At least five startup founders who spoke to Business Daily said they are considering registration in South Africa or Mauritius, which they say have more accommodating regulatory regimes for early-stage businesses, if they fail to raise the required capital by the November 4 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, which 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, but 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, despite already having several users in the country.
Under the VASP regulations, Taran would need a minimum paid-up capital of Sh100 million to obtain a Virtual Asset Exchange licence, an amount Mr Michubu says the startup does not have.
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 Sh300 million, crypto wallet providers Sh150 million, payment processors Sh10 million, and crypto asset managers Sh20 million.
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 typically are more comfortable in firms that already have a license to operate than those still seeking it.
The potential loss of these startups comes as Kenya’s crypto market is growing. Currently, Kenya is 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, unlike Kenya’s, 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, for instance, would require roughly Sh18 million in minimum capital, while a broker would need about Sh5.5 million and a virtual asset custodian about Sh14 million.
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, on the other hand, even payment service providers need to have a 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 Sh10 million threshold set for crypto payment service providers.
Jason, Tando’s founder and chief executive, said other than the steep thresholds, it is particularly problematic that the paid-up capital requirement is denominated 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, arguing that the thresholds could lock out smaller firms.
In its submissions to Treasury, the Virtual Assets Chamber of Commerce (VACC) proposed a tiered capital requirement for licensing based on the scale of operations and age of companies, 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 VACC.
‘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 cannibalizing 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, however, argues that the high capital requirement should not restrict innovation in the crypto industry, as 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, 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, citing the need to balance regulatory oversight with the promotion of innovation.
For Kenyan startups such as Taran, Qadi and Tando, however, that balance is now becoming a race against time. Unable to raise the capital required under Kenya’s new framework, they are considering markets such as Mauritius and South Africa in an attempt to secure legal recognition and continue operating after the Kenyan regulations take effect.