Policy makers are looking for ways to attract small and medium-sized enterprises to the capital markets to increase their access to cheaper capital.

This follows a lukewarm performance at the alternative trading platforms for SMEs on the Nairobi Securities Exchange and the Dar es Salaam Stock Exchange, as most privately and family-owned businesses refuse to relinquish part of their business to the public.

“Businesses are overstretched due to over-regulation without facilitation,” said Manu Chandaria, a Kenyan industrialist and businessman.

“Top managers of private companies are stressed by the regulatory requirements and they don’t want to take up more regulations, which increase the cost of doing business.”

According to Mr Chandaria — who is also the chairman and chief executive of Comcraft Group — private companies are also not comfortable facing shareholders once their companies are listed.

“I get nothing from being listed. The conditions are too numerous, so most private companies are not ready to abide by them,” he said.

John Kirimi, executive director at Sterling Capital, said many private and family-owned businesses are not aware of the benefits of being listed and there is a need for more marketing and information about the SMEs trading platforms.

“Many family-owned businesses only think of control and fear publicity and issues to with corporate governance,” said Mr Kirimi.

Geoffrey Odundo, NSE’s new chief executive, said the bourse will hold a two-day GEMS (Growth Enterprise Market Segment) conference for nominated advisors and potential issuers within the first six months of 2015 in a bid to drum up support for the GEMS.

“Profiling of listed GEMS companies will be done this year,” said Mr Odundo.

The NSE has also prioritised the introduction of new products in the market, including derivatives, real estate investment trust (REITS) and exchange traded funds (ETFs).

Two years after the launch of the GEMS, the NSE has only attracted four companies to the platform. The firms are Atlas Development & Support Services Ltd, Flame Tree Group Holdings Ltd, Home Afrika Ltd and Kurwitu Ventures Ltd, all with a combined market capitalisation of $88 million.

The DSE’s Enterprise Growth Market (EGM) has only two listings — Maendeleo Bank and Swala Oil & Gas (Tanzania) Plc — but four firms are expected to list this year.

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The DSE introduced the EGM segment in October 2013. The NSE launched the GEMS on January 22, 2013 to enable SMEs to raise capital while benefiting from a higher profile and liquidity within a regulatory environment designed specifically to meet their needs.

In Kenya, the criteria used for listing on the GEMS are minimum fully paid up capital of $109,890 and at least 100,000 shares in issue.

The company must be a public company registered under the Companies Act and must be solvent with adequate working capital.

The company must have been in operation for at least one year and no profit record is required. It must have five directors of whom a third should be non-executive.

Requirements

Other requirements are that a third of the board must have completed a directors induction programme and the rest within six months of listing; 15 per cent  of the shares must be available for trading and held by at least 25 independent shareholders within three months of listing; and nominated advisors must be appointed through a written contract.

In Tanzania, a company applying to issue and list its shares on the EGM must be incorporated as a public company under the Companies Act. Minimum capital, track record and profitability are not required.

The company must appoint a nominated advisor for the duration of the listing on the EGM and must have a five-year business plan and an independent technical feasibility report prepared by the nominated advisor. The company must also have a minimum of 300 shareholders, while public shareholding in EGM listed companies should be at least 20 per cent of the issued shares.

The concept of an SME market is being viewed as an integral aspect of the planned integration of the regional capital markets.
Uganda is reviewing the rules and regulations for its Growth Enterprise Market Segment.

Many exchanges around the world have attempted to create alternative market segments to attract smaller companies. The results have been mixed, with a few proving to be extremely successful.

In China, the GEM of the Hong Kong Stock Exchange — created in 1999 — almost collapsed owing to its low turnover and relative shortage of listings. Only 193 companies are listed on the GEM, compared with 1,438 on the main board.

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