These two are part of the three admitted to live-test their innovative solutions with the capacity to deepen and enhance the efficiency of capital markets.
Pezesha will test its digital crowdfunding platform which allows investors to provide loan facilities or debentures for SMEs while Innova will test its cloud-based data analytics platform designed for use by Investors, Fund Managers, Custodian Banks, Actuaries, Pension Administrators, and Regulators.
CMA Chief Executive Mr. Paul Muthaura observed that Innova and Pezesha will be updating the Authority on the milestones achieved, challenges faced and mitigation measures implemented in line with the test plans submitted to the CMA during the application process.
‘The Regulatory Sandbox allows live testing of innovations under a less onerous regulatory regime and is expected to attract fintech companies and existing capital markets licensees to test the application of technology to financial services. The admission of the three firms is an important milestone noting that the Authority had set itself a target to admit five firms to the Regulatory Sandbox by 2023’, said Mr. Muthaura.
The approval restricts the testing period for each firm to 12 months. The third fintech firm admitted has elected to remain anonymous during its three months test period, except to its closed group of test subjects.
Sandbox participants are required to submit test plans, which outline key test objectives, testing metrics, performance indicators, and safeguard and remedial measures for test clients.
CMA has the ability to revoke or suspend an approval to participate in the Regulatory Sandbox at any time. It can also take enforcement action against a participant in breach of the regulatory requirements.
Upon exit from the Sandbox, participants could be granted a license or approval to operate in Kenya subject to compliance with existing legal and regulatory requirements.
“Where there is need for a broader legal or regulatory reform, we may adopt new regulations, guidelines or notices pursuant to Section 12 and 12A of the Capital Markets Act, based on insights gained from the Regulatory Sandbox test.’ A denial of permission to operate in Kenya under prevailing legal and regulatory requirements may also be issued,” added Mr. Muthaura.
The Regulatory Sandbox is not an incubation center, a pyhsical or virtual space but aims to use the insights from the tests allow for a more evidence-based approach to regulation.
The Regulatory Sandbox serves to continuously improve CMA’s understanding of emerging technologies as well as the risks and opportunities that the innovations portend for investors, financial institutions and the regulator.
Applicants have to be incorporated in Kenya, or existing licensees of the Authority or other capital markets regulators. Pezesha will use the approval to extend its digital crowdfunding Exchange platform to investors to issue loan notes to SMEs (Small and Medium Enterprises).
Upon exit from the Sandbox, Pezesha could be granted a license or approval to operate in Kenya subject to compliance with existing legal and regulatory requirements.
“We are excited about this CMA approval, as it brings endless possibilities as well as cements trust and credibility in our business by shortening our time to market and allowing us to achieve our mission of financial inclusion at a larger scale, while addressing any legal and regulatory requirements. More so, opening up the market for retail lenders, DFIs, angels and impact investors to provide working capital to quality and creditworthy small businesses, as their growth and opportunities are continuously choked due to the lack of affordable and accessible long term financing”, adds Hilda Moraa the CEO of Pezesha.
Pezesha is also a member of the DfID-funded African CrowdFunding Association ACFA, the regulatory framework for securities-based crowdfunding developed by ACfA.
Pezesha projects that a common regulatory framework would bolster collaborations between businesses in Africa and position the continent as a global player and leader in the fintech and crowdfunding sector.
“Our vision as Pezesha is to evolve to a digital Exchange financial platform of choice and equality that brings financial inclusion to the underserved MSMEs who are the anchors of youth employment and economic development in Africa,” concluded Moraa.