BY CHUKS OLUIGBO
The challenge of access to finance holding down Small and Medium-scale Enterprises (SMEs) in Nigeria from optimally performing their role as critical drivers of growth, productivity, and competitiveness of the economy can be addressed by leveraging emerging trends such as technology to provide innovative solutions.
In addition, small-cap and growth-oriented companies can also leverage the Nigerian Exchange Limited’s Growth Board to raise long-term capital, stimulate growth, and promote liquidity.
Temi Popoola, CEO, Nigerian Exchange Limited (NGX), made these recommendations on Thursday at the 2022 Annual Business Luncheon of the Capital Market Solicitors Association (CMSA) in Lagos.
In a keynote speech tagged “Capital Market, Startup Financing and Syndicate Funding: Ability of Small and Medium-sized Enterprises to Access the Capital Market”, Popoola highlighted the critical role that Nigeria’s 40 million SMEs play in the economy as the principal vehicle for employment and revenue creation through self-employment and entrepreneurial endeavour, saying they have contributed “about 48 percent of the national GDP in the last five years, accounting for about 50 percent of industrial jobs and nearly 90 percent of the manufacturing sector in terms of the number of enterprises”.
He, however, pointed out the daunting challenges facing these SMEs, including “unfriendly business environment, poor funding, low managerial skills, and lack of access to modern technology, with access to finance occupying a central position”.
Popoola said though the African tech space has experienced a significant increase in the funding of start-ups in recent years, with Nigeria as one of the leading markets in terms of total funding, much of the capital has come from the venture capital and private equity space, as well as increased support from multilateral organisations and government agencies. Still, access to finance remains a key constraint to SME growth.
He said long-term solutions are required to address this key constraint, “and technology presents innovative opportunities to address the SME financing gap through the development of new business models and digital financial products, including equity capital”.
Citing a 2020 report by the Global Partnership for Financial Inclusion, Popoola said recent advances in technology are impacting how SMEs finance their business and transform their operations. He said the report, titled “Promoting Digital and Innovative SME Financing”, shared insights on how digital technologies are helping to close the financing gap for SMEs through the adoption of digital financial services solutions.
Two main categories of technology innovations, technology infrastructure such as blockchain technology, cloud computing, and the internet of things, and enabling tools and channels such as Artificial Intelligence (AI)/Machine Learning (ML), and big data analytics, innovative Application Programming Interface (API), are helping SMEs, he said.
“These innovative solutions create significant opportunities that SMEs are increasingly leveraging to address the SME funding gap. For example, by leveraging AI/ML and Big Data analytics, a lender can leverage technology to analyse a borrower’s risk by using an extensive array of data such as social media, call records, etc,” Popoola said.
“Cloud computing, social media and mobile telephony amongst other similar technology solutions can equally be leveraged through equity crowdfunding platforms, which match investors with companies seeking capital, enabling the general public to participate in the early capital-raising activities of startups and SMEs. The opportunities presented by technology are endless,” he said.
The NGX CEO said in line the emphasis policymakers and donors have increasingly placed on expanding SMEs’ financial access to non-bank sources of funding, including public equity financing, and promoting the creation of dedicated SME exchanges, especially in the post-global financial crisis period, the NGX has also created the NGX Growth Board as a dedicated platform for fast-growing companies.
He said the creation of the NGX Growth Board was in line with the Exchange’s commitment to deepening the Nigerian capital market and its support for start-ups and SMEs, adding that the platform is dedicated to “encouraging small-cap and growth-oriented companies to leverage the capital market to raise long-term capital, stimulate growth, and promote liquidity”.
“The NGX Growth Board targets fast-growth companies such as SMEs operating in various sectors including technology companies and connects them with an extensive pool of investors. Through the Board, companies in the early stages of development can take advantage of NGX’s platform, diverse products, and services to reach their long-term goals,” he said.
The board, Popoola said, is designed to offer relaxed entry criteria as well as less stringent ongoing listing requirements and allows for greater accessibility to capital flows, global visibility, and credibility through corporate disclosures.
He said the Growth Board, launched in collaboration with various strategic business partners and value-added service providers to offer cost-effective services designed to create a competitive edge for listed companies within their respective industries while stimulating investors’ interest through enhanced information delivery, also restructures current market segments to better meet needs along the company’s entire lifecycle. This segmentation, he said, provides alternative options for interested investors to participate in each company’s growth journey.
He said the Exchange continues to provide tailored training on its learning and development platform, “XAcademy”, for capacity development and to promote increased corporate governance for the board and employees of companies on the Growth Board, and that the initiative has further bridged the knowledge gap among SMEs, MSMEs, and the general public about the capital market.
He called on growth-oriented companies in Nigeria to join the NGX Growth Board ecosystem and use the platform to achieve their strategic business objectives.
“With NGX Growth Board, businesses can have access to services that will stimulate growth and optimize business operations,” he said, reiterating the Exchange’s determination to provide businesses with the opportunity to access long-term capital and create liquidity through the NGX platform boasting an estimated $30 billion pool of investible funds seeking viable returns on investments.
The business luncheon featured a fireside chat on the topic “Capital Market Startup and Financing for SMEs: Options & Current Obstacles for Capital Raising”, where Jumoke Olaniyan, senior vice president, FMDQ Exchange, was interviewed by Tomiwa Aladekomo, CEO, Big Cabal Limited.
There was also a panel session on “Capital Market Startup, Financing and Syndicate Funding: Ability of SMEs to Access the Capital Market”.
Earlier in his opening address, Adeleke Alex-Adedipe, partner, DOA and chairman, Conference Planning Committee, said the 2022 CMSA business luncheon was a unique opportunity for capital market players to spearhead the conversation on unlocking the barriers that prevent small businesses from accessing the range of financial solutions available in the capital market.
“These solutions will enable them to raise the long-term funds required to spur growth and development of the sector, and in turn, ignite Nigeria’s socio-economic development,” he said.
The Capital Market Solicitors’ Association is an independent self-regulatory association of solicitors and commercial law firms engaged in capital market practice. It was established in 2001 primarily as a platform to articulate and promote the interest of legal practitioners specialising or dealing in capital market transactions.
Through its flagship Annual Business Luncheon, CMSA brings together solicitors, regulators, capital market operators and other participants in the sector to examine topical issues affecting the capital market. Some of the themes explored in previous business luncheons include “Financial Opportunities in the Capital Market – An Aid to Improving the Nigerian Healthcare Sector”; “Technology-Driven Products in the Capital Market: Prospect & Challenges”; “Bridging Nigeria’s Housing Gap”, among others.