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Why Kenyan start-ups can bank on ICOs

Kenya , 31 Jul 2019

Why Kenyan start-ups can bank on ICOs

Start-ups in Kenya stand to benefit the most from Initial Coin Offerings (ICOs), according to blockchain experts.

Recently the country's Distributed Ledger and Artificial Intelligence Task Force recommended the government officially recognise ICOs as a viable financial mechanism for citizens, and leverage this resource to alleviate the country's debt.

Morocco-based blockchain expert Bellaj Badr believes this could make it easier for local businesses – particularly start-ups – to access national and international funding.

"In such a country where a large population remains unbanked, ICOs represent a better alternative than the traditional capital raising (method)," he says. "To manage the tokens, investors don't need to have a bank account. Moreover, the transparency and the security of blockchain can encourage Kenyans to invest in local projects."

The taskforce's proposal has been introduced just as hype around ICOs has faded somewhat, compared to 2017 when start-ups used the mechanism to raise approximately US$4-billion according to global auditing firm Ernst and Young.

By 2018, there was a significant slowdown as early returns from ICOs were less than encouraging and about 86% failed.

Ernst and Young claims that in comparison to traditional venture capital investing, ICO-backed companies tend to "offer more risk based on a number of factors including the lack of progress towards usable products."

ICOs have received bad press in the last two years - though with some justification adds Suyash Sumaroo of Mauritius-based blockchain infrastructure company, Horizon Africa.

"The whole idea of an ICO is quite good, in that, it democratises the way money can be raised. This allows people, start-ups and companies to raise funds, which would not have been possible in another way. What is needed though is a proper structure and framework to conduct ICOs to encompass the various aspects of an ICO, starting from KYC to ensuring the regulatory requirements of the companies conducting the ICO."

Badr believes Security Token Offerings (STOs) represents a strong alternative because of its legal framework which defines the relationship between investors and projects holders.

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