(NAIROBI, KENYA) – Kenyan cryptocurrency startups are considering moving their operations abroad. The move follows new minimum capital requirements that founders say are beyond the reach of many early stage firms.
At least five startup founders who spoke to media said they are considering registration in South Africa or Mauritius. They said those markets have more accommodating regulatory regimes for early stage businesses if they fail to raise the required capital by the 4 November deadline.
“It could be possible to raise the funds, but it’s very difficult. The process of raising funds is complex and takes time, so for many local builders, November is not a deadline; it’s an expiry date,” said Eric Michubu, founder of Taran App. The app enables crypto users to exchange stablecoins and other virtual assets for local currencies in East Africa.
Mr Michubu said his startup had applied for licensing as soon as the VASP Bill was signed into law last year. However, the publication of the regulations means it is no longer eligible to obtain an operating licence in Kenya unless it can meet the new capital threshold. That is despite the firm already having several users in the country.
Under the VASP regulations, Taran would need a minimum paid up capital of KES 100 million to obtain a Virtual Asset Exchange licence. That amount is equal to $772,000 or £607,000 at current exchange rates. Mr Michubu says the startup does not have that amount.
Paid up capital is money that shareholders have actually contributed to a company in exchange for shares. Startups that cannot meet the requirement from their own resources can raise the funds from venture capitalists or private equity investors, usually in exchange for a stake in the company.
Other startups covered by the regulations face similarly steep capital requirements. Stablecoin issuers will need a minimum capital of KES 300 million. That is equal to $2.3 million or £1.8 million. Crypto wallet providers need KES 150 million, equal to $1.2 million or £910,000. Payment processors need KES 10 million, equal to $77,000 or £61,000. Crypto asset managers need KES 20 million, equal to $154,000 or £121,000.
The capital requirements are intended to ensure that licensed virtual asset service providers have sufficient financial capacity to operate, protect customers and absorb losses. However, startups argue that applying relatively high fixed thresholds across the sector risks shutting out early stage firms that have yet to attract significant investor funding or clientele.
They also argue that investors are typically more comfortable investing in firms that already have a licence to operate than those still seeking one.
The potential loss of these startups comes as Kenya’s crypto market is growing. Kenya is currently ranked 21st globally in the global crypto adoption index by American blockchain research firm Chainalysis, up from 28th in 2024. In Africa, Kenya is fourth after Nigeria, Ethiopia and South Africa.
South Africa’s regulatory regime for crypto assets does not prescribe a specific fixed capital requirement for virtual asset service providers. Instead, applicants are assessed on whether they have adequate financial resources for the nature and scale of their operations.
Mauritius also has minimum capital requirements for some virtual asset activities, but its thresholds are significantly lower than Kenya’s. An exchange in Mauritius would require roughly KES 18 million in minimum capital. That is equal to $139,000 or £109,000. A broker would need about KES 5.5 million, equal to $42,500 or £33,400. A virtual asset custodian would need about KES 14 million, equal to $108,000 or £85,000.
Several categories under the Mauritian framework, including wallet providers, issuers and advisory service providers, do not have a fixed minimum capital requirement. Instead, firms are required to demonstrate sufficient working capital, giving smaller businesses greater room to enter the market.
In Kenya, even payment service providers need to have significant paid up capital to get a licence. Tando, a startup that enables Kenyans to pay using Bitcoin into M-Pesa personal and merchant accounts, says it may also struggle to meet the KES 10 million threshold set for crypto payment service providers. That amount is equal to $77,000 or £61,000.
Jason, Tando’s founder and chief executive, said that besides the steep thresholds, it is particularly problematic that the paid up capital requirement is set in fiat currency for businesses that earn much of their income in Bitcoin and other cryptocurrencies.
“What they should be doing is pricing fees and capital requirements not in shillings, not in euros, not in dollars, but in bitcoin,” he told the Business Daily.
“It makes no sense strategically to put any hurdles or roadblocks in the way, financially or otherwise. Kenya is in a global competition. We should be trying to win, and we’re currently losing, and that’s sad. We have the talent and the tools; now we just need a clear track without blockades.”
The Kenyan crypto industry opposed the capital requirements at the proposal stage during the public participation process. They argued that the thresholds could lock out smaller firms.
In its submissions to Treasury, the Virtual Assets Chamber of Commerce proposed a tiered capital requirement for licensing based on the scale of operations and age of companies. That would be similar to the system used for commercial banks.
The final regulations reduced some of the initially proposed capital requirements by up to 40 percent following consultations with industry players. Startups, however, say the reduced thresholds are still too high for many of them.
“It’s not that the regulators were completely deaf to the proposals and outcry from the community,” said Tony Olendo, chairperson of the Virtual Assets Chamber of Commerce.
“It’s a really delicate balance they were dealing with. On one hand, you don’t want to put the requirements too low and end up cannibalising the ecosystem, but you also don’t want to put it too high and squeeze out innovators.”
Mr Olendo, who also owns a crypto startup and is racing against time to raise capital to obtain a licence, argues that the high capital requirement should not restrict innovation in the crypto industry. He said there are still several areas, such as crypto betting, that remain largely unrestricted.
The National Treasury did not respond to questions on how startups that fail to raise the required capital will be treated. It also did not say whether exemptions will be issued or whether it is considering accepting Bitcoin or other cryptocurrency denominated capital.
The International Monetary Fund has previously pointed to Mauritius’ virtual asset regulatory framework in its recommendations on crypto regulation for Kenya. The fund cited the need to balance regulatory oversight with the promotion of innovation.