In order to address prohibitive costs which prevent small and medium enterprises (SMEs) from accessing public capital markets, the Ghana Stock Exchange (GSE) is set to unveil a new investment fund to serve that purpose.
The proposed SME fund – developed in partnership with specialist development outfit Financial Sector Deepening (FSD) Africa – will pool investor capital and make it accessible to multiple small businesses, circumventing the expensive individual listing process that has rendered the Ghana Alternative Exchange (GAX) market ineffective since its launch.
GSE Managing Director Abena Amoah acknowledged that the current direct listing approach places an unsustainable financial burden on SMEs. For example, a company seeking to raise GH¢10million through public offering could face professional service costs exceeding GH¢500,000 – representing at least 5 percent of the capital being raised.
She admits that the process is currently very expensive for SMEs. “They have to pay lawyers, external auditors, brokers to prepare prospectuses and regulatory fees. These advisors must work with companies for a minimum of one year and the GH¢500,000 in such an instance does not fully cover these costs.”
The cost structure has effectively priced out the target market, with many SMEs lacking dedicated staff to manage the complex listing requirements while simultaneously running their businesses. It has also contributed to the GAX market’s underperformance compared to the main exchange, where established companies have attracted significant investor interest.
Launched in 2013, the GAX was designed to attract small- and medium-sized enterprises by offering a more flexible regulatory framework and less onerous listing criteria than those imposed on the main exchange, but has so far struggled to do so.
Under the new structure, the SME fund will be listed on the exchange and raise capital from public investors. Consequently, the fund will then invest in a portfolio of small businesses, with professional fund managers handling due diligence and ongoing monitoring.
Individual SMEs will access capital without facing direct listing requirements, while investors gain diversified exposure to the SME sector through a single listed security. Then the fund will report aggregated performance to the exchange and investors, similar to existing mutual fund structures.
The exchange is simultaneously developing a streamlined direct access route for SMEs, allowing companies to raise capital through simplified processes requiring basic information rather than full prospectuses.
