In an unprecedented declaration, the Commissioner of the US Securities and Exchange Policy (SEC) – Hester Peirce – hinted that certain types of non-fungible tokens (NFTs) that serve as crowdfunding mechanisms may not fall under securities laws. If concrete regulatory action is employed following this announcement, the implications could be beyond what any other startup in the world- including Kenya – could see in approaching NFTs as a financing tool.
Yet, are they legally allowed to raise funds using NFTs at the moment in Kenya? And what does the SEC stand on the future of fund-raising through the medium of NFTs in Kenya mean?
What the SEC Exemption Means
In the past, the SEC has classified many crypto assets as securities in light of the rigorous requirements that govern them.
But Peirce’s remarks indicate that specific variants of NFTs, particularly those intended to raise funds instead of speculative investments, might have some relaxation.
This signified that:
- Utility-incentive NFT (for example, to place a ticket for the event, to become a limited member, or using one to redeem brand loyalty points) would likely not pass the test of being a security.
- Fundraising NFT, being a source of access to services, is more akin to a promise of financial returns rather than the traditional view of securities.
- Tokenized ownership or revenue-sharing NFTs might still have a heavy regulation burden.
This raises an important question concerning Kenyan startups looking at NFTs: Can they use NFTs to legally raise capital without coming into collision with local financial laws?
Kenya’s Regulatory Landscape on Crypto and NFTs
Kenya is the topmost country in Africa regarding peer-to-peer trading volume concerning cryptocurrencies, which has made it a leader in crypto adoption. However, there is no legal clarification concerning digital assets like NFTs in the country.
- The Capital Markets Authority (CMA)
Regulation by the CMA concerning financial markets in Kenya does not include NFTs as being termed securities, thus leaving them in the grey area of law. Notably, NFTs can be considered to have fallen within this definition once they represent fundraising efforts that resemble an Initial Coin Offering (ICO).
- The Central Bank of Kenya (CBK)
The CBK has published a series of notices warning of any cryptocurrency transactions and prohibits banks from allowing the use of those currencies by related businesses. However, like digital collectibles or utility tokens, if not linked to a transaction of a financial nature, the CBK would deem them not to have their scope of regulation.
- Kenya Revenue Authority (KRA) and Taxation
Recently, Kenya tapped up a 1.5% digital services tax (DST)-on all online transactions-including NFTs. At the same time, the 3%-new tax on crypto transactions would possibly provoke the NFT fundraising models if that income is also treated as taxable within Kenya.
How Kenyan Startups Could Leverage NFTs for Fundraising
Even in the view of regulatory uncertainty, Kenyan startups can adopt numerous NFT-based fundraising avenues while fitting with possible SEC exemptions:
- Crowdfunded NFT Membership – Startups may sell NFTs giving holders lifetime access, exclusive benefits, or voting power within a platform.
- Pre-Sales of Brand and Product – Early-access or redeemable NFTs can be used as passes or vouchers to future products and services.
- Event Ticketing and Experiences- NFT tickets can be sold to people who want to attend tech summits, concerts, or even startup networking events.
- Decentralized Community Funding- Startups can sell NFTs that give holders rights in governance without any promise of financial returns.
Examples of Kenyan Startups Using NFTs
A number of companies and communities in Kenya have already explored the possibility of NFTs and how they can be used beyond speculation. Some examples include:
Mbogi ya NFT (Kenyan NFT Club): This is a collective that unites Kenyans in the blockchain space to facilitate their efforts to grow, learn and empower each other. From the outset, they have feverishly organized events and workshops to enlighten the public on what NFTs are and what they could be used for.
These initiatives also seem to speak of a very active involvement by Kenya within the emerging NFT frontier, thereby breeding innovations and connecting communities digitally.
Challenges and Risks for NFT Fundraising in Kenya
- Regulatory Ambiguity: In the absence of specific laws, NFT-financed projects would probably start facing legal disputes and challenges in the future.
- Banking Restrictions: Banks in the area remain very reluctant to support crypto transactions, making it virtually impossible to monetize NFTs to any great extent.
- Complex Taxation: There are numerous taxes to consider on digital assets, which could mean that NFT fundraising models require some very strategic financial planning.
- Consumer Awareness: Unlike crypto funding, some past scams and huge volatility had colored investment perception for many Kenyans.
The Future of NFT Fundraising in Kenya
Should the SEC actually go ahead with the exemption for some NFTs from securities regulation, the precedent would have a global outcome; the importation of such moves would be very likely for Kenya’s Capital Markets Authority (CMA) to announce such regulations.
Presently, NFT startups in Kenya trying to raise funds through NFTs must:
- Model the NFT sale on utility rather than speculation to avoid regulatory interference.
- Lobby for the formulation of clear digital asset policies with regulators and fintech organizations.
- Keep abreast of global developments regarding NFT regulation, especially by such market leaders like the U.S. and EU.
Final Thoughts: Is NFT Fundraising Viable in Kenya?
NFT raising funds is an immense opportunity for Kenyan startups, especially in sectors such as fintech, creative, and decentralized communities. However, regulatory clarity and banking integration remain key challenges.
If Kenya goes the way of SEC in defining utility-driven NFTs as non-securities, then fundraising through NFT will, therefore, become permissible for startups, inducing new streams of capital in the digital economy. Until then, compliance and strategic NFT structuring will be an important requirement of any Kenyan business looking to venture down that road.
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