CMA wants NSE listing for firms eyeing State Covid funds

The Capital Markets Authority (CMA) has proposed mandatory listing on the Nairobi Securities Exchange (NSE) by small businesses eyeing funds from the State-backed credit guarantee scheme.

CMA director of policy and regulation Luke Ombara said such listings would improve corporate governance and transparency in the use of the funds, limiting the risk of loss.

“We are in the process of making a proposal to consider provision for mandatory listing by MSMEs (micro, small and medium-sized enterprises) qualified to access funds from the government’s credit guarantee scheme as a measure of promoting corporate governance and transparency in the use of proceeds for business growth, subject to stakeholder engagement and participation,” Mr Ombara said.

The capital markets regulator further proposed a waiver of listing fees for the small businesses to protect them from incurring extra costs. Small businesses pay between Sh75,000 and Sh150,000 to list on the NSE.

The Treasury has lined up Sh10 billion to guarantee commercial loans for small and medium enterprises (SMEs) in a bid to cushion them from the economic fallout arising from the coronavirus pandemic.

Disbursement of the funds in two tranches of Sh5 billion each in the year to next June and the other in the 2021/22 was approved through a Cabinet resolution in September.

The proposal by the CMA has, however, drawn criticism from sections of the small business lobby that see it as another hurdle for firms seeking to access the funds.

"This is putting hurdles on top of hurdles. SMEs require fast cash and introducing bureaucracy will turn them away. Subjecting them to bureaucracy will force them to continue operating in the informal space. That is why we are calling for seven years to operate without bureaucracy and complications," Kenya National Federation of Jua Kali Association CEO Richard Muteti said.

The scheme already comes with preconditions, including a requirement that beneficiary firms must have an annual turnover of not more than Sh100 million and a workforce of between 51 and 250 workers.

Through the Public Finance Management (Amendment) Bill, 2020 Treasury also said it will not fully guarantee loans given to small and medium enterprises and that they will be required to provide collateral for the loans that include assets like machinery and other property.

Under the scheme, the State will pay an undisclosed percentage of the losses in case an SME defaults on a commercial loan, a move that reduces the risk associated with lending to small businesses. The State will under the scheme provide third-party credit risk mitigation to commercial banks by absorbing a portion of losses on SME loans in the event of default.

If the CMA proposal is approved, small companies that are waiting to unlock much-needed credit from the scheme for post-Covid19 recovery will have an additional layer of bureaucracy to climb before they can get money.

It will, however, help the CMA’s efforts to attract companies to list on the stock exchange.

The capital markets master plan set a target of three to four listings annually under the Growth and Enterprise Market Segment (GEMS) but this has not been achieved.

The GEMS, which was expected to list 19 firms by 2017 and 39 listings by 2023, has only attracted five firms since it was launched in 2013.

Only three firms remain listed under the segment - Home Afrika, Flame Tree, and Kurwitu Ventures.