New securities market to rescue SMEs

Unrewarding struggles to acquire costly bank loans by small Ghanaian businesses will soon be history as the process of formalizing the country’s Over-the-Counter (OTC) markets makes steady progress.

The Financial Intelligence (FI) has been told that Compushare Afridaq Consultium, consultants to the project have submitted a final draft on rules and regulations for the new OTC market to the regulator of the securities industry, the Securities and Exchange Commission (SEC), for onward review.

Sponsored by the World Bank as part of the country’s financial sector reform programme, the process of streamlining, regulating, and formalizing activities on OTC markets, otherwise known as unlisted securities market, is meant to offer an alternative capital raising platform for SMEs and to formalize the conduct and regulation of the existing over-the-counter securities market

The OTC platform, a segment of the capital market, is also expected to groom businesses for eventual listing on the Ghana Stock Exchange (GSE).

The new platform will enable companies with or without a financial history to raise cheaper sources of finance via the capital markets.

For starters, all that will be required is a good business plan that clearly shows the prospects of a business idea. A team of accountants, finance and legal experts would study the business plan and develop a prospectus, after which the company will be permitted to raise capital from the public.

Venture Capital Finance Companies also stand to benefit immensely from the platform, facilitating their exit from companies they support.

The team of consultants, made up of capital markets experts from the United Kingdom, US, South Africa and Ghana are said to have been highly impressed by feasibility studies into the existing over-the-counter securities market, which is dominated by rural and community banks, saying that it provides the nucleus for the start of the new OTC platform.

“We have the Apples and Microsofts in Ghana”, one of the consultants is quoted as saying in apparent reference to the success story of US big shots that began their rise to success on a similar over-the-counter platform, the Nasdaq (National Association of Securities Dealers Automated Quoting System) that was set up to groom young companies for the New York Exchange (NYSE).

The Securities and Exchange Commission will soon hold consultative workshops with stakeholders including SMEs after which the final draft of rules and regulations will be prepared. Rural and Community Banks, Association of Ghana Industries (AGI) members, and several industry groupings that have more SME memberships are said to be key stakeholders whose participation will be sought.

The consultants, the FI has gathered, have rooted for the establishment of a demutualised, Self Regulatory Organisation (SRO) independent of the Ghana Stock Exchange (GSE), whose shareholders could include Government, Brokerage Houses, the GSE and individual investors.

Even though the OTC market would be allow listings by companies of various sizes and from varied backgrounds of activities, companies on the existing OTC platform will be the first to list as they already have a relatively organised shareholding structure.

The recent impressive showing of 20 of Ghana’s over 120 rural banks that got mention in the Ghana Club 100 indicates the huge potential these unlisted rural banks have, an opportunity to create wealth for its stakeholders, and companies such as Shell, National Investment Bank and Donewell Insurance have what it takes to push the market to greater heights.

The absence of a trading platform creates liquidity problems and does not allow for effective share price discovery mechanism.

The Securities and Exchange Commission has said it will issue new licenses to OTC market operators and this is expected to create more job avenues.

The FI can say that companies that have issued shares on the OTC market far outnumber those listed on the Ghana Stock Exchange, and the attraction has been that there are currently no regulations for compliance on the market, and their private offers are free from scrutiny by the regulators of the securities market. Investors are however losers as they have no protection and disposing off one’s shares is difficult.