How exchanges are helping SMEs get listed and raise funding during coronavirus
Small and medium enterprises (SME) form a major part of India’s industrial and service sector. SMEs are recognised as being an important contributor to the country’s economic growth and development. SME sector is the second-largest employer after agriculture, employing 110 million people.
The SMEs play a catalytic role in the development process of the economy as they constitute a major part of the industrial activity and export. This is reflected in the form of their increasing involvement and a greater proportion in the overall product manufacturing, employment, technical innovations, and promotion of entrepreneurial skills. The development of this segment is extremely critical as they generate significant levels of employment across urban, semi-urban, and rural areas across the country and create inclusive growth.
If India is to attain its aspiration of double-digit growth rates and a reduced poverty ratio, greater focus on the wellbeing of the Small and Medium Enterprises (SME) sector becomes a necessity. Historically, SMEs relied on bank financing. However, lack of finance because of the high cost of credit, collateral requirements, and non-availability of timely credit become the biggest impediment in the growth of SMEs. With the Indian economy growing, the need for SMEs to raise capital is critical. Recognising the problems faced by SMEs, the Prime Minister’s task force, in 2010, had recommended setting up SME Exchange/Platform. Securities Exchange Board of India (SEBI) immediately started working on it and after deliberating with Exchanges and various stakeholders, framed the guidelines for SME Exchange/Platform.
On March 13, 2012, the exchanges in India launched SME Platform. The objective was to provide an opportunity for the SMEs to raise the equity capital for their growth and expansion, unleash the valuation of the company, create visibility, and ensure credibility. In the same manner, Startup Platform was also launched in December 2018 to offer a simple, cost-effective, yet deeply impactful mechanism that enables the growth of startups. As of today, 550 SMEs got listed on SME Platform and five startups got listed on Startup Platform, which raised funds to the tune of Rs 5,800 crore and Rs 22 crore respectively. There are further chances of more SMEs and startups getting listed on the Exchanges.
The role played by exchanges in the ongoing crisis
Today, the world is going through a tough time because of the COVID-19 pandemic. Lockdowns and social distancing have had a severe impact on business. MSMEs have been impacted the most. In these tough times, Exchanges have stood in support of SMEs and startups so that they can raise funds and keep their business running and growing. Even during the lockdown, SMEs and startups have raised funds and got listed. This at a time when even large corporates have postponed or cancelled their IPO owing to the market condition.
Four SMEs which raised Rs 17 crore and one startup which has raised Rs 3.75 crore got listed. This clearly shows the confidence of promoters and investors in BSE SME and Startup Platform.
In the last few years, Exchanges have signed MOUs with various state governments for creating awareness about SME and Startup Platform. Suggestions have been given to the governments, both at the Centre and the state level for making the platform vibrant. Minister for MSME Nitin Gadkari has also announced the creation of a Fund of Funds with a corpus of Rs 10,000 crore which will subscribe 15 percent of the equity of the SME going for listing. He also requested the SMEs to access the capital market for their funding requirement. This fund will be invested into the equity of SMEs going public for listing on the SME Platform of the Exchanges to the extent of 15 percent.
During the lockdown, Exchanges, along with industrial associations and professional associations, is doing a series of webinars to reach the SMEs and startups, and explain them the benefits and process of listing. A lot of interest is been shown by entrepreneurs. We are sure that with the concerted efforts of all the stakeholders, the SMEs and startups would sail through these tough times.
In the times to come, the listed SMEs will become globally competitive and offer a significant contribution to India’s economic development and job creation.
Edited by Kanishk Singh