Incorporating SMEs in the Capital Market of Bangladesh: Obstacles, Initiatives and Potentials

Abstract

The Stock Exchanges of Bangladesh have initiated a new window for small and medium enterprises so that they can get finance by issuing securities. Though 80% of the business in Bangladesh are SMEs, which are responsible for 25% of nation’s GDP and 35.49% of the total workforce, limited access to formal financing impedes their effective operations and long-term growth. As a new platform, the insights related to obstacles of listing and fundraising, regulatory issues, and the future potentials remain uncovered due to lack of research initiatives. This study addresses these insights by analyzing both primary and secondary data. The study findings outline that SMEs now have the opportunity to trade-off between loans from creditors and financing by issuing securities. The decision mostly depends on whether a firm has enough collateral to avail loan from creditors, or it is prepared enough with proper documentation, standard books of accounts and regulatory issues of the capital market. While estimated fundraising costs through the capital market stand at 0.6% to 1.03%, banks and financial institutions charge 13% to 17% for interest along with 1% to 2% for processing fees and stamp duty. However, the capital market demands limited liability company, asset valuation, standard books of accounts, tax filing, reporting and disclosure issues. The regulators have developed the platform as a learning ground by following ‘Go Easy’ principles so that the SMEs can exercise reporting and governance issues, and contribute to institute a transparent and sustainable capital market in the future. Keywords: SME, financing, capital market, small capital platform, stock exchange DOI: 10.7176/JESD/12-2-03 Publication date: January 31 st 2021