KENYA Law and Practice Contributed by: Sammy Ndolo, Njeri Wagacha, Brian Muchiri and Valere Nyaboke, Cliffe Dekker Hofmeyr
Debt capital Deposit‑taking businesses may also raise capital through debt obtained from lenders or investors (eg, through instruments such as convertible notes). Non‑Deposit‑Taking Lenders Lenders that do not obtain deposits from customers but still provide loans (eg, NDCPs) raise funds through equity capital or debt capital, similar to deposit‑taking lenders. Regulation of Sources of Funds Raising debt or shareholder capital becomes subject to regulation if the fundraising activity is considered a public offer of securities. In such cases, the entity must comply with: • the Capital Markets Act; and • the Capital Markets (Securities) (Public Offers, List - ing and Disclosures) Regulations, 2002. A public offer of securities occurs when a company invites a broad segment of the public to invest in its financial instruments. This arises if: • the invitation extends beyond a small, predefined group of investors; or • the offer structure allows securities to be trans - ferred to individuals who were not the original intended recipients. 4.4 Syndication of Fiat Currency Loans Syndication of loans is not common in Kenya, and there are no specific regulations governing the prac - tice. However, when loan syndication does occur, the process generally follows the steps outlined below. Origination A borrower identifies a significant funding requirement and selects a lead arranger – typically an experienced investment bank or commercial bank – to co-ordinate
• using the deposited funds by lending, investing, or otherwise deploying them at the risk of the entity that lends or invests the funds. A similar regulatory framework applies under the Microfinance Act, which provides a comparable defi - There are no specific regulations that prescribe the underwriting process for industry participants. How - ever, the DCP Regulations impose an obligation on an NDCP not to advance any credit to a customer until it has taken reasonable steps to assess the customer’s ability to repay the credit facility. NDCPs will typically use consumer data and apply automated algorithms to make automated decisions regarding a customer’s creditworthiness and risk. When undertaking such an assessment, the DCP Regulations require the NDCP to collect and assess only the customer data necessary for the appraisal. This requirement aligns with the data processing prin - ciples set out under the Data Protection Act. 4.3 Sources of Funds for Fiat Currency Loans Deposit‑Taking Lenders Entities that undertake deposit‑taking business (eg, banks) raise funds from several sources. Customer deposits As outlined in 4.1 Differences in the Business or Reg - ulation of Fiat Currency Loans Provided to Different Entities , entities carrying out “banking business” or “microfinance business” obtain deposits from cus - tomers. These deposits are then used to issue loans to those customers. Equity capital Shareholders of a deposit‑taking business typically provide capital in the form of: nition for “microfinance business”. 4.2 Underwriting Processes • permanent shareholders’ equity, including issued and fully paid‑up ordinary shares and perpetual non‑cumulative preference shares; • disclosed reserves, such as ordinary share capital and perpetual non‑cumulative share premium; and • retained earnings.
the syndication process. Details and Negotiation
The lead arranger works with the borrower to prepare a detailed information package describing the borrow - er’s business and financial position. This information forms the basis for negotiating the main loan terms,
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