Stories by Chinwendu Obienyi
Small and medium-sized enterprises (SMEs) are the backbone of every economy due to their nature of stimulating domestic demand through job creation, innovation, and competition.
According to the World Bank, formal Small and Medium Enterprises (SMEs) contribute up to 60 per cent of total employment, and up to 40 per cent of national income (GDP) in emerging economies. However, these SMEs face a financing gap and the challenge of access to capital, which restricts their economic prosperity.
Globally, SME operators primarily depend on bank loans or government schemes for financing. More so, they have a heavy dependence on debt rather than equity in their business operations. Therefore, the need to bring awareness to the diversification of funding sources is necessary. With the efforts of the Federal Government to curb the rise of the COVID-19 pandemic amongst other issues, access to funding for SMEs would present a stiff challenge for SME operators in Nigeria due to the fact that bank financing is not a reliable source of long-term financing. This is where the capital market comes in as a means.
The capital market has always been dubbed as a yardstick of any country’s economy and is a distinct alternative to traditional bank lending and financing. If accessed, it can provide a cost-effective medium- to long-term finance for SMEs including large corporations and multinationals.
Although many non-bank financing alternatives such as financial leasing, private equity and crowd-funding are all other forms of financing which businesses may use at various stages of their life cycle, they are not as easily accessible as the stock market.
SEC, NSE efforts
The Securities and Exchange Commission (SEC) as well as the Nigerian Stock Exchange (NSE) have made tremendous effort in creating an avenue for SMEs to raise capital from the stock market. Speaking to the media during an interactive session, the former Director-General, SEC, Mary Uduk, had advocated for financial incentives to encourage the listing of small companies.
Her words, “What we are saying is that Nigerian companies doing the same business that these foreign companies are doing, if they are listed, should be encouraged in terms of public procurement or whatever government is doing. We don’t want to keep taking from them because they incur a lot of cost and you cannot reduce the cost more than a limited amount of percentage.”
According to her, “The best is to begin to give them some incentives and with that you have more companies coming to the market, you have more jobs and then people will have dividends of investing.”
The NSE on its part, launched the NSE Growth Board in a bid to elevate the Nigerian Capital market (NCM) and meeting the needs of businesses at every phase of their lifecycle. According to the NSE, the Growth Board was designed to encourage small-cap and growth-oriented companies with good corporate governance standards to list.
This is why it recently reiterated that it will continue to encourage companies with high growth potentials to seize the opportunity of raising long term capital from its platform.
Speaking during a webinar event tagged “Capital Raising for Small Medium Enterprises (SMEs) through the Stock Exchange” in Lagos recently, the Chief Executive Officer, NSE, Oscar Onyema who was represented by the Divisional Head, Listing Businesses, Olumide Bolumole, said, that access to funding remains a challenge for SMEs while adding that the traditional role of the Exchange as a platform for capital formation and liquidity holds good promise for businesses.
He noted that SMEs contribute a huge part in developing the economy especially in the areas of job creation, poverty alleviation and standard of living of people.
“As access to capital is a key challenge faced by companies active in various sectors of the economy, the NSE continues to provide alternative funding opportunities to catalyse business growth”, He said.
According to him, Nigeria remains the lowest in terms of growth company representation in the capital as only nine listed companies have a market capitalisation of N6.87 billion as at fourth quarter (Q4) of 2020.
“In 2020, we saw a reduction in revenue across the SME space due to the COVID-19 and so there is a need for them to scale up and they will require medium to long term funding. Our support for SMEs stems from our vision to elevate the Nigerian capital market and cater to various market segments and to ensure all spectrums of businesses/companies in various growth phases can be listed”, he said.
For her part, the President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Hajia Saratu Iya Aliyu, said the significance of SMEs cannot be over emphasized as they employ the largest percentage of labour force globally.
She said the NSE growth board represents an opportunity for SMEs to remain afloat in order to support economic progress.
“SMEs are the building blocks of any economy and with the Growth board in place, there is a need for them to raise funds from the stock exchange considering what had happened as regards the COVID-19 pandemic which saw some of these SMEs close down totally”, Hajia Saratu explained.
The NACCIMA boss thereafter assured that it will continue to work with the NSE and market stakeholders to ensure SMEs get access to funds and promote global competitiveness and promote growth in the nation’s economy.