Capital Market Financing for SMEs

Proshare

Tuesday, August 09 2016 11:51am /SEC

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There are an estimated 37,067,416 million Micro, Small and Medium Enterprises (MSMEs) in Nigeria, out of which over 36,994,578 million are micro-enterprises, 68,168 are Small and 4,670 are medium (SMEDAN 2013).


MSMEs represent 96% of the businesses in Nigeria and contribute 84.02% of national employment1. In nominal terms, the sector contributes an estimated 46.54% to the nation’s Gross Domestic Product(NEPZA 2013).

Thus growth in the MSME sector is directly linked with growth in the Nigerian economy and in the level of employment.

World Bank estimate identifies MSMEs lack of access to formal financing of their productive activities as a key constraint to business. 73.24% of the top most priority of assistance needed by MSME operators was access to finance (SMEDAN 2010).

As a result, many Nigerian MSMEs fund their activities through retained earnings as only a few large enterprises benefit from formal financial sector intermediation for their working capital or investment needs (IMF 2013). It is estimated that, despite the fact that 80 percent of MSMEs seek financing only 5 percent of enterprises have a loan(ibid).

In light of the important role MSMEs play as engines of growth, it is critical to ensure that MSMEs in Nigeria have access to the necessary credit they need to expand and continue to perform their function in investment, growth, innovation and employment.

In a country where underemployment is estimated at 70.5%3, MSMEs finance is important in supporting growth and reducing poverty through employment creation. Nigeria needs to support the sector given its potential opportunities for growth and poverty reduction.

The capital market presents an opportunity of financing the MSME sector. Capital markets have always played a role in bringing together those with savings to invest and those who need capital thereby supporting economic growth.

The International Organisation of Securities Commissions (IOSCO) has emphasized the need for capital markets to support small and medium-scale enterprises in addressing this financing challenge by providing alternative funding sources.

This report examines MSMEs access to the Nigerian capital market and explores possible measures to develop and enhance their access. The report is structured as follows.

Section 2 provides an overview of the classification of MSMEs in Nigeria and briefly reviews the National policy on MSMEs.

Section 3 begins by exploring the state of MSMEs finance and provides an overview of select number of interventions.

Section 4, introduces the concept of Capital market financing and introduce the Nigerian Alternative Securities Market Board (ASEM).

In section 5, we outline IOSCOs guidelines on SME financing through the capital market while Section 6 concludes.

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