Inspite of the widely acknowledged role of small and medium scale enterprises in fostering economic growth and development, they have continued to face a variety of constraints. 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 major difficulty for 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 business, information asymmetry, poorly prepared project proposals, inadequate collateral, absence of verifiable history of past credits and lack of adequate historical records of the companys 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.Financing is necessary to help them set up and expand their operations, develop new products, and invest in new staff and production facilities. Many small businesses start out as an idea from one or two people, who invest their own money and probably turn to family and friends for financial help in return for a share in the business. But there comes a time when they need new investments to expand or innovate further, the financial markets can be a good place to get such funds.The Director-General, Debt Management Office, Dr. Abraham Nwankwo, says, the domestic debt market currently presents various windows of opportunities for entrepreneurs wishing to access stable, long term funding which are critical to the collective endeavour of expanding the productive capacity of Nigeria.He says, The debt market is widely recognised as a major component of the financial market both for the diversity of products it offers, and its contribution to growth and development.The FGN Bond market and the opening of access to the international capital market through the debut $500m Eurobond issued in January 2011, have created avenues for SMEs to access capital.Nwankwo adds that challenges in SMEs are even more worrisome, saying that traditional sources of business finance in Nigeria are largely restricted to personal savings and scarce bank credits, which in themselves are inadequate for nurturing a stable enterprise.SMEs all over the world constitute a critical component on the drive towards the attainment of the laudable objectives of job creation and economic growth.According to the Director-General, Securities and Exchange Commission, Ms. Arunma Oteh, The capital market can lower the cost of mobilising savings and thereby facilitate investment in the most productive technologies. It links those who have the resources to invest with those who could use this capital to turn new ideas into businesses, generating jobs, improving living standards and contributing to the economy.She adds that a well functioning, liquid and broad capital market is crucial to the operation of any emerging economy; the use of the capital market is one of such alternatives.Oteh says that, Capital markets foster entrepreneurship and innovation which in turn, creates job opportunities. SMEs have a major role to play in the economic development of a nation. Capital markets are a viable way of increasing financing options to SMEs and will ultimately serve to develop the SMEs.The ability of companies in their early stages of development to raise funds in the capital markets is beneficial because it allows the companies to grow very quickly. This growth in turn speeds up the dissemination of new technologies throughout the economy. Furthermore, by raising the returns available from pursuing new ideas, technologies, or ways of doing business, the capital markets facilitate entrepreneurial activities.Oteh explains that capital market should be seen as an important alternative source of finance for SMEs, through equity, debt financing, and venture capital funds.She says, Equity financing is a strategy for obtaining capital that involves selling a partial interest in the company to investors. The equity or ownership position that investors receive in exchange for their funds usually takes the form of stock in the company. This provides small business owners with a broader scope in terms of financing as they gain access to multiple funding sources.
Click here to read full news..
