Lawyers call for regulatory review to enable SMEs access funding

Lawyers have called for a regulatory review that will enable Small and Medium-sized Enterprises (SMEs) to have access to funding.

The call was made at the Capital Market Solicitors Association (CMSA) 2022 Yearly Business Luncheon in Lagos with the theme: ‘Capital market, startup financing and syndicate funding: Ability of small and medium-sized enterprises to access the capital market’.

A partner at Templars, Zelda Akindele, who lamented the difficulty SMEs face in trying to access funds through the capital market, said the most resort to going abroad to invest.

Akindele said: “Part of the problem is that investment funding is not coming from local investors. At a point where entrepreneurs who are startups, who are SMEs that have good ideas and strong economic projections, if they don’t get local funding go offshore.

“The consequence is that having obtained their initial investment capital from offshore sources, the profit goes there. It is a reality that we need to check ourselves well in this market. Until local investors start to create access to their capital for local entities, we are going to continue to see profit flight.”

Partner, Duale, Ovia and Alex-Adedipe, Mr. Adeleke Alex-Adedipe, noted that SMEs are the backbone of any economy around the world, adding that Nigeria shouldn’t be an exception.

“If we can help the SMEs to drive and find access to capital, using the capital market, then we may just be one of those growing and sustaining these pillars of the economy. Growing the SMEs hinges on helping them to understand how they can access capital,” he said.

Partner, Templars and chairman of CMSA, Chike Obianwu reiterated the potential of creating platforms to bring capital together in one place, and enable the small businesses to tap into such capital.

His words: “There is a need for small businesses going into the capital market to raise money. The funds will typically be through the capital market. So the things we are talking about our products and platforms that will enable capital to be brought together and then from there, it is given to small businesses that need it.

“And that’s where the issue of technology comes in. Technology may be an enabler. You need to be able to talk about crowdfunding, syndicate funding and those sorts of media. It’s really about how do you bring capital together from different sources and make it available to small businesses in a way that they do not go through the same hurdles that big businesses have to go through to access the capital market? So technology is an important factor, but it’s not all that we are looking at.”

Obianwu noted that the main law, which regulates the securities market in Nigeria, creates a platform for resolutions of disputes.

He said: “If you look within the Securities and Exchange Commission, the investment and security sites and self regulatory organisations such as the Nigerian Exchange Limited and the FMDQ, they all make provisions for public administrative proceedings.

“The proceedings are intended to resolve some of these disputes that may arise at the initial stage. When they are not resolved at the administrative proceedings, it can then go onto the Investment and Security Tribunal (IST), which is a special investment security resolution unit.

“So that is an invention that is poised to be there to enable us to get away from the slow and general system of dispute resolution. With the expertise of the tribunal, resolution of capital market disputes should be quicker.”

Stressing on the challenges SME’s face, Chief Executive Officer (CEO), Nigerian Exchange Limited, Temi Popoola in his keynote speech said: “The International Finance Corporation (IFC) estimates that 131 million or 41 per cent of formal SMEs in developing countries have an unmet financing need of $5 trillion every year with about half of formal SMEs not having any access to formal credit.”

According to the World Bank, he said, access to finance is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries.

This concern, Popoola noted, is shared by the Central Bank of Nigeria (CBN), which summarises issues affecting the SMEs in the country into four broad challenges namely: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology; with access to finance occupying a central position.

“Long-term solutions are required to address this critical concern 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.

“According to the Global Partnership for Financial Inclusion, recent advances in technology are impacting how SMEs finance their businesses and transform their operations,” he stated.