How to enhance access to the capital market by small and medium-sized enterprises was the focus of the 2022 Annual Business Luncheon of the Capital Market Solicitors Association (CMSA), reports Deputy News Editor JOSEPH JIBUEZE.
There is good news for small and medium-sized enterprises: they can now access the capital market – where savings and investments are channelled between people or institutions with capital to lend or invest, and those in need.
But not many small businesses know about the existing opportunities, such as the Nigerian Stock Exchange (NGX) Growth Board.
There is, therefore, the need for enlightenment and simplified access for more SMEs to acces the Exchange.
The lack of awareness, as well as regulatory restrictions, have resulted in thriving startups getting funding from foreign sources, but with the consequence of capital flight.
The Capital Market Solicitors Association (CMSA) – an independent association of solicitors and commercial law firms engaged in capital market practice – is leading the advocacy for more local funding access by SMEs through the capital market.
The opportunities are huge, as highlighted by the keynote speaker, Chief Executive Officer of the Nigerian Exchange Limited, Temi Popoola, at the 2022 CMSA annual business luncheon.
Its theme was: “Capital market, startup financing and syndicate funding: ability of small and medium-sized enterprises to access the capital market.”
It featured an interview session with the Head, Business Development of FMDG Exchange, Jumoke Olaniyan, anchored by the CEO of Big Cabal Media, Tomiwa Aladekomo.
There was also a panel session featuring the Managing Director of United Capital, Dr. Gbadebo Adenrele, Chief Executive of Stanbic IBTC Capital Funso Akere, Managing Partner of Oui Capital Olu Oyinsan and a partner at Templars, Zelda Akindele.
Popoola, who commended CMSA for its dedication to improving the capital market legal framework, underscored the significant role of SMEs in a thriving economy.
“SMEs are often regarded as the backbone of a country’s economic development, and their role in the economy cannot be overemphasised,” he said.
Referring to a World Bank report, he said SMEs represented about 90 per cent of businesses and more than 50 per cent of employment worldwide.
“In emerging economies, formal SMEs contribute as much as 40 per cent of national income (GDP) and generate seven out of 10 jobs,” he said.
But SMEs, he noted, are faced with the challenges of an unfriendly business environment, poor funding, low managerial skills, lack of access to modern technology, and low access to finance, which occupies a central position.
Despite the challenges, Popoola said the tech segment wa s thriving.
According to him, investors’ appetite in the local fintech sector was visible in 2021, with US$800 million raised.
Nigeria, he said, remains one of the leading markets in terms of total funding, with a record high of US$747 million in tech investment in 2019.
Despite various initiatives, such as by the Central Bank, Popoola said long-term solutions are required to address the SME financing gap.
He said policymakers and donors have increasingly emphasised the importance of expanding SMEs’ financial access to non-bank sources of funding, including public equity financing, adding that stock exchanges are setting up market segments with the intention of expanding SMEs’ financial access.
“Many of these boards encourage listings by having different entry standards than the main board, streamlining the listing process and reducing the associated costs,” Popoola said.
One of such is the NGX Growth Board, a dedicated platform for fast-growing companies.
Popoola added: “In line with the Exchange’s commitment to deepening the Nigerian capital market and its support for startups and Small and Medium Enterprises, NGX launched the Growth Board as a platform dedicated to encouraging small-cap and growth-oriented companies to leverage the capital market to raise long-term capital, stimulate growth, and promote liquidity.
“The NGX Growth Board targets fast-growth companies such as SMEs operating in various sectors including technology companies and connects them with an extensive pool of investors.
“Through the Board, companies in the early stages of development can take advantage of NGX’s platform, diverse products and services to reach their long-term goals.”
He said the board is designed to offer relaxed entry criteria as well as less stringent listing requirements and allows for greater accessibility to capital flows, global visibility and credibility through corporate disclosures.
“Given the importance of SMEs to Nigeria’s economy, there is a need for stakeholders to pay close attention to their access to finance and their prospects more broadly by leveraging on emerging trends such as technology to provide an innovative solution,” Popoola added.
Akindele noted that as investors always look for track records, which SMEs lack, it is challenging for them to access the capital market.
Thanks to the Growth Board of the Exchange and other initiatives, she said SMEs and smaller companies can now have access to funding.
“But awareness is low. Many SMEs are one-man driven and some don’t understand they can access the capital market.
“When they think of the capital market, they’re thinking of bonds, commercial papers, IPOs. They don’t understand there’s an avenue through which they can access the market. Awareness is part of what we need,” she said.
She believes capital flight will drop if more small businesses get local funding.
“When startups with strong economic projections get their initial investment funding from offshore sources, that’s where the profits would go.
“Until local investors start to create access to their capital for local entities, we’re going to see profit flights,” Akindele said.
CMSA chairman, Chike Obianwu, reiterated the potential of creating platforms to bring capital together in one place to enable small businesses to access it without going through the same hurdles that big businesses do.
“There is a need for small businesses to raise money through the capital market. Technology may be an enabler. You need to be able to talk about crowdfunding, syndicate funding and those sorts,” he said.
A partner at Duale, Ovia and Alex-Adedipe and chairman of the luncheon, Mr Adeleke Alex-Adedipe, emphasised that SMEs were important contributors to employment, economic and export growth.
He said the luncheon was an opportunity for capital market players to spearhead the conversation on unlocking the barriers that prevent small businesses from accessing the range of financial solutions available in the capital market.
“These solutions will enable them to raise the long-term funds required to spur growth and development of the sector, and in turn, ignite Nigeria’s socio-economic development,” Alex-Adedipe said.
