BUSINESS COMMENT: SMEs too need access to capital market

As Small and Medium Enterprises (SMEs) are challenged by limited access to finance, domestic institutional investors’ growth is likely to increase, which may as well increase demand for financial securities. Yet, it is only non-deposit taking financial institutions in Rwanda which have got higher appetite for small enterprises, commercial banks have always seen this market segment (SMEs) as very risky, making their cost of financing very high. However, if given the opportunity to access the bond market and list shares on the stock exchange, it can help them lower their average cost of funding. Small enterprises in England, Canada, Italy and many other countries have successfully expanded their businesses by going public. This has provided great opportunities for SMEs in these countries to gain access to capital for growth and expansion, creating a wider range of investment options for private and corporate investors. When SMEs go public, they are forced to improve their management, fulfill responsibilities to shareholders and make other positive improvements, something that definitely promotes good business practices. In order to boost the small business sector some countries like Malawi, South Africa, Zimbabwe, Botswana and Zambia have created Alternative Exchanges for SMEs. The exchanges act as avenue for SMEs to raise cheaper capital and create opportunities for local and international investors to be shareholders in the local companies. This as well allows smaller but fast-growing businesses, start-ups and family-owned enterprises to raise capital, widen their investor base and have their shares traded in a regulated market by issuing new shares without going through stringent listing requirements. The same way it is devising means of tapping into the diaspora remittances, the Rwanda Capital Market Advisory Council (CMAC) should also consider working out a mechanism that will facilitate SMEs to enter the capital market. Contact: gahamanyi1@gmail.com