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Capital markets can solve SMEs’ funding challenges — Oteh

By on October 7, 2014

The Director-General, Securities and Exchange, Ms. Arunma Oteh, has said the search for a solution to the funding challenges faced by Small and Medium Enterprises will be successful if governments around the world turn to the capital market for such funds.

The SEC DG said this on the sidelines of the annual meeting of the International Organisation of Securities Commission in Rio de Janeiro, Brazil, while calling on countries the world over to focus more on the development as a way of creating more jobs and improving the standards of living of their citizens, according to a statement by SEC.

She said “I think first and foremost is the recognition globally about the importance of SMEs because they are the ones who create jobs. I think there is a greater focus on how SMEs can be supported.”

Oteh, who is also the Chairperson, Africa and Middle East Regional Committee of IOSCO, explained that it was not just about providing access to funds, it’s also about ensuring that interest rates are low.

She said, “We need to provide funding at reasonable cost. (We need) capital that is patient so that people can grow their businesses and banking finance is not patient. It is short term, sometimes, particularly in the Africa and Middle East (region), the interest rates are relatively high.

“What we need is capital that would be there for a long time, a market based finance that is long-term and there is a global recognition of that which is why some of the things we are focusing at the meeting in Brazil,is really the value that capital markets bring to SMEs.”

She said SMEs could be encouraged to list on Exchanges through the alternative securities market just like it is done in the United Kingdom.

She added, “You have models like what you have in Egypt where you have a dedicated exchange, the Nile Exchange to SMEs. But some of the more interesting thing we are seeing is Crowd Funding — being able to raise money via Internet by people who basically are interested in that particular initiative.

“We are seeing in a number of Asian countries the securitisation of loans that are given by SMEs. There is a lot of best practise around the world, but there is also lessons from experiences that have not gone well which are useful.

According to her, the huge funds required in Nigeria for infrastructure and SMEs financing, market-based financing has to be encouraged.

Citing statistics, which show that Nigeria needs $3.9tn over 30 years to address infrastructure challenges, Oteh said banks cannot be relied on for the needed funds.

“The issue is with the challenges governments are facing, with banking finance being short term, with some of the more difficult regulatory requirements that banks are facing, the alternative is basically to structure different kinds of vehicles that allow you to go to the capital market and raise money.

“So, you can have securitisation, you can have project finance, you can have a variety of options which are available in the capital market.”

 

 

[Punch]