The Capital Markets Authority (CMA) is nearing the completion of a regulatory framework dubbed the Draft Public Offers that will for the first time allow small firms to raise equity and debt capital.
The move is set to enable thousands of SMEs to raise capital via the capital markets which traditionally have only been accessed by the medium and large enterprises.
In a market soundness for the quarter ended September, the market regulator emphasized the need to boost the access of SMEs to finance, noting that small and medium enterprises account for 80 percent of jobs in the country and contribute 40 percent of Kenya’s economic output.
“While Kenyan SMEs provide over 80 percent of the country’s employment making the sector a major contributor to socio-economic development, the growth of the sector is hampered by limited access to finance,” reads the report.
The forthcoming regulations have introduced SME Fixed Income Securities Market Segment and Small and Medium Enterprises Market Segment; the former will allow small firms to issue debt securities with an initial offer size of up to Kes200 million while the latter will pave the way for the listing of non-debt securities issued by small businesses.
It is expected that micro and small enterprises registered as such under the Micro, Small and Medium Act 2012 would have an opportunity to raise either debt or equity capital.
CMA also added that corporate governance requirements for SMEs will be customized to ensure that they are correspond to their sizes.
The draft regulations provide for start-ups, which are in the process of developing a scalable product or service, to also raise financing.
Whilst for large companies the public offers’ regulations have required a profitability track record, the draft investment based crowdfunding regulations only require an operating track record.