Central Bank deputy governor, Stock Exchange CEO: Time for SMEs to join TTSE

DESPITE market shares being at its lowest for SMEs, especially in the wake of covid19 and other major shocks which have affected businesses worldwide, the TT Stock Exchange (TTSE) and Central Bank are saying now is the perfect time for SMEs to join the TTSE and have access to new revenues.

Both entities, represented by the bank's Deputy Governor Dr Dorian Noel and the exchange's CEO Eva Mitchell spoke at the launch of the SME mentorship programme on Tuesday.

“This is the right time,” Noel said. “The launch of this mentorship programme and the launch of the SME market with fiscal incentives is to address that issue of weakness. They are weak now, post covid19 and we have to do something.”

SMEs at their weakest

The Small to Medium Enterprises (SMEs) account for 60 per cent of employment globally, and is the main driver of productivity according to Noel. Citing CSO statistics from 2018, he added that domestically, 65 per cent of the 26,000 businesses were SMEs which employ less than 25 people.

The number of SMEs employing less than five people numbered 12,000 or 44 per cent of registered businesses.

A Central Bank estimate shared by Noel indicated that the SME sector contributes 30 per cent to the GDP and employs over 200,000 people.

However, the SME sector took some of the hardest hits during the pandemic which saw the shuttering of businesses amid lockdowns.

“The SME sector is on its back legs right now,” said Diane Hadad, head of the Tobago division of the Chamber of Industry and Commerce, at the launch held at the Hyatt Regency in Port of Spain. “They may even be lying down; either face down or legs up.”

Hadad questioned whether it was the right time for these businesses whose market shares were significantly reduced because of a lack of performance over the past two years.

Dorian pointed out that there were several shortfalls in the SME sector that is hindering its growth, including a low level of technology adoption and low levels of internationalisation and participation in the global value chain.

He said technology adoption could be addressed by the provision of grants and tax incentives for digital transitioning, an element which was covered in some ways in the 2022-2023 budget.

Internationalisation could be managed by funding for market research and access and getting SME market access into trade policy.

However, one of the key factors for growth in any sector – access to finance, has also been a struggle for the SME sector.

In his address on Tuesday, Finance Minister Colm Imbert said some of the areas affecting SME’s ability to acquire financing includes a lack of proper and up-to-date documentation, poor debt repayment records, non-adherence to statutory obligations and an inability to meet corporate government standards.

Additionally, human resource and internal relations and workforce gaps also plague the sector.

“These factors lead to higher financing rates and a natural adverse impact on the profit position of the business,” Imbert said. “Some SMEs are unable to access financing at all and thus unable to grow and develop their businesses.”

“Small business expansion must be funded from external sources, primarily banks and other lending institutions (in order) for them to grow.”

Accessing appropriate data for policies is also an issue, Noel said while fielding questions from the audience and the media.

“Covid19 has had a serious impact on the CSO in terms of administering some of the surveys,” he said.

“What we have done in Central Bank is we joined forces with the Inter-American Development Bank (IDB) to get a better sense of the SME sector. We are hoping to map the sector, try to better understand where the sector is at this point and perhaps coming out of that study we can see how we can better position the sector.”

The TTSE SME

Mentorship Programme

The TTSE Mentorship Programme gives SMEs the opportunity to access an alternative line of financing from investors.

Mitchell said through listing on the SME Market, companies can raise equity financing or patient capital through a public offering, tax incentives; with zero per cent tax ratings for the first five years and a 50 per cent reduction on tax for the following five years, an increased brand visibility, a broader investor base, an opportunity for employees to acquire shares in the company and allowing viable exit options for shareholders.

But Imbert said that while the junior stock market, the sandbox in which SMEs would be able to play, has been operational since 2012, there are only two SMEs that have entered the stock market – Cinema One and Endeavour Holdings.

“We looked around the world in the regular meetings that we had with Central Bank and one of the issues that we saw was access to credit, and the increase in the provision of credit by the commercial banking sector to businesses. I noticed that it was fairly static,” Imbert said.

“We saw the Jamaican stock market with 46 small businesses actively trading. We asked ourselves what was the difference, and what we came up with was the mentorship. You need an established, successful, disciplined company to teach the small enterprise that is coming on how to develop into a larger company.”

Cinema One's Brian Jahra pointed out some other issues as one of the only SME’s on the market. He pointed out a streamlining of requirements by the regulatory bodies the Stock Exchange and the Securities Exchange Commission, a reduction of requirements to enter the market and a shared services hub to assist with accounting issues and logistics that would hinder small businesses from getting into the junior stock exchange.

“One of the key things a lot of issuers face is the uncertainty around what is the market appetite for the particular security, and one of the things we try to get but it is difficult to attain is some underwriter – someone that would participate in underwriting the facility.

"Even if that is a 10 to 15 per cent in underwriting, it gives a level of assurance that some of your securities would be picked up in the marketplace and I am left with all these costs and no appetite.”

Mitchell said the mentorship programme was designed to match companies with a suitable mentor who can cover key governance themes needed to put companies on the right track.

“Once an SME is considered to be eligible to list on the SME market, it is required to have an independent mentor. After this, the SME has the option of appointing a director or senior officer of the company to perform the functions and responsibilities of a mentor.”

Imbert in his speech, pointed out several other initiatives for the SME sector focused on eliminating the barriers the sector faces.

He said NEDCO provides training programmes that range from starting and registering businesses, to financing and expansion, which can be accessed by micro enterprise owners for free. NEDCO also provides grants to micro enterprises.

There is also a full suite of incentives for farmers, agro-processors and manufacturers, Imbert added, as well as tax holidays and waivers on equipment, depending on the sector.