Promoting SMEs Through Venture Capital, Private Equity

The widely acknowledged role of small and medium scale enterprises in fostering economic growth and development notwithstanding, the sector has continued to face several challenges.

??? Some of the challenges they face are inadequate infrastructural facilities, shortage of skilled manpower, high rate of enterprise mortality, low level of entrepreneurial skills, lack of a conducive operating environment, restricted market access and cumbersome regulatory requirements.

However, a key problem of SMEs is the issue of access to finance. SMEs, especially in developing countries, suffer from lack of access to appropriate funds from both the money and capital markets. This is due in part to the perception of high risks resulting in high mortality rate of the businesses, poorly prepared project proposals, inadequate collateral, absence of verifiable history of past credits and lack of adequate historical records of the company’s transaction.

SMEs are vital for economic growth and development in both industrialised and developing countries, by playing a key role in creating new jobs. They need adequate financing to meet needs at each stage of their life cycle, from creation through operation, development, restructuring, recovery and beyond.

That is why governments and other stakeholders have at various fora stressed the need for adequate development of this sector of the economy to help give the economy a lead in all ramifications.

Recently, the federal government restated commitment to continue to support and explore ways of strengthening entrepreneurs in the country, and? as such would make the economy attractive to foreign portfolio investments and the resultant market development.

The Minister of Trade and Investment, Mr Olusegun Aganga, stated this in Lagos recently at the unveiling of the winners of Nigeria Fast Growth 50 (Nigeria 50), a ranking of 50 of the fastest growing private (non-listed) companies in Nigeria organised by the All World Network in partnership with the Tony Elumelu Foundation.

Aganga noted that the federal government would continue to work with entrepreneurs and other key stakeholders in ensuring the deepening of the various segments of the Nigerian economy in line with global standards that will make the country a first choice of investment destination in Africa.

“Government is committed to creating an enabling environment for businesses to strive. We will support entrepreneurs as they are drivers of job creation and economic growth,” he said.

In the same vein, the former Group Managing Director of the United Bank for Africa (UBA) and founder, Tony Elumelu Foundation, Mr Tony Elumelu, also stressed the need for more incentives and encouragements for the country’s entrepreneurs to ensure sustainable investment in the local economy. Elumelu said this had become necessary as it would form a new approach toward building competitive industries in Africa.

Against the backdrop of these numerous challenges faced by the sector in sourcing capital from the capital markets, the Securities and Exchange Commission (SEC) has said that during the current financial year 2013, the commission will advocate for a cohesive partnering of these small firms with private equity and venture capital firms.

The SEC’s director-general Ms Arunma Oteh, who stated this recently at a press briefing in Lagos, said venture capital firms are able to provide seed capital to promising start-ups and ultimately position the firms for listing and expansion.

Oteh disclosed that the board of the commission has also approved amended rules on private equity to give leverage to the initiative.

She noted that the amended listing rules, which came into force last year, hold huge promises for SMEs, adding that the prospects of a vibrant second tier market (now revamped by the NSE and renamed ASEM), which will soon be launched by the NSE, include the immense complement it will accord government’s efforts at growth and job creation.

The SEC DG said the commission was using all channels to enhance the level of financial literacy across various segments of the Nigerian population.

“In the past year, and even more so going forward, our social media presence have remained and will be unmatched by any government agency in Nigeria. We are live on twitter, facebook and are frequently featured on blogs. We are using cellular phones to reach an increasing generation of mobile young people. We shall enhance our presence online and on television and radio stations, to complement our monthly “Eye on Nigerian Capital Markets” programme on CNBC Africa,” she said.

speaking on the agenda for Collective Investment Scheme (CIS) Oteh said that in 2013, the commision would build on the momentum of the past year, which saw the return of retail investor interest in the stock market.

“This year, we will continue to advocate and encourage the adoption of the CISs for retail investors. Institutional investors have greater clout in corporate governance and are able to demand greater accountability on the aggregated interests of unit holders. They offer professional asset management and diversification both of which features combine to provide greater safety for retail investors,” she said.

On other product offerings, Oteh said, “Leveraging on the fact that we can by innovation reach people who do not have access to orthodox financial products, we have continued to expand the range of available offerings. Early in its life, our board approved (amended) rules on Sukkuk bonds, Islamic Finance, among others.”

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