Under a special market division with less stringent regulations for the small business as it seeks to diversify its revenue stream and pave way for SMEs to raise capital for growth and expansion.
SME listing on the bourse is also seen as a strategy to raise the profile of the Nairobi stock exchange as a yardstick for investors to evaluate the fear or confidence within the economy.
The performance of the bourse is usually used by investors, mostly internationally in informing them whether to invest in a certain economy or not.
Currently, the bourse is made up of the Alternative Investment Market Segment (Aims) and the Main investment Market segment (Mims), two market divisions whose rigorous listing requirements have discouraged small and medium enterprises from participating in the stock market.
Companies wishing to list at the NSE are also expected to meet the minimum requirements before trading which include an asset base of between Sh20 million and Sh100million, a shareholder roll of between 100 and 1,000 and constantly publish its financial reports and disclosures publicly as a public firm.
Firms also have to be profitable for five years in a row before listing.
Nairobi Stock Exchange Chief Executive Officer Peter Mwangi argues that just like banks and other sectors had rushed in to cash on the ballooning SME sector so had the stock exchange in what he describes as a symbiotic alliance where the CMA would relax some of the stringent rules to accommodate as many SMEs as possible to the bourse while also maximizing on its revenue stream.
"We have the support of all stakeholders as well as the regulators in coming with such a market segment. It clearly makes
sense in this economy because the bulk of the GDP and employment comes from this segment," Mr Mwangi said.
Mwangi also argues that as one of the largest sectors in the economy employing up to 75% Kenya's workforce and contributing up to 18.4% of the country's GDP, SMEs had expressed an impressive need to grow and introduced various expansion mechanisms.
It was this realization that pushed the NSE to finally decide to open doors to the burgeoning sector. Kenya has about 1.6 million registered SMEs constituting about 96 % of all business enterprises in the country.
He says "Setting up of the SME market at the stock exchange is also one of our priorities in 2011. SMEs represent majority of the businesses in Kenya and unlocking their potential by enabling them raise funds through the capital market will be key to achieving the aspirations of Vision 2030.
This will help us mobilise funds for investment in productive economic activity. I expect increased capital raising activity at the stock exchange this year by businesses seeking to implement their competitive strategies through expansion, offering more products or to have greater brand recognition. This could be a combination of IPOs, corporate bonds programmes, and rights issues as companies position themselves to take advantage of emerging business opportunities in Kenya and the region.
The expectation of an increased momentum of the privatisation programmes will also result in additional IPOs."
A recent survey by consumer market research firm Synovate indicated that Kenya's SMEs had banked on the East African regional integration to diversify their markets to
EAC member states and laying the ground for a massive expansion of the middle segment of the economy. According to the survey sale of goods by Kenya's SMEs to Tanzania
and Uganda formed the bulk of these enterprises' revenues.
Another survey, the annual top 100 SMEs in East Africa that is carried out by audit firm KPMG and Nation Media Group found out that revenue growth was highest in the past 12 months for small businesses in construction at 61 %, services (46 %) and information technology (44 %) - segments of the economy reflecting the intensity of activity in the sectors. These were the same sectors the NSE set to tap into which would keep the trading active.
Majority of the SMEs polled in the survey said that their primary source of income for their enterprises or expansion capital were either savings or bank loan with a paltry 14% insisting they would turn to private equity or the capital market for funds to expand their businesses.
Infact only three percent opined that they would invest in the capital markets through an initial public offering (IPO), a fact analysts attribute to rigorous listing requirements and fear of losing control once new shareholders come on board.
Majority of these SMEs are family owned business units with the family members being the majority shareholders and would therefore be hesitant to cede their controlling stake. SMEs are still treated with suspicion by prospective investors due to their poor book keeping records and the secrecy in which they conduct their businesses.
Investors would rather invest in government papers, real estate or well established blue chip companies. SMEs wishing to trade at the bourse will therefore have an additional Herculean task of proving their viability on the bourse to woo more investors.
But what's next after the SMEs get listed? Will it be a smooth roller coaster?
Analysts say that investors might flock into these small and medium enterprises buoyed by the belief that a new market division will be profitable.
It's this investor confidence that ironically market analysts say might spell doom for these same SMEs seeking the investors.
Take the case of Access Kenya, one of the few SMEs currently listed at the stock exchange. Having managed to list on the bourse despite its size, it attracted a pool of investors due to its aggressive business approach and proactive models following its listing in 2007.
Taking the lion share of corporate internet market, coupled with a stellar growth trajectory of 50% and more and impressive profit margins it continued drawing more investors to its side.
However it was still disadvantaged by its small size and when huge giants like Safaricom and KDN eventually came to the picture and split the profit margins Access Kenya's once proactive market strategies were heaving from fierce competition as it struggled to please investors.
Having acquired Sh 400
million from the public offer and with fierce competition beckoning from other telecommunication behemoths, it only had a matter of time to re-draw its strategy and reposition itself, which marked the beginning of its woes. It took decisions that aimed to compete with established companies with the financial muscles to wrestle it down.
This has seen it so financially overstretched that cash-flow has become its daily concern. The delicate balance between pleasing shareholders and warding off competition from other companies should be every SME's concern.
The Capital Markets Authority in Kenya has announced that it intends to list small and medium enterprises in the Nairobi Stock exchange by the end of the second quarter of 2011 under a special market division with less stringent regulations for the small business as it seeks to diversify its revenue stream and pave way for SMEs to raise capital for growth and expansion. SME listing on the bourse is also seen as a strategy to raise the profile of the Nairobi stock exchange as a yardstick for investors to evaluate the fear or confidence within the economy.
The performance of the bourse is usually used by investors, mostly internationally in informing them whether to invest in a certain economy or not.Currently, the bourse is made up of the Alternative Investment Market Segment (Aims) and the Main investment Market segment (Mims), two market divisions whose rigorous listing requirements have discouraged small and medium enterprises from participating in the stock market.
Companies wishing to list at the NSE are also expected to meet the minimum requirements before trading which include an asset base of between Sh20 million and Sh100 million, a shareholder roll of between 100 and 1,000 and constantly publish its financial reports and disclosures publicly as a public firm. Firms also have to be profitable for five years in a row before listing.
Nairobi Stock Exchange Chief Executive Officer Peter Mwangi argues that just like banks and other sectors had rushed in to cash on the ballooning SME sector so had the stock exchange in what he describes as a symbiotic alliance where the CMA would relax some of the stringent rules to accommodate as many SMEs as possible to the bourse while also maximizing on its revenue stream."
We have the support of all stakeholders as well as the regulators in coming with such a market segment. It clearly makes sense in this economy because the bulk of the GDP and employment comes from this segment," Mr Mwangi said.
Mwangi also argues that as one of the largest sectors in the economy employing up to 75% Kenya's workforce and contributing up to 18.4% of the country's GDP, SMEs had expressed an impressive need to grow and introduced various expansion mechanisms.
It was this realization that pushed the NSE to finally decide to open doors to the burgeoning sector. Kenya has about 1.6 million registered SMEs constituting about 96 % of all business enterprises in the country.
He says "Setting up of the SME market at the stock exchange is also one of our priorities in 2011.
SMEs represent majority of the businesses in Kenya and unlocking their potential by enabling them raise funds through the capital market will be key to achieving the aspirations of Vision 2030. This will help us mobilise funds for investment in productive economic activity.
I expect increased capital raising activity at the stock exchange this year by businesses seeking to implement their competitive strategies through expansion, offering more products or to have greater brand recognition.
This could be a combination of IPOs, corporate bonds programmes, and rights issues as companies position themselves to take advantage of emerging business opportunities in Kenya and the region. The expectation of an increased momentum of the privatisation programmes will also result in additional IPOs."
A recent survey by consumer market research firm Synovate indicated that Kenya's SMEs had banked on the East African regional integration to diversify their markets to EAC member states and laying the ground for a massive expansion of the middle segment of the economy. According to the survey sale of goods by Kenya's SMEs to Tanzania and Uganda formed the bulk of these enterprises' revenues.
Another survey, the annual top 100 SMEs in East Africa that is carried out by audit firm KPMG and Nation Media Group found out that revenue growth was highest in the past 12 months for small businesses in construction at 61 %, services (46%) and information technology (44 %) - segments of the economy reflecting the intensity of activity in the sectors. These were the same sectors the NSE set to tap into which would keep the trading active.
Majority of the SMEs polled in the survey said that their primary source of income for their enterprises or expansion capital were either savings or bank loan with a paltry 14 percent insisting they would turn to private equity or the capital market for funds to expand their businesses.
Infact only three percent opined that they would invest in the capital markets through an initial public offering (IPO), a fact analysts attribute to rigorous listing requirements and fear of losing control once new shareholders come on board.
Majority of these SMEs are family owned business units with the family members being the majority shareholders and would therefore be hesitant to cede their
controlling stake.
SMEs are still treated with suspicion by prospective investors due to their poor book keeping records and the secrecy in which they conduct their businesses. Investors
would rather invest in government papers, real estate or well established blue chip companies. SMEs wishing to trade at the bourse will therefore have an additional
Herculean task of proving their viability on the bourse to woo more investors.
But what's next after the SMEs get listed? Will it be a smooth roller coaster?
Analysts say that investors might flock into these small and medium enterprises buoyed by the belief that a new market division will be profitable. It's this investor confidence that ironically market analysts say might spell doom for these same SMEs seeking the investors.
Take the case of Access Kenya, one of the few SMEs currently listed at the stock exchange. Having managed to list on the bourse despite its size, it attracted a pool of investors due to its aggressive business approach and proactive models following its listing in 2007.
Taking the lion share of corporate internet market, coupled with a stellar growth trajectory of 50% and more and impressive profit margins it continued drawing more investors to its side. However it was still disadvantaged by its small size and when huge giants like Safaricom and KDN eventually came to the picture and split the profit margins Access Kenya's once proactive market strategies were heaving from fierce competition as it struggled to please investors. Having acquired Sh400 million from the public offer and with fierce competition beckoning from other telecommunication behemoths, it only had a matter of time to re-draw its strategy and reposition itself, which marked the beginning of its woes.
It took decisions that aimed to compete with established companies with the financial muscles to wrestle it down. This has seen it so financially overstretched that cash-flow has become its daily concern.
The delicate balance between pleasing shareholders and warding off competition from other companies should be every SME's concern.
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