Why SMEs should list on stock market


The public transport e-fare payment system developed by local tech firm, AC Group. The start-up has already attracted foreign funding. Firm's like AC Group can list on the RSE's alternative market segment to raise finance for expansion. / File

Over the past decade or so, there has been talk about African transformation; this is time for Africa, and African renaissance, among others. All these sentiments point to the fact that the continent must, like the proverbial phoenix, renew itself if it’s to be on the development trajectory.

However, challenges still abound as Africa and Rwanda, in particular, seek to achieve the transformation we need. One of the main obstacles to Africa’s transformation journey is lack of access to affordable finance by the private sector, especially small-and-medium enterprises (SMEs).


Though SMEs are the key drivers of any economy, banks are reluctant to fund them. When they do, their interest rates are usually prohibitive. This (high rates) has stifled SME sector growth and job-creation initiatives.

In Rwanda, the issue is even more pressing as SMEs comprise 97.8 per cent of the private sector and account for 36 per cent of private sector employment. Micro, small-and-medium firm are about 98 per cent of the total businesses in Rwanda, account for 41 per cent of all private sector employment.

Therefore, the issue of youth unemployment could be best tackled by supporting SMEs to enable them grow and become sustainable and hence employ more young people. If we examine some of the largest global firms right now, like Microsoft, Amazon, Wasp, Apple and Alibaba, these were essentially SMEs at one point and have metamorphosed over years into huge multinationals. Most of us could be conversant with the stories of Bill Gates, Jeff Bezoz, Steve Jobs, Jack Ma and, recently, Mark Zuckerberg and how they have developed business empires from small ventures.

Locally, we have some outstanding stories of SMEs that have the potential to grow into multinationals of tomorrow. Tech firms, like AC Group, Safe Motos, Yego Motos and Mergrims, as well as U Plus and Inzuki Designs are some of the start-ups to watch going forward.

These enterprises can be said to have passed successfully through the “valley of death” where many start-ups met their demise. The SMEs mentioned above are now expanding to the next level, with some of them even looking to enter foreign markets.

However, the question is, how do we accelerate the process of producing more of success stories as a country?

It is, therefore, incumbent for Rwanda’s financial sector players to come up with innovative approaches to address funding woes faced by SMEs and start-ups. One available approach is for SMEs to tap into the immense opportunities provided by the local exchange to access investment funds and grow their enterprises.

However, tapping into Rwanda’s capital market, like any other financial system, has its own terms and conditions. Four major requirements must be considered by SMEs and start-ups planning to raise funds through the capital market. These are counterpart advisories that accompany capital raising activities, including good corporate governance, accountability and management best practices, which ensure an enterprise grows and becomes profitable.

In that light, Rwanda Stock Exchange (RSE) is conducting a public education and outreach campaign in partnership with Private Sector Federation (PSF) whose major objective is meant to “take Rwanda’s capital market to the doorsteps of sector players and other corporate firms”.

The “Access and grow” campaign is also meant to assist SMEs to fully-understand how the capital market can add value to their businesses by easing access funds they need to expand. The drive ends in March.

Once SMEs sector appreciate the advice from capital market experts, this benefits the entire economy. SMEs will be able to secure financial resources and access management expertise from the local capital markets ecosystem.

Proactively, linking SMEs to Rwanda’s capital market has another key function: By making financial and technical resources from the capital markets easily access to any muturage is a practical path of democratising Rwanda’s capital market. It also promotes local ownership of the economy and deepens financial inclusion, where we can share, not only problems, but also the profits with a growing economy.

The umuturage will have access to low cost long-term capital that comes with several strategic advantages to the growth of their business. At the macroeconomic level, SMEs access capital at highly reduced cost. The cost of business will drop since the SME sector is the backbone of Rwanda’s economy. This will also drive efficiency in whole economy.

One way that SMEs can raise funds is through initial public offerings (IPOs). It is important to understand that IPOs are a preserve of big companies, such as Bank of Kigali, Braliwa and I&M Bank, small-and-medium firms can also use this option to raise affordable funding to inject in their businesses.

However, any SME and other mid-sized corporate firm can come to the capital market to issue an IPO or other debt issuance to raise money to expand their businesses.

For last three years, Rwanda’s capital market has put in place a system and technical support to enable SMEs raise money on the bourse to grow their businesses.

However, many SMEs are not aware of such an opportunity. That’s why RSE, in collaboration with Private Sector Federation, is carrying out a nationwide sensitisation and public awareness campaign to encourage SME sector players to take advantage of the opportunity created by Rwanda’s capital market to raise investment funds.

Under the three-month campaign, RSE targets to work with 100 SMEs and over 300 start-ups countrywide drawn from all sectors of the economy to build their capacity and help them explore opportunities offered by the capital market.

The author is CEO of Rwanda Stock Exchange and chairman of East African Stock Exchange Association (EASEA).

The views expressed in this articles are those of the author’s and do not necessarily represent those of Business Times.