Several Kenyan cryptocurrency startups are contemplating relocating their operations to Mauritius or South Africa, citing stringent capital requirements imposed by Kenya's new Virtual Asset Service Provider (VASP) regulations.

Under the new rules, startups must meet high minimum paid-up capital thresholds to obtain licenses, with some needing up to Sh100 million or more. This has alarmed early-stage firms that lack sufficient funding and face a November 4 deadline to comply.

Capital Thresholds Challenge Early-Stage Firms

  • Taran App, a platform enabling crypto-to-local currency exchanges, requires Sh100 million in paid-up capital but struggles to meet this despite having active users.
  • Other categories face even higher requirements: stablecoin issuers Sh300 million, wallet providers Sh150 million, and payment processors Sh10 million.

Founders argue that these fixed capital demands could exclude many startups that have yet to secure venture capital or significant clientele. They also note that investors prefer backing licensed companies, creating a catch-22 for those still seeking approval.

Regional Alternatives Offer More Flexible Rules

South Africa and Mauritius present more accommodating regulatory environments. South Africa assesses applicants based on their financial capacity relative to their business scale, without fixed capital minimums. Mauritius imposes much lower thresholds—for example, about Sh18 million for exchanges—and some service categories face no fixed minimum, requiring only proof of sufficient working capital.

Startups like Tando, which facilitates Bitcoin payments into M-Pesa accounts, highlight the difficulty of meeting Sh10 million capital requirements, especially when earnings are primarily in cryptocurrencies rather than fiat currency.

Industry Calls for Balanced Regulation

The Virtual Assets Chamber of Commerce (VACC) had proposed tiered capital requirements based on company size and maturity, aiming to protect innovation while ensuring financial stability. Although the Treasury reduced some thresholds by up to 40%, many startups still find them prohibitive.

VACC Chair Tony Olendo acknowledged the regulators’ challenge in balancing oversight with innovation but stressed that high capital demands should not stifle emerging businesses.

Uncertain Future for Kenyan Crypto Startups

With no clear guidance from the National Treasury on exemptions or acceptance of crypto-denominated capital, startups face mounting pressure. Some are actively considering registration in Mauritius or South Africa to maintain legal operations and continue serving their customers.

Kenya’s growing crypto market, ranked 21st globally and fourth in Africa for adoption, risks losing innovative players to more flexible jurisdictions unless regulatory frameworks evolve to support early-stage firms.