online platform.
“It allows start-ups and growing businesses that are unable to raise capital through existing securities issuances to raise money from the public through technological portals to help finance or re-finance their activities,” noted the draft regulations.
Businesses raising funds will also be required to make disclosures of information. The draft Investment Based Crowdfunding Regulations will see medium enterprises raise as much as Sh100 million through a licensed crowdfunding platform. Medium enterprises will be allowed to raise to Sh50 million while micro-enterprises can crowdfund up to Sh25 million.
Retail investors are allowed to invest with the latter not permitted to put in more than Sh100,000.
FSD in 2016 estimated the value of crowdfunding earlier at $22 million (Sh2.4 billion) annually and is projected to have risen to $46.7 million (Sh5.04 billion) a year later.
Listed companies and their subsidiaries will not be allowed to crowdfund. To operate a crowdfunding platform, a business will need Sh10 million in paid-up capital.