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A Kenyan fintech that plans to a launch a blockchain-based crowdfunding platform to fund small businesses has been able to bypass local financial services regulations — thanks to a partnership with a Canadian company, says a spokesperson for the Kenyan firm.
The partnership will see Canadian Company Finhaven raise the necessary capital via the blockchain on behalf of Kenya’s 4G Capital.
“We will only be bringing in US dollars into the country, which would then be converted into Kenyan shillings,” said 4G Capital spokesperson Lydia-Claire Halliday, whose consultancy handles corporate communications for the fintech company.
Halliday was responding to questions from Ventureburn on how Canadian securities issuance platform Finhaven and 4G Capital’s partnership to create Africa’s first blockchain fundraising platform for microfinance will work.
Wayne Hennessy-Barrett, 4G Capital founder and CEO, added that his company’s partnership with Finhaven did not mean 4G Capital is not working with Kenyan regulators.
“We work with regulators in all our operating countries to place client protection at the heart of all we do. We actively support their ongoing work on frameworks for new financial technologies,” Hennessy-Barrett commented in an e-mail.
In a statement last month 4G Capital said the “strategic working relationship” would “give qualified investors the opportunity to participate in 4G Capital’s tokenised bond issuance using cryptocurrency”.
Hennessy-Barrett said the partnership represented “the first direct connection of a blockchain investment platform with a proven fintech operation with a track record of breaking the poverty cycle”.
Fundraising will be carried out internationally, with 4G Capital bringing in US dollars into Kenya. This money will then be converted into Kenyan shillings
In an email to Ventureburn last Thursday (5 April), Finhaven marketing director Olivia Lovenmark said the partnership had come about after Finhaven’s CRO Tony Nicalo had been introduced to Hennessy-Barrett while on a trip to Nairobi.
During the trip, Lovenmark said, Nicalo toured the local markets and met some of the micro entrepreneurs that 4G Capital lends to and saw the need for greater access to capital.
How it’ll work
“Finhaven offers 4G Capital a method of financing that is significantly more efficient than traditional capital markets, provides greater liquidity for their bond issuance, and makes it easier for them to scale their mission,” said Lovenmark.
Finhaven’s platform is based on the Etheruem blockchain and it enables companies to issue tokenised debt and equity.
“Like a traditional securities exchange, issuers work with a lead investor or underwriter to set the deal terms and build a book of investors but are also able to utilise Finhaven’s back-office issuance tools,” she said.
These tools include synpdicate management, Know Your Customer and Anti Money Laundering procedures as well as investor relations.
“The underlying smart contract issues investor tokens dependent on the deal structure. Some tokens are issued upon receipt of investment, some tokens are issued upon deal close. For deals issuing debt, the remittance layer is powered by the Bitcoin blockchain,” Lovenmark explained.
Before potential investors can invest, they will go through a “verification and suitability process”. “Only investors who meet those requirements are eligible to invest. All the regulatory protections provided for securities issuance and compliance apply,” she said.
Finhaven’s technical issuance platform is expected to go live this month, while secondary transfers are expected to be available between platform members this quarter.
“Finhaven is (also) currently working to open a blockchain-based securities exchange, and is working with securities regulators to secure the necessary approvals. Once approved, this will position the company as an end-to-end solution for issuing, investing in, and trading regulatory compliant security tokens,” she said.
“Certainly we hope to launch our marketplace in a timely fashion, but our first priority is ensuring that we’re creating an exchange that follows all regulatory procedures,” she added.
Lovenmark said issuers from Nigeria and South Africa have expressed interest in the platform.
*UPDATE (10 April 2018) Editor’s note: 4G Capital founder and CEO Wayne Hennessy-Barrett subsequently contacted Ventureburn to clarify that his company’s motive for partnering with Finhaven is not to bypass Kenyan regulations.
He stressed that his company is working with Kenyan regulators, adding that the Kenyan Central Bank has only advised caution regarding use of cryptocurrencies and had not outlawed their use — as has been the case in South Korea.