Crowdfunding: The New Frontier of Investing in the Capital Markets

Crowdfunding: The New Frontier of Investing in the Capital Markets

The Capital Markets (Investment Based Crowding) Regulations, 2022


On the 30th September 2022, the Capital Markets (Investment Based Crowding) Regulations (the Regulations) were published vide Legal Notice No. 176 of 2022 in the Kenya Gazette in accordance with section 12 A of the Capital Markets Act, 1989 (the Act).

Crowdfunding means the act of raising money from many individuals or entities to either finance a project or business through a crowdfunding platform (the Platform).

A crowdfunding platform is defined in sub-regulation 2 of the Regulations to mean a website, internet-based portal or such other technological application, which facilitates interactions between investors and issuers and other related interactions.

Crowdfunding can be majorly categorized into two; investment-based crowdfunding and donation-based crowdfunding. With investment-based crowdfunding, the issuer raises funds on the Platform in exchange for shares, debt securities or any other investment instruments approved by the Capital Markets Authority (CMA). Donation-based crowdfunding, on the other hand, involves non-profit projects such as charity, philanthropy, health or social work raising funds from a large number of donors who receive no financial or material return.


A person who operates or intends to operate a Platform will be required to obtain approval and a licence from CMA. In order to be eligible for licensing, an applicant for a crowdfunding platform operator (the Platform Operator) licence shall be a company limited by shares with a minimum paid up share capital of Kenya shillings five million (KES. 5,000,000.00) and a minimum liquid capital of Kenya shillings ten million (KES. 10,000,000.00) or eight percent (8%) of its liabilities.

The Platform Operator is required to pay an application fee of Kenya shillings ten thousand (KES. 10,000.00).

A Platform Operator commits an offence for operating without a licence and shall be liable to a fine not exceeding Kenya shillings ten million (KES.10,000,000.00) and pay twice the amount of any gain made or loss avoided as a result of the contravention.



Micro, small or medium enterprises (MSMEs) registered in Kenya with a minimum of 2 years’ operating track record and a good corporate governance record will be eligible to raise funds through a Platform in exchange for the issuance of shares, debentures, or such other investment instruments as the CMA may determine from time to time.

Start-up entities with a good operating track record and a good corporate governance record are also eligible to raise funds through a Platform.

The aggregate amount of investment instruments that can be offered by an eligible issuer within a 12 months’ period will be a maximum amount of Kenya shillings one hundred million (KES. 100,000,000.00).

A Platform Operator may apply to the CMA for a no-objection where an Issuer seeks to raise more than the set maximum amount within the given duration. CMA may then issue a no-objection to raise additional funds subject to such conditions as may be imposed from time to time.

Entities that are prohibited from raising funds through a Platform include:

  • public listed companies and their subsidiaries;
  • entities with a poor governance record; and
  • entities that propose to use the funds raised to provide loans or invest in other entities.


People eligible to invest in crowdfunding investments include sophisticated investors and individual retail investors subject to investment limits prescribed by the Platform Operator up to a maximum of Kenya shillings one hundred thousand (KES. 100,000.00).

Permitted investment instruments for purposes of Crowdfunding include shares, bonds or debentures or any other instruments as shall be approved by the CMA.

The Crowdfunding transaction

A Platform Operator shall develop a standardized offering document for entities offering securities, which shall be submitted to the CMA not later than forty eight (48) hours prior to publication and is required to issue the following disclosures:

  • giving warning to investors and key information of the investors including contact details;
  • providing ownership and capital structure, key information, the nature of its existing or proposed business and business plan and source of revenue of the Issuer;
  • providing information on the crowdfunding; and
  • providing information on the financials in terms of audited financial statements, financial ratios and projections.

The offering document shall be made available through the Platform to the investors at least fourteen (14) days before the commencement of the offer period on which the issuer intends to offer its securities.

The Issuer shall determine and disclose in the offering document the period in which the offer shall remain open and the threshold amount for the offer to be deemed a successful offer.


Every Platform Operator is required to disclose and display on its Platform any relevant information relating to the Platform and its use.

The Platform Operator is required to disclose all risks associated with the crowdfunding investment which includes information on risk warning on participating in funding through the Platform and restrictions on the ability to cancel the investment.

A Platform Operator is required to carry out due diligence on prospective issuers and investors intending to use its Platform.

The Platform Operators are required to appoint a custodian, who shall hold in trust any funds raised through the Platform and establish and maintain a separate trust account for each funding round on its Platform with a financial institution duly licensed and approved by the CMA as a custodian.

It is the duty of a Platform Operator to ensure that they comply with data protection and privacy laws to ensure security and confidentiality of information collected from both the issuers and investors to facilitate a crowdfunding transaction and also to maintain reliable and secure operating systems.

CMA may carry out inspections on a Platform Operator or on any of its facilities satisfy itself as to the integrity of the platform, financial soundness and stability, risk management and its control systems.

If you have any queries relating to the above, please do not hesitate to contact Bernard Musyoka. Please note that this e-alert is meant for general information only and should not be relied upon without seeking specific subject matter legal advice.

by: Bernard Musyoka and Keith Gongolo.

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