As SEC, SMEDAN Move to Boost Access to Finance for MSMEs

The future looks very bright for micro, small and medium small scale enterprises as the Securities and Exchange Commission and the Small and Medium Enterprises Development Agency of Nigeria recently signed a pact to improve access to long-term financing for the businesses through the Nigerian capital market, writes Goddy Egene

The importance of  micro, small and medium scale enterprises (MSMEs) to an economy can never be over emphasised. MSMEs are vital to an economy because they are a major   source of job creation  and thus  play a crucial role in  unemployment reduction. MSMEs also contribute a substantial portion of a country’s Gross Domestic Product (GDP). Similarly, they are often regarded as the engines of economic growth, helping to maintain stability and resilience of a nation’s economy.  MSMEs are seen as poverty alleviators because as they are providing employment, they help raise the   living standards, which in turn lead to social unity. Most of all,  in this era of technology revolution, MSMEs are sources of  new products and services,  having a unique ability to adapt and disseminate innovations.
Nigeria has over 40 million MSMEs and an agency dedicated to  growth and development of  this group of businesses,  the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). But their potential have not been optimised majorly due to  lack of access to funding.  Apart from weak infrastructural base that made it difficult to operate profitably, the high cost of  finance has also retarded the growth of MSMEs and thereby denying the country their economic benefits.
However, the story is about to change   following   the latest collaboration between the  Securities and Exchange Commission (SEC) and SMEDAN. Both organisations have  signed a Memorandum of Understanding (MoU) meant to improve access to long-term financing for 40 million SMEs through the Nigerian capital market.
According to them, this  partnership is designed to create alternative sources of capital for registered micro, small, and medium enterprises (MSMEs) and  help them  to grow, create jobs, and contribute to the federal government’s $1 trillion economy target.
Specifically, the partnership is designed to bridge the gap between small businesses and the capital market.
Under this agreement, they the target is to list at least 1,000 MSMEs on the capital market. This means selected MSMEs will be able to raise funds by offering shares to investors, just like bigger companies listed on the Nigerian Exchange.
This access to equity financing, it is expected will  reduce reliance on commercial bank loans, which often come with high interest rates and short repayment periods. But by connecting them to the capital market, the new collaboration will provide the MSMEs with  sustainable funding options; encourage business expansion and innovation; create more jobs, thus  reducing unemployment; enhance transparency and corporate governance among  them.
The MoU was signed  in Abuja and the Director-General of the SEC, Dr. Emomotimi Agama, said the initiative would open new funding routes for MSMEs and integrate them into the capital market ecosystem.
 He said:  “Capital is the bedrock of any company. Today we have about 40 million Small and Medium Enterprises that are duly registered with SMEDAN and it is important that as a capital market, we are able to find a route for these small and medium scale enterprises to be able to raise capital for sustainability.
“We also want to bring them on board the pipeline of listed companies in Nigeria where they will be able to democratise wealth and share a part of their institutions with Nigerians making sure that development is faster and to lead to the growth of the economy.”
According to him, the collaboration aligns with President Bola Tinubu’s agenda on employment, growth, development, and production, describing it as a critical step toward achieving the administration’s trillion-dollar economy vision.
Speaking in the same vein, the DG of SMEDAN, Mr. Charles Odii, said the MoU would enable small businesses to overcome the high cost and scarcity of capital by leveraging the capital market.
“Capital in this part of the world is very expensive and scarce. Through this collaboration, we are creating another source of financing for our medium-scale businesses. We have set ourselves a target of at least 1,000 SMEs listing on the capital market. This will galvanise growth, create wealth, and reduce unemployment in Nigeria,” he said.
The agreement between the two agencies seeks to deepen the integration of SMEs into the formal financial system and help them meet regulatory and governance standards required for market participation.
Among its major benefits, the MoU will improve access to long-term financing by supporting qualifying SMEs to raise funds through equity or debt securities under SEC regulations. It also provides for capacity building, as both agencies will organize training and awareness programs to educate SMEs on capital market participation, financial literacy, and corporate governance.
 In addition, the SEC will contribute to SMEDAN’s five-year strategic policy framework to promote inclusive financing and SME-friendly capital market policies. SMEDAN, on its part, will identify and encourage qualifying SMEs to list on recognised exchanges, expanding their access to funding and business growth opportunities.
The collaboration will also facilitate debt market participation by guiding creditworthy SMEs to issue debt securities to qualified investors, thereby widening their financing options beyond traditional bank loans. Both institutions will jointly organize a three-day national SME conference to engage stakeholders, promote market opportunities, and drive policy discussions.
Other objectives of the pact include, but are not limited to: facilitating improved access for qualifying MSMEs to the Nigerian capital market for long-term financing, in strict adherence to all applicable SEC regulations and with a paramount focus on investor protection safeguards; developing and implementing joint capacity-building initiatives, including targeted training programs and awareness campaigns, to educate MSMEs on the requirements, processes, and benefits of capital market participation; jointly promoting advocacy that would encourage eligible and mature MSMEs to consider listing their securities on any of the recognised securities exchanges and trading platforms in Nigeria and collaborating on the development of enduring policy frameworks and innovative financing instruments designed to foster the sustainable growth of MSMEs and systematically reduce the barriers to their access to long-term capital.
In achieving the objectives above, SEC and SMEDAN agreed  to cooperate in the following areas: constituting a joint working group  to steer, monitor, and report on the progress of this collaboration; SEC shall contribute to the development of SMEDAN’s five-year strategic policy framework by providing insights and recommendations, particularly on policies that promote SMEs’ access to the capital market and enhance financial inclusion.
On the other hand, SMEDAN shall encourage SMEs that qualify as public limited companies (PLCs) to consider listing on relevant capital market exchanges to expand their access to long-term funding, subject always to SEC rules and regulatory requirements.
SEC shall provide technical support and guidance to SMEs on accessing the capital market, including regulatory requirements and available instruments.
Also, they  shall jointly embed capital market education into SMEDAN’s SME training modules and platforms, ensuring broader awareness and literacy among entrepreneurs.
SMEDAN shall involve SEC in the planning and execution of a three-day national SMEs conference, aimed at stakeholder engagement, policy discourse, and exposure to market opportunities.
They shall promote the participation of creditworthy private SMEs in the issuance of debt securities to qualified investors under SEC regulation; provide capacity-building initiatives to equip SMEs with the financial literacy and corporate governance standards necessary for debt market participation.
The SEC, in collaboration with SMEDAN, shall facilitate an enabling regulatory environment to support the participation of creditworthy private SMEs to access the capital market, in accordance with applicable SEC rules and guidelines. This includes the development of frameworks, standards, and guidance materials to promote financial literacy, corporate governance, and disclosure practices among SMEs, thereby enhancing their eligibility and preparedness for accessing the debt capital market.
They may share relevant data in furtherance of this MoU, provided that such sharing shall be conducted in accordance with the Nigeria Data Protection Act, 2023, and other applicable data protection laws.
Market operators and other stakeholders  have commended the pact, saying it is right move in the right direction.
For instance, Mr. David Adonri of  Highcap Securities Limited, said the the MoU between SEC and SMEDAN  will enable SMEs to raise  both equity and debt capital from the capital market.
“But they must meet the listing requirements which have been reasonably liberalised. Investors don’t really bother much if an issuer is small or large as long as the securities they issue are investment grade and that they have bright prospects. SMEs can actually start their journey in the capital market from NASD platform where they can be incubated for listing in the main market.”
The issue actually goes beyond access because those that meet the requirements can even be listed on the Growth Board for small enterprises on NGX. While NGX is waiting with open arms for SMEs to come, many of them don’t really want to share their wealth with the investing public. If there is a way that, through this MOU, the hesitance by SMEs to list is broken, or a special dispensation is created for them by regulation, the impact on the economy will be monumental,” Adonri said.
On his part, former Head, Investor Relations and Portfolio Investments at United Bank for Africa, Mr. Abiola Rasaq, said SMEs are backbone of developed economies and a successful revolution of this segment of the Nigerian economy can be the missing catalyst for sustainable job creation, skills upgrade and the spark for youth entrepreneurship development. “Indeed, amidst myriad of structural challenges to SME growth in the country, access to finance remains a major hurdle. It’s therefore exciting that SMEDAN and the SEC are seeking to collaborate with objective of easing market and capital access for SMEs. First, they may need to work with relevant stakeholders to address some of the challenges undermining the access of SMEs to the capital market. For instance, SMEs are generally family businesses or at best some sort of private partnership entities, with very limited governance structure. So, just like a private equity or venture capital firm would work with a private firm in building structures and systems, the SEC and SMEDAN may need to have some sort of incubation programme that may systematically institutionalise processes and operations of SMEs, especially as this may be important for the sustainability and growth of the businesses,” he said.
He explained that  an option may be to create a cluster pool, managed by designated managers, who would not only help coordinate pool access of SMEs to capital but also manage covenants and support the leadership of the businesses in improving the governance structure and processes.
“For instance, whilst a single SME such as a bakery may not be able to access the debt capital market due to size, we can have a pool of bakeries coordinated under a bakery debt note, structured in a way that each entity within the pool access capital and services the obligation through the pool. Such structure may be enhanced with collaboration with institutions like InfraCredit, which may provide credit enhancement in form of guarantee that lowers the risk to investor and cost to the SME borrowers. The collective collateral may be managed through a trust and likewise the debt service may be managed through the central debt service account under the trust. This would not only give SMEs access to capital but also opportunity to up skill their leadership and governance structure through access to the right resources in the pool model,” he said.
Razaq  explained that  SMEDAN and SEC may seek grants and also finance some of the resources relevant to up skilling the SMEs as this would ensure their growth transition, with expectation that the SMEs would graduate from  the pool to become viable entities that can independently  access both debt and equity through the capital market.
“After three or less rounds of accessing capital through the pool structure and access relevant resources to improve their reporting and governance, some of the SMEs should be able to seek credit ratings on their own and wean themselves of the pool model by directly accessing the market.

“Again, the founders/owners of the SMEs must be ready to commit to relevant governance principles, as they must see it as an opportunity to institutionalize and grow their business beyond their personal bandwidth. They would not only need to formalize their engagements with the business but also put relevant succession planning and other relevant measures in place for the sustainability of the firm.

“The NASD can also serve as a major springboard for SMEs to create liquidity for their equity, and hopefully raise capital at very limited regulatory standards and cost. As an Over-the-Counter Exchange, it provides a platform for private market liquidity in the equity of SMEs,” he stated.