Importance Of MSMEs Sourcing Capital From Regulated Platforms

Micro, Small, and Medium Enterprises (MSMEs) in Nigeria face numerous challenges in accessing adequate capital for growth and expansion. Meanwhile, leveraging regulated platforms for capital offers a myriad of advantages that can propel the enterprises towards sustainable development.

Below, is a scenario that captures the importance of MSMEs sourcing funds from regulated platforms.

Access to capital for expansion

It appears quite advantageous and a lot easier for MSMEs to source capital from regulated platforms, considering the difficulty in competing for capital. The enterprises can look to financial markets for capital, either through debt (issuing bonds) or equity (issuing shares).

Additionally, they can utilise hybrid instruments that combine both debt and equity features, because access to such capital is crucial for funding expansion projects, enhancing infrastructure, and scaling operations.

 

Investor relations and corporate reputation

Even before MSMEs are prepared to turn to regulated platforms for capital, they can then establish robust investor relations (IR) programs that boost their corporate reputation. Effective IR strategies ensure that all securities issued reflect the company’s overall image and promote specific categories of securities. This enhanced reputation is instrumental in attracting and retaining investors, as well as in building trust within the market.

 

Valuation and market perception

Public companies generally enjoy higher valuations compared to private enterprises. Therefore, MSMEs that are publicly listed or regulated can also benefit from increased valuation multiples, which are indicative of a successful IR policy. Market transparency, clear business strategies, and detailed financial disclosures are valued by investors, leading to better market perception and higher stock prices.

 

Liquidity and share trading

Going public creates liquidity for MSMEs by providing a market where shares can be actively traded. Publicly listed or regulated shares are more liquid than those of private companies, facilitating easier buying and selling by investors. This liquidity is advantageous for initial shareholders, venture capitalists and other stakeholders, as it provides a clear exit strategy and allows for portfolio diversification.

 

Enhanced visibility and corporate reputation

Listing on a regulated platform significantly raises the visibility of MSMEs. The publicity surrounding the listing process helps in making the company’s brand known to a wider audience, including potential clients and suppliers and investing public. This increased visibility can attract new business opportunities and partners, while also enhancing the company’s credibility due to compliance with regulatory requirements and regular publication of audited financial statements.

 

Employee attraction and retention

Public listing also improves the company’s ability to attract and retain talented employees. With increased media coverage and visibility, MSMEs can reach a wider pool of potential employees. Additionally, offering stock-based compensation and employee ownership schemes aligns the interests of employees with those of the company, fostering loyalty and productivity. This can also serve as an effective anti-takeover measure, as significant employee shareholdings are often viewed favourably by the investment community.

 

Strategic advantages and sector valuation discrepancies

MSMEs can leverage sector valuation discrepancies by listing their shares on international markets where their main competitors are better valued or more extensively covered by analysts. This strategic move can lead to better valuation and greater investor interest.

Sourcing funding on regulated platforms offers Nigerian MSMEs a wealth of benefits that extend beyond mere capital acquisition. It enhances corporate reputation, increases valuation, provides liquidity, and attracts a wider pool of talented employees. By adopting these strategies, MSMEs can position themselves for sustainable growth and long-term success in the competitive business landscape.