Introduction to Crowd Funding For Kenya and or an SME Economic Development Stock Exchange

The enterprise development plans and vision of Kenya and its respective provinces for 2030 is for results to be achieved in the three areas of Economics, Social, and Political pillars. SME financing addresses the generation of more resources, wealth creation, employment generation, equitable distribution of national wealth as well as effective youth employment and engagement through regional representation and promotion of business development and growth.

The IFUNDX Platform suggests a parent venture capital exchange such as the Kenya Enterprise Growth Board for the funding of SME companies through an offering board. Each major region or province within Kenya should then have its own economic development Enterprise Growth Board, such as the Mombasa Enterprise Growth Board for the former “Coast” region, as the economic hub of that region, etc. Through building of economic boards per region, the funding will be geo-specific and so will increase investor interests within Kenya. The development of integrity within local capital markets as a representation of the National Interests, will benefit both economic growth, social development from capital raised and awareness, as well as benefit the political relationships between the national and regional economic hubs. The model of regional boards as indexes of a venture capital market cater to the requirement of inclusion of local authorities in the policy and development of the capital markets and relationship with the National agenda’s of economic, social, and political stability.

Within the various markets utilizing a venture capital exchange model, there can be lending of funds through the platform as debt in the form of debentures or bonds, there can be equity placements in the form of investment directly into shares, purchase of goods for future delivery.

With over 7.5 million SMEs in Kenya, there is a growing market of businesses that are suffering from the imperfections of the market to deliver funding. All indications suggest that the GDP of the market is growing, that the majority of new jobs is created by this sector, that income generation depends on its growth, and it is the bedrock of the nation but still lacks mechanisms for financing and their lower resilience to risk which chokes the fast growth.

There are over 12 million Kenyans with access to the internet with over 50% of the online users on social media platforms such as facebook. The corporate and investor population within the population of Kenya can be easily accessed through an online trading platform and education. With a population over over 40 million people, Kenya has a large potential investor driven market.

A platform for encouraging investment into small businesses as in an exchange platform will increase the number of securities and ownership by micro-investors as well as the increase of regulated micro-finance from listed debts on the exchange platform. In essence, all micro-finance should carry the transparency of being listed on a platform and reported publicly. The successful payment of such listed securities will publicly increase the credit worthiness of the SME, while equity placements can give the capital cushion’s where required to encourage traditional financing sources.

Companies that list on the Kenya venture capital board will be held to the standard of most OTC Markets, requiring audited financial statements (or pro-forma for firms that are new), annual reporting of accounts, 5 year financial projections, project proposal and business plan, valuation of assets, management CVs and due diligence, credit check, corporate documentation, a Bank Account, and professional reference by a Lawyer, Auditor, or Government Official.

Essential to the development of the companies are:

• Professional services to assist in company structure development, valuation, and business plan development
• Access to Banking, Legal, and Accounting Relationships
• Access to training on 7 Pillars for SME Development of Financing & Taxes, Sales & Marketing, Management & Leadership, Accessing Capital, Governance, Export & Trade, and Mentoring

The training and development will drastically change the management decision making process, the risks and growth obstacles, professionalism, and overall sales and turnover of the company. The capital markets are intended to leverage and grow the SME’s assets and momentum into the local and national market, and potentially internationally where applicable.

Exposure of the SME Markets Globally

The Venture Capital Exchange platform is built to accept investment locally and internationally into the various Kenya markets. Attracting international investors can also bring international customers and attention to Kenyan companies for growing beyond their borders. The increase in internal investment, pan-African, and international investment all adds to the economic growth of the Kenya market with trackable grassroots development where the attention needs to be.

Venture capital funds, individuals, and agencies globally can fund directly the companies and organizations they would like to assist through the platform, allowing for direct foreign capital investments into small businesses within Kenya and Africa. The manageable platform for placing investments will increase the targeting profile of investors and social development oriented investors to make direct injections in the form of ownership into small businesses. A simple registration for investors including their KYC (know your client) data, registration of the essential components for the SME’s disclosure for investment, and a Broker to administer the trade and explain the risks is the key to removing limitations within the market trading for small businesses. As suggested in prior documentation by the Capital Markets Authorities, this should include registration exemptions such as where the SME’s desiring to raise a relatively small amount of capital must go through the same costly, time-consuming process of registration as if it were a multimillion offering. SME capital requirements are often too low, too sporadic, and too immediate to warrant the required registration process.

Essentially the venture capital boards would capitalize and educate the market to promote private placement awareness and prepare the company for moving onto an OTC Market, where investors can be assured a market will be created. The OTC Market can be a function of the actual venture exchange, as this exists within the Platform to buy and sell shares, or can be directly related to one of the Capital Markets existing OTC Markets as a feeder of companies into an existing exchange.

The Venture Capital Market for Enterprise Development will compliment the SME support bureau approach through the guidance and education of the marketplace, content for education, courses, seminars, eLearning, and mobile communication tools. Inclusive, support staff and professional services with global experience in capital markets and SME development will be able to answer questions and direct companies for support within the organization or Country. The experience of the IFUNDX Limited team is not limited to SME’s, and can play a part in educating Micro-Finance firms, Banking Institutions, Broker Dealers, Professional service providers, and Consultants on how to take advantage of the new market and the growth of SME’s. Inclusive may be the structuring and capitalization of financial market companies through the exchange and or privately.

The development of the material has been over a 40 year period for small business development and growth, from Canada & the USA to Southern Africa and the Middle East. The education program’s can be developed with the CMA and its stakeholders and implemented through the Financial Education partnership programme steered by the financial sector deepening – Kenya Project.

Fundamentally, seed capital, equity, and venture capital do not work the same as the typical branded main board and second board stock exchanges. There requires a relationship with the investor, the promotion of the companies, and the educational development of the businesses to disclose properly to gain momentum in the capital markets. The private placement offerings being made into the venture listed companies are preparing the firms for the main board listings, without demoting their status as a second tier. Rather, the listing is a capital and book building exercise based on a disclosed goal promoting the placement requirements and capital needed to grow the business. The difference of Boards should really be indexes which are for regions of the Country or for “indigenous or female owned” businesses boards, Islamic Boards, etc, versus second tier and first tier classifications. The Venture Exchange should be a single purpose exchange with multiple listed securities for the development of enterprise via debt, equities, and assets. Liquidity should be an up-market listing term used for “listing” on the actual Nairobi Main Board stock exchange within the future.

One of the fundamentals addressed by the IFUNDX platform marketed globally as an African Enterprise Development Board is the awareness creation on private placements. Kenyan firms can simply list on the platform with Broker assistance and sponsorship, however, the IFUNDX system promotes globally through multiple organizations funding their businesses, thus removing the cost of global promotions and limiting their involvement to disclosure and publicity on the exchange website and news wire.

A Foundation In Education

IFUNDX Limited’s foundation for assisting small businesses is based on Knowledge Brokers International, a world renown trainer of Small Businesses with a track record of 20 years on the African Continent, and 40 years globally in the US, Canada, and Middle East. Having worked directly with several organizations including business associations, voluntary organizations and non-governmental organizations, as well as private sector clients to set up programs to enhance the factors that influence development of SME, especially as it related to enterprise growth and development.

Essential to working with organizations that support the SME market is to install the ability to continue to grow in sales and marketing, leadership, continue to manage finances, and ensure proper access to capital. Generally, when support is removed, despite the large number of assistance programs, ventures tend to collapse as soon as assisting organizations pull out or remaining ones have remained small. This generally occurs where there is not a significant tracking and long-term integration of both outcome based assessments, including formative and summative learning outcomes.

One of the aspects that effects tracking, is that tracking the learning of businesses doubles the expenses of training as the audit trail for a small business is often as expensive as a large corporation, but on a less economic scale.

Therefore, a system of making it easy and sustainable through online, mobile, and or quick offline tool kit for a business to offer and continue to raise capital, train staff, and increases production and sales is essential to the development of small businesses. The system, from the experience of Knowledge Brokers International requires group event training, one on one coaching, and a frequency of tools for answering questions quickly.

Seven Pillars of Enterprise Development Training

A Historical Challenge

Historically Kenya as a market has been driven by Venture Capital and injections of capital which have helped to develop the various industrial clusters and natural resources within the Country. As many studies have indicated within the past 10 years, venture capital has a significant impact on Small and Medium Enterprises in the developed countries, and has been a stepping stone of industrialization in Kenya.

However, like many African capital markets, the lack of finance within the SME sector has been a major contributor to the downfall small businesses. Access to capital within the Nairobi Stock Exchange, Banking Institutions, and Micro-Finance sector has not been actively accessible for the SME market. The Government of Kenya has done a good job for economic development and building of large industries, however, the attempts to promote economic progress and improve the lives of the majority of the population needs to be within the Small and Medium Enterprise promotion.

Several studies have recognized that the SMEs founder′s savings, as well as the assets of family and friends, are often the foundation of seed capital (Roberts, 1991). While financing requirements do vary by sector (Mason and Harrison, 1994), for the majority of SMEs internal equity and profits alone are insufficient to meet the high capital requirements for development and progression to the next growth stage. Therefore, while they are still in the very early stages of development many SMEs are forced to seek external investment capital (Oakey, 1984). Not surprisingly, the firms which seek external capital most vigorously tend to be growth-oriented companies (Oakey, 1984).

In Kenya most SMEs rely heavily on savings or bank loans for expansion capital (KPMG, 2011. Bank loans has become very expensive attracting interest rates between 23% and 29% being offered by Standard Chartered Bank and Kenya Commercial Bank respectively when the central bank benchmarking rate rose to 18% (Mumo, 2012). Unfortunately debt leads to a legal obligation to pay interests and principal or lead to bankruptcy and personal savings is never adequate (Kraus & Litzenberger, 1973).

The challenges faced by the SME and venture market is well established, from the lack of credit, lack of capital, venture capital, debt, and personnel. However, with Venture Capital offerings, firms experience the availability of capital, personnel mentoring and development, training, and assets.

According to the study undertaken by Halberg (1998) and Mead and Liedholm (1998), access to finance is an important ingredient to development of SMEs.

Kenya lacks in both access to credit and equity, and the financial constraints require a solution for promoting and training the next generation of SME’s to advance within the economy.

The Listing Problem: Naturally, SME’s rarely can access the risk adverse Capital Markets due to the stringent requirements, costs of maintaining a compliant listing, and Governance. Prevalent in other global markets, this void is generally fulfilled by the Venture Capital market and Angel Investors. Therefore, companies soliciting venture capital and angel/seed capital propose their risky business proposals, such as unproven ideas, research and development, unexplored mineral concessions, etc, for an ownership stake or debt instrument. The venture capital and angel market are aware of the risks, and generally with the guidance of advisors, give small businesses access to capital for the potential large upside of the venture becoming a success, were the risk outweighs the potential outcome. This venture capital market therefore doesn’t put the capital markets integrity at risk due to the nature of the target market. In addition, the capital markets generally do not reach the companies and investors with sufficient information, still require costly registration to raise capital, and often focus on larger and or growing businesses versus new ideas.

Build a Crowd Funding Company with our Software Solution or Stock Exchange!

IFUNDX Limited, www.ifundx.com, has built a revolutionary trading system that can act as a crowdfunding system or stock exchange with various exchange levels and rules in place. What is unique, is that our system integrates the existing infrastructure of Brokers and Banks into the crowdfunding system, so that the system can be operated by a broker license or banking license as an offering platform for people with ideas that need funding and people willing to finance those ideas as investors.

IFUNDX Technologies stock exchange platform is the first global trading platform to integrate into a single platform all of the key aspects of a market. The software centralizes the role of clearing and settlement, registrar services, escrow, accounts, investors, brokers, and listed issuers or securities into one multi-functional exchange platform.

The stock exchange software is an all in one portal that covers the public visible markets, individual administrative panels for brokers, investors, escrow, registrars, and the exchange, while securing every transaction is completed and automated according to standards and compliance.

 

The Investor:

The investor joins by signing up through the internet to the online platform, supplying their KYC information and documentation, and choosing an exchange broker, or having one appointed to them. A double pin is produced, where by there is a user identification card with over 54 various PINs assigned to the user. A second card is provided with over 54 double digit pins. The two pin cards that only the investor has are capable of allowing the user to login, make trades, make transfers, request funds, etc. Therefore, any investor initiated activity is strictly secure. For example, if the investor is making an investment into a private placement, the system produces the PDF document, and they can electronically sign, only by entering in the cross reference of pins.

Login and Security Module:

Two pin codes are supplied to each investor, one of which is a card with randomly different PINS printed. These PIN codes are unique to the investor. One card is a series of 4 digit codes, one PIN chosen by investors. To make any activity within the system that involves trading, money, communications, and or request for information, the investor must identify that they are who they say they are by entering in their personal PIN, and then a PIN from the cue card. This cue card pin randomly alternates, someone may login with the personal pin and the exact 4 digit requirement, but then to make a trade, you would be asked again to put in your personal pin and a new 4 digit pin from the card. This insures that even if someone left their computer logged in, they could not take any actions on the client account without having the PIN card. New PIN cards can be requested by investors through a series of password recovery questions and private details. However, for the ease of client and broker relationships, an investor can simply call a broker dealer on the system to make a trade if they are not technically inclined or do not have their PIN card. Therefore, the security is really for investors who would like to take online trading into their own hands.

Brokers also have a similar PIN based system of which trades cannot be done for themselves or clients without entering in the PIN for that trade, so that every individual trade is verified.

Restricted and Unrestricted

The platform has either restricted shares which investors can buy and brokers who sponsored the listing can sell, or unrestricted shares which any one can buy and sell. This goes for all products within the system. If an investor goes to a restricted product, they will see a restriction notice, and only have available the ability to buy, not to sell. If the securities are unrestricted, they can choose to sell the shares into the market. The issuer essentially has the ability to apply for the restriction to be removed from shares within the electronic trading system. All shares in a single offering are either restricted or unrestricted. One investor doesn’t get the privilege of having unrestricted shares while others are unrestricted, it is either one or the other for complete fairness and transparency. However, a company can make two offerings, one which is restricted, and one which is unrestricted. They can also place restricted and unrestricted debts, bonds, carbon credits, and contracts. The rules are essentially the same for trading.

Minimum Quantities

Based on the offering documents filed with the exchange, there may be minimum quantities, a notice will come up for investors if they have asked for less than the minimum. Therefore, in regulated areas such as Europe where 50,000 to 100,000 euro may be a minimum unit, this would stop individuals from investing less than this amount. This also greatly depends on the Broker interaction with the investors.

In the event that it is a sale of shares that falls under a new crowd funding regulation, where offerings can be done on a micro scale, this minimum could be $1 for example but maximum of $2,000. This essentially is set by the issuer or offering party. The exchange must however approve and verify the minimum quantities in interest of the investor before allowing offerings to be made.

Financials

The entire system is run on three currencies, US dollar, Great Britain Pound Sterling, and European Euro. (Potentially BitCoins in the future.) Every investor and broker have 3 bank accounts of which they can order shares from. Issuers can list in the three main currencies. If an investor has US dollars and decides to invest in Euro’s, they are prompted with a real-time currency exchange quote and asked to accept it with their double pin code combination. Clients can move funds from one currency to another real-time between these three currencies. Account holders can:

• Transfer between accounts
• Make a trade in one currency and agree to transfer the funds in another currency to cover the trade
• Add funds to the designated accounts in all three currencies with unique PDF wire instructions downloadable on request for their specific account
• Withdraw funds from the account in the currency originally deposited or to the clients account if they have one in the currency requested (transfer charges and account minimum balances do apply)
• Trades are directly deducted from the currency account of which they are listed in, issuers take on any currency risk from foreign investors.
• Statements can be requested via email, in pdf, or mailed to clients (subject to minimum balances and fees)

Buying and Selling Shares

In general, Venture firms will have shares that can be bought from the issuer but not sold into the market, as they would have some kind of hold or restriction. Therefore, on these companies there is a BUY but no SELL option on the screen of the company. Companies who’s shares are free for trading will have both a BUY and SELL option.

Status’s of a Trade

Processing: A processing trade cannot be cancelled, this means that the resolution for issuing the shares has already been sent to the transfer agent for uploading shares into the brokerage account.

Pending: This means that the trade has not been put into processing yet, and can be cancelled until the status changes. This can be cancelled by the investor, or by the broker dealer who may not accept the trade.

A completed trade simply shows with the shares in the financial account of the client.

Information Tools

News: This is the press releases of the particular stock.

Alerts: This includes Portfolio alerts, account balance alerts, watch list, suspension alerts, financials and filing alerts, activity alerts on stocks going up or down.

Messaging: This is a tool for investors and their broker to communicate on, in addition, alerts and releases can be sent to the message system.

Groups: The groups section is for an investor to create a group of which other investors on the platform follow and possibly subscribe to by investing with the group.

Funds: This is the account balances and reload information for adding additional funds.

Settings: Within the settings section, the investor can configure their account.

Broker Section

Main Working panel for Brokers.  Once a Broker has been registered in the system and provided all documents required for compliance, a login and financial account is created.  The broker can then access all the following functions.

 

Module	Description	Actions/Processes	Access Level
Financials	Financial Account details and actions, credit, debit, transfer, statements	credit, debit, transfer, statements	Broker with PIN
Global Position	Details of all holdings, cash account etc – Shown in home currency which can be switched to EUR/USD/GBP	Direct feed from European central bank for currency conversions
Clients	Broker clients area	Add, View, Monitor
Buy Orders	Current Client buy orders	Action/Process
Sell Orders	Current Client Sell Orders	Action/Process
Listings/Products	Brokers Sponsored Listings	Action/Update
Settings	General Preferences area
Messaging	Integrated Messaging System
Groups	Group Listings	Add, Join, Administrate	PIN
Watchlist	Current watchlist	Add, Delete, Monitor
B2B	Broker to Broker Transactions	See Note 1 below	PIN
News Feed	Integrated News Feed	Add, Delete, Update
Market Feed	Current Market feed
Open Orders	Process all open orders
New Trade	Manual Input of new trade		Pin
Documents	Document repository	View, print,

 

The broker has the following options, accept or reject order

Once order has been accepted it will be processed in accordance with the order processing module criteria described more fully below Note: All trades require the entry of the users/brokers PIN code to proceed

Buy Order Processing Module

On acceptance by the Managing Broker of an order, the following processes happen

1. Funds are reserved from the buyers account (if there are insufficient funds available in the investors account, the trade is processed with a “Pending Funds” Status)
2. Funds are credited to the Managing Broker (if there are sufficient funds available otherwise the trade is processed with a “Pending Funds” Status)
3. a. If the order is a Broker2Broker transaction, A buy order is raised from the managing broker to the sponsor broker – The managing broker can set his own bid price

1. If the order is accepted by the sponsoring broker, funds are transferred from the managing broker account into the sponsoring brokers account

1. The system produces a Contract Note or Subscription Agreement (or other documents as programmed by the sponsoring broker at the time of listing product) and emails to all parties
2. A full audit trail for all orders is linked to the order

Client Snapshot:

Each client has a snapshot available to the broker, including pending trades, documents, balances, uncleared funds, cleared funds, withdrawl requests, alerts, etc.

Sponsor Broker

Within the Broker section, there is the option to sponsor companies onto the exchange. If an issuer doesn’t have a sponsor, the software recommends a Broker by sending messages out with the application. Within the Sponsor section, a Broker can Add Listings, Set Broker Introduction Fees, and review the Issuer Client Snapshot.

Within the sponsor broker section, there is an Issuer Client Snapshot which includes:

• Shareholder list
• Pending shareholders to be given certificates or electronic shares
• Uploaded compliance documents, such as contracts, financials, resolutions, and material events.
• Giving and Receiving Client Notifications for compliance
• Status which is Pending, Active (Listed), Delisted, Suspended, Halted

Broker Trading Platform:

Brokers can set the platform to auto-trade on behalf of their client, which means the client makes the trade and it automatically is placed if the funds are in the account or manual trade, which means the broker deal checks every trade and approves them manually before they are completed. For every trade in the system, the broker dealer gets a Trade Alert.

Brokers Fees and Costs

Brokers will collect fees by:

• Charging issuers to be their sponsor broker
• Taking a 0.5% commission for BUY trading the clients account from the 1.5% charged by the exchange.
• Sponsor Brokers may have up to a 10% commission on the SELL trading of an Issuer’s stock of which they are the sponsor broker. In the event the BUY broker and the SELL broker are not the same broker, the sponsor broker would split their commission. However, the sponsor broker can electronically alter the commission within the system which would be advertised to the other brokers, whereby they may take 2% and give other brokers 8% or any variation of splitting the fees. This is manual change of commissions which can differ from company to company, but otherwise the default is a split commission unless otherwise altered.

Registrar Section

• Resolutions are uploaded for the registrar to download and issue certificates from. Resolutions either say dematerialize the shares, which means to deposit them in the exchange keeping the record with the registrar, or to certificate, which means the shares are couriered to the shareholder and their account within the system is empty.
• For shares to be sold between shareholders, there is a transfer document signed by the SELLING party, which transfers the shares to the exchange, and then the exchange transfers the shares to the BUYING party.
• The registrar has an online copy of the shareholder list.

Escrow Section and Payroll

This is the online ledgering system that keeps track of funds coming in and out of the Bank Account, the ledgering of the funds to the issuer, broker, seller/buyer, and exchange. The Bank Account (Escrow) can login and review the full audit trail of all transactions on the exchange. From a compliance perspective, this allows Escrow to make payment, but also identify any irregularities.

Every Company, Client, and Broker sign an escrow agreement with the Bank.

 

Issuers Platform

Module	Description	Actions/Processes	Access Level
Listings	All listings, products	Edit, Update
News	News Feed	Add, edit
Shareholders	List Shareholders
Clearing	Access clearing documents
Company Financials	Access financial accounts	credit, debit, transfer, statements, Print
Company Information	Edit update company information	Edit, update, Add
Open Orders	Current orders relating to listings	View, Reject
Company Statistics	View trade history
Messaging	Integrated Messaging System	Read, Compose, Reply etc

 

Master Admin Platform

Investors	Investor Management	Approve, Reject, Edit, Suspend, View Financials
Brokers	Broker Management	Approve, Reject, Edit, Suspend, View Financials
Companies	Company Management	Approve, Reject, Edit, Suspend, , View Financials
Inbound Banking	Process banking receipts	Clear Funds and Post
Outbound Banking	Process debit orders
Market	Administer Market	Add, Edit, update, suspend
Messaging	Integrated Messaging System	Read, Compose, Reply etc
Audit Trail/Escrow	Full auditing facilities
Registrar	Corporate Governance Module to insure trades are executed.	Review resolutions, Confirmations of Issuances and Transfers completed

 

About the Founding Company and Why you should work with us to Launch a Crowd Funding Business

• IFUNDX Limited was incorporated in 2013 to hold the asset of the Venture Capital Stock Exchange software designed and engineered by a consortium of advisors over 2 years
• The software encompasses over 20 years of experience in listing companies, trading markets, and recruiting and building stock exchanges
• The Consortium has listed over 1,000 companies on the Frankfurt Stock Exchange through partners and affiliates, over 40 UK exchange firms, over 20 US & Canadian exchange firms.
• IFUNDX built the stock exchange software on the basis that venture exchange markets like the TSX Venture are growing globally; however, there is a gap in the market place within the African continent and global SMME market for a venture exchange for private placements.
• IFUNDX believes that within the AfricanX Exchange over 100 companies could be listed per month.
• IFUNDX as an International Exchange believes that it can list over 100 companies internationally per month
• IFUNDX investor project “SOPHISTICATED INVESTOR REGISTRAR” currently has 4500 investor members where by over 200 are high-networth certified members, and the others are self-certified sophisticated investors
• IFUNDX as a member of Dealflow Media has access to 4000 Venture Capital firms globally
• IFUNDX as a RainMaker Member at MergerNetworks has access to over 12,000 companies looking to raise capital globally
• IFUNDX as a member of AngelNetworks has access to over 40,000 companies and investors as partners
• IFUNDX has a network of over 1000 websites that have over 2 million monthly visitors
• IFUNDX will joint venture with your firm to launch the platform
• With a large network of Broker Dealers, Banks, Registrars, and Corporations, the IFUNDX system will act as the perfect venture capital market to feed companies into the markets or crowdfunding system you want to built within your country!

Contact info@IFUNDX.com today to discuss building a stock exchange platform or “crowd funding platform for your Country or projects.

Most Popular uses of the software:

• Green Technology Crowdfunding
• Women Only Crowd funding businesses
• Youth Crowdfunding solutions
• Africa Crowdfunding Solutions
• SMME Crowdfunding or SME Crowd Funding
• Economic Development Funding using Crowd Funding
• Crowd Funding Business Globally
• Crowd Funding in Europe
• Crowd Funding in Asia
• Stock Exchange Software
• Private Placement Stock Exchange Software
• For Banks and stock brokers who want to make a private exchange using their license

Contact info@ifundx.com