Kenya on Tuesday launched a trading board on the Nairobi Securities Exchange (NSE) for small and medium enterprises (SMEs) that opens new funding opportunities for the growing pool of small and medium sized businesses.
The Capital Markets Authority (CMA) said the Growth Enterprise Market Segment (GEMS) marks yet another milestone in the growth and transformation of the capital market. "This is one of the many steps we are charting to bring to fruition our vision of making Nairobi the gateway to the Africa's capital markets," CMA Acting CEO Paul Muthaura told journalists in Nairobi.
Three companies have already applied to start trading under the GEMS counter. The demand for the new trading floor has been high among the SMEs that are seeking new capital injection to expand and meeting the rising demand in the an expanded East Africa Community Market.
Others like family-owned businesses will also have an opportunity to easily diversify their shareholding. "Through this market, these firms will be able to raise substantial initial and ongoing capital, whilst also benefiting from increased profile and liquidity, within a regulatory environment designed specifically to meet their needs," said Muthaura during the launch.
The development of this market was led by the NSE, the Central Depository and Settlement Corporation, the CMA and other stakeholders. In Kenya for instance, SME operations cut across almost all sectors of the economy and sustain the majority of households in addition being the biggest provider of employment.
According to the Economic Survey 2010, SMEs account for about 80 per cent of the country's total employment outside small-scale agriculture and contribute to about 40 per cent of the value of the economy. But successive studies have found that SMEs operate under a myriad of constraints including those of inadequate infrastructural facilities, high rate of enterprise mortality; low level of entrepreneurial skills; lack of a conducive operating environment; restricted market access and cumbersome regulatory requirements. "It is however the issue of access to finance that remains the most inimical to their survival.
They not only find it difficult to access finance, but also have to deal with the higher cost of finance relative to the charges larger firms face," said Muthaura, suggesting that the new trading window will help them lessen the challenge of raising the funds.
He said the Growth Enterprise Market Segment that was launched on Tuesday will not only be expected to unlock capital for a large number of these SMEs but also raise the level of savings and investments within the capital markets through additional listings.
"It is expected that it will augment various initiatives by both the government and the private sector to deal with the challenges facing SMEs and to create enabling business environment to encourage growth of an SMEs sector that has strong linkages with major industries."
The regulatory framework for listing of SMEs at the NSE was gazetted into law in June 2012, and all other documents detailing the listing procedure and disclosure standards to be applied have also been approved in order to operationalize this segment.
The entities listing on GEMS will require no track record on profitability for eligibility and thus the framework offers an important listing opportunity highly promising start-up firms including those involved in mining and other companies investing heavily in infrastructure based projects that require a heavy capital outlay and do not have a profit history.
"It also reduces competition for angel and venture capital funds with a general effect of increasing access to capital for SMEs," said Muthaura.