The small and medium-sized enterprise (SME) sector has a pivotal role to play in any emerging economy and is an engine of growth for the private sector. Oman’s government has taken unprecedented initiatives to promote growth of SMEs and thereby working towards creating a diversified economy.
It is worthwhile to note that the Public Authority for Small and Medium Enterprises Development has played a commendable role in driving development. In line with this effort, the Central Bank of Oman has also come up with initiatives to support the sector by ensuring the availability of credit for SMEs.
Government soft loans and funding through financial institutions remains the main source of financing for the sector. The need now is to look for innovative sources of financing to attract capital in this sector. The next stage in development of SMEs could come from the Capital Market Authority (CMA) by allowing start-ups and SMEs to be listed. A platform such as a SME exchange where SMEs, including start-ups, could be listed without having to make an initial public offering (IPO) would provide much sought-after visibility, a wider investor base and greater fundraising capabilities to such companies.
A SME exchange is a bourse dedicated to the trading of shares of SMEs, which otherwise find it difficult to get listed on the main exchanges. The concept originated from the difficulties faced by SMEs in gaining visibility or attracting sufficient trading volumes when listed along with other stocks on the main exchanges. The world over, trading platforms and exchanges for the shares of SMEs are known by different names, such as alternate investment markets or growth enterprises market, SME board, etc.
Some of the well-known markets for SMEs include AIM (formerly the Alternative Investment Market) in the UK, TSX Venture Exchange in Canada, Growth Enterprise Market in Hong Kong, Market of the High-Growth and Emerging Stocks in Japan, Catalist in Singapore and the latest initiative in China – ChiNext.
The lack of exit strategies for investors and restricted access to new opportunities is a major problem faced by start-ups and SMEs in need of investment. Listing on an institutional trading platform is expected to offer existing investors better chances to find alternate buyers than if they search using their own network in the investment community.
To ensure that investments are genuine, rules and guidelines must be laid down by the regulator. These may include, for example, only allowing money to be put in firms that are incorporated in Oman and that are no more than three years old. Standardised norms of entry for companies, eligibility criteria, continuous disclosure requirements, simplified exit rules and corporate governance norms can also be prescribed.
Through this new route, SMEs and start-up companies would not need to make a public offering of securities in order to get listed in the stock market. Instead, listing on the SME exchange, and the wider visibility among the investment community this generates, could attract capital during the early stages of growth, especially from venture capitalists.
As the listing can be done without an IPO, expenses associated with the IPO can also be avoided by these firms. However, these companies should only be listed on institutional trading platforms without having the permission to raise capital other than through private placements. And it is important for the regulators to periodically evaluate the corporate governance norms in this sector to ensure that it offers a balance between governance and enterprise.
The SME sector is one of the largest employment-generating sectors across the globe. In its objective of creating job opportunities and fostering economic diversification, the sultanate’s government has taken many steps to support SMEs.
Let’s hope that government initiatives and efforts to promote this sector bring meaningful results and gradually help Oman in its efforts to move away from being an oil-dependent economy to a diversified one.
