The collapse of KOKO Networks in January 2026 has become a case study of a policy-dependent business model being dismantled by a government. On Friday, KOKO, a Kenyan clean-cooking startup, shut down its activities and laid off 700 employees, a move that stranded 1.5 million households who used the company’s product. The shutdown, which reportedly followed two days of meetings where company executives weighed the options, ended a long battle to secure a Letter of Authorization (LoA) that would make its business profitable. KOKO’s business model was fundamentally built on a negative-margin retail strategy supported by high-margin climate assets. To drive the transition from charcoal to bioethanol, KOKO sold its proprietary cookstoves and fuel at prices that defied traditional market logic. The stove sold for approximately $12 (KES 1,500 or a little more), while the manufacturing and delivery cost reportedly hovered around $115 (KES 15,000. The fuel was also retained at roughly 50% of market value (approx. KES 100 per liter vs. a market rate of KES 200). KOKO did not expect to make a profit from the Kenyan consumer. Instead, it expected to sell the avoided carbon emission. The Unusual Business Logic Because their emissions are high and hard to abate, airlines participate in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a deal to meet their net-zero targets by buying credits from projects that either remove CO2 or prevent it from happening. While regular carbon credits might sell for $2–$5, high-integrity credits (like KOKO’s, which are verified and have massive social impact) were targeted at $20+. KOKO took that anticipated $20/ton from an airline like Delta or Lufthansa and applied it instantly to the Kenyan mother buying fuel. So, if a household saved 5 tons of CO2 per year by not using charcoal, that would generate $100 in carbon value. KOKO could then take that $100 and use it to lower the price of the stove and the ethanol. Without that $100 subsidy from the airline, the family would have to pay the true market price for ethanol, which they simply cannot afford. So, each time a customer refilled at a KOKO Point ATM, the system generated data for carbon credits. But for KOKO to sell its credits to an airline in Europe or a government in Asia, the Kenyan government had to issue a Letter of Authorization (LoA). The Letter that never came The central pillar of KOKO’s business model was Article 6 of the Paris Agreement, which allows for corresponding adjustments. The Kenyan government needed to acknowledge in writing that it would not count the emission reductions sold by KOKO toward its own Nationally Determined Contributions (NDCs). Under the Paris Agreement, Kenya, like other nations, has committed to specific NDC targets to reduce its national emissions. If the government gave KOKO an LoA, it could no longercount KOKO's 15 million tons of avoided CO2 toward its own national goals. By withholding the letter, the government could use those reductions to meet its own international climate pledges for free, rather than having to fund expensive state projects to achieve the same result. Despite signing a framework agreement with KOKO in 2024, the government ultimately withheld the LoA. Road to debt While it waited for the LoA, KOKO relied on early equity from the Microsoft Climate Innovation Fund and Verod-Kepple to build 3,000 Fuel ATMs and the IoT cloud needed to prove that they were actually reducing carbon. As they scaled to 1.5 million customers, the subsidies became too expensive for equity alone. They turned to carbon securitization debt. In 2024 and 2025, Rand Merchant Bank (RMB) and Mirova provided massive debt facilities. By early 2026, the company had accumulated over $60 million in debt. When the Kenyan government definitively refused the LoA in January, that debt became unserviceable. The bridge they were building with VC and debt money didn't reach the other side; it just stopped in mid-air. With over $60 million in debt coming due and no carbon revenue to service it, KOKO’s board was forced to file for administration with PwC on February 1, 2026. A lose-lose situation The collapse of KOKO Networks reveals a divergence between the welfare of the Kenyan citizens and the strategic interests of the state. For over 1.5 million Kenyan households, KOKO was a daily utility that provided a cheaper, safer alternative to dirty fuels. With fuel ATMs switched off as of February 1, 2026, over a million families are being forced back to charcoal and kerosene. This immediately reverses years of progress in reducing indoor air pollution, which is a leading cause of respiratory illness in women and children. KOKO sold bioethanol at KES 100 per liter, roughly half the market price of KES 200. Without the carbon subsidy, households must now spend nearly double their previous fuel budget or revert to charcoal, which has seen prices spike due to sudden demand. Beyond the 700 direct employees (engineers, data scientists, and logistics staff) who lost their jobs via SMS, thousands of last-mile agents and small shop owners have lost the commissions that helped sustain their local businesses. While the Kenyan government likely intended to protect its national carbon interests, the actual outcome is a systemic failure where every stakeholder comes out behind. The government's primary gain—reclaiming 15 million tons of carbon reductions for its own national targets (NDCs)—is an accounting mirage, as carbon credits exist only as long as a mother in Nairobi chooses to refill a bioethanol canister instead of buying a bag of charcoal. By killing the company, the state effectively deleted the very asset it might have been trying to control. The move to withhold the LoA has also triggered a massive, dormant debt that may eventually rest on the Kenyan taxpayer's shoulders if MIGA sues and wins against the Kenyan state. The Kenyan government likely thought KOKO was too big to fail, assuming that by withholding the LoA, they could force KOKO to agree to higher taxes, more benefit sharing, or a surrender of some credits to the national registry, believing KOKO would eventually find the money to stay alive. They miscalculated. Because the government's inaction led to the company's collapse, investors may have moved to trigger the $179.6 million (approx. KES 23 billion) political risk guarantee from the World Bank (MIGA). MIGA will pay the investors, but they will eventually seek to recover that $180 million from the Kenyan government. The state probably withheld a signature to save carbon value, but in doing so, it has created a multi-billion shilling legal debt to the World Bank. Also, while Kenya has spent years branding itself as a global leader in climate finance, this event sends a clear signal to international investors that regulatory kill switches can be flipped at any time, even for projects with World Bank backing. The African Regulation Gap Just days after KOKO filed for insolvency in Kenya due to government inaction on carbon credit authorization, the Central Bank of Nigeria (CBN) released its 2025 Fintech Report (published early February 2026). The data from Nigeria provides a perfect quantitative echo of KOKO’s qualitative failure. The CBN report highlights a staggering statistic: 87.5% of Nigerian fintechs report that the cost of meeting regulatory and risk requirements significantly impacts their capacity to innovate. High compliance costs and lengthy approval timelines for new products (affecting 62.5% of firms) create a death by a thousand cuts. In KOKO’s case, the compliance cost was a single Letter of Authorization (LoA). Without it, the business couldn't monetize its primary asset. Both represent a state where the regulator holds the kill switch for the company's financial oxygen.
