A Platform to Create Equity Culture among SMEs and Startups

With 26 years of experience in the Capital Market as India’s biggest Custodian to India’s biggest and largest Stock Exchange, Mr. Ajay Thakur plays a key role in setting up the SME and Startup Platform. He is the Executive Committee Member of Indian Merchant Chamber, Member of Advisory Committee of GLA University and associated with Nanubhai Desai & Co, as Member of the Advisory Board in their Fintech Company, Paaryal Fin tech Services Pvt. Ltd.

What is the BSE SME Platform? How and why should SMEs be listed to it in this COVID Situation? We have a candid interview with Mr. Ajay Thakur – Head (BSE SME platform), for SMEs to have better insights! 

1. What was the basic concept of launching SME Platform and Start-up Platform in India and what are the eligibility criteria for listing on this platform?

Answer: Small and Medium Enterprises (SMEs) play a catalytic role in the development of the economy as they constitute a major part of the industrial activity. This is reflected in the form of their increasing number and rising proportion in the overall product manufacturing, employment, technical innovations, and promotion of entrepreneurial skills.

The development of this segment is extremely critical as they generate significant levels of employment across urban, semi-urban, and rural areas across the country and create inclusive growth. With the Indian economy growing, the need for SMEs to raise capital is becoming increasingly critical.

The MSMEs primarily rely on bank finance for their operations, CAPEX, and working capital requirements. While banks are playing a major role in financing the MSME sector, alternative sources of finance such as equity financing are required for the sustainable growth of SMEs. Therefore, the demand for equity funds is increasing across the SMEs irrespective of sector.

Equity capital is often a more appropriate financing instrument for high-growth-potential SMEs and Startups. Equity capital puts finance into the business without committing the company to inflexible repayment schedules or debt covenants that could see them lose control if results come slower than expected.

It is also a more fitting way to reward investors prepared to take the risk of putting money into SMEs and Startups. Firms typically look for equity capital to provide them with the financing they need, to expand, break into new markets and grow faster.

In order to provide MSMEs access to equity funds, BSE launched the first SME Platform in India on 13th March 2012. After the success of the BSE SME Platform, BSE also launched the first-ever Start-up Platform on 18th December 2018 to provide Start-up access to equity funds through Stock Exchange.

Eligibility Criteria for listing on the BSE SME Platform is as follows:

  • An Issuer with post-issue face value capital up to Rs.10 crores shall be compulsorily listed under the SME Platform, Issuer with post-issue face value capital between Rs.10 – 25 crores may get listed at SME Platform and Issue with post-issue face value capital above Rs.25 crores has to necessarily listed at main board of the Exchanges.
  • Net Tangible Assets should be minimum of Rs. 1.5 Crs.
  • The company should be a minimum of 3 years old.
  • The company should have a positive cash accrual in any one of the preceding 3 years.

Eligibility Criteria for listing on the BSE Start-up Platform is as follows:

  • The company should be incorporated under the Companies Act, 2013.
  • The company should be in the field of IT, ITES, Bio-Technology and Life Science, Artificial Intelligence, 3D- Printing, Space Technology, Hi-Tech Defence, Drone, Nano Technology, Big Data, Augmenting/Virtual Reality, E Gaming, Exoskeleton, Robotics, Holographic Technology, Genetic Engineering, Variable Computers, and other Hi-tech technology.
  • The Start-up should be in existence for minimum period of two years
  • The net worth should be positive.

They should be registered as Start-up or their paid-up capital should be Rs 1 cr.

2. How challenging it was to launch anything like BSE SME?

Answer: It was very challenging to launch an SME Platform. There was a precedent of OTCEI Exchange for SMEs which was not successful. Also, the merchant bankers/investment bankers initially perceived it as very risky as they are required to underwrite the complete issue and take the responsibility of market-making for three years, and therefore, they were hesitant to work on the SME Platform.

Besides this, the promoters were also not interested in getting listed as they have very less exposure to the capital market and were under the impression that listing will result in an increase in compliances and cost significantly.

3. How has your experience helped you introduce the BSE SME platform and how it is helping SMEs to get listed on this platform?  

Answer: The experience and hard work of the BSE team have helped in introducing the SME Platform. We have conducted 2300 physical seminars and 250 webinars with various industrial and professional organisations across the country to create awareness about the benefits of listing.

We have also done meetings with almost 30,000 SME promoters to make them understand the benefits of listing and the procedure. The listed 341 SMEs have been able to raise funds to the tune of Rs. 3512 Cr and their market capitalization (value) has reached Rs. 30,500 Cr.

4. What is the importance of this platform and why should an SME get listed on the BSE SME platform? What are the benefits?

Answer:  SME Platforms play a very important role in providing various benefits to SMEs for their sustainable growth. The various benefits associated with listing through dilution of equity are:

  • Provides the SMEs with equity financing opportunities to grow their business – from expansion to acquisition.
  • Equity Financing lowers the debt burden leading to lower financing costs and a healthier balance sheet.
  • Expands the investor’s base, which in turn helps in getting secondary equity financing, including private placement.
  • Enhances the company’s credibility.
  • Enhances the company’s visibility.
  • Unlock the value of the company and help in wealth creation.
  • The greater incentive for the employees as they can participate in the ownership of the company and benefit from being its shareholders.

5. How in the present COVID-19 scenario the platform would help Small Businesses to get funding for their business?

Answer: Covid -19 has created a huge disruption in the market. The strict lockdown during the first wave of Covid and the mini lockdown during the second wave have created stress, especially in the MSME sector. Though the Govt and RBI have taken a lot of proactive measures by ensuring sufficient liquidity in form of debt, still it’s required that equity funding should be made available to SMEs.

Given this, we have conducted almost 300 webinars to reach SMEs during Covid-19 to help them get access to equity funding through the SME Platform. In order to give a wide range of SMEs access to equity funding we have relaxed the eligibility criteria for listing by bringing down the profitability requirement from two years to anyone year out of the last three years and net-tangible asset requirement from Rs 3 Cr to Rs 1.5 Cr. Further, we have reduced the annual listing fee by 25 percent.

6. How difficult it is to get listed on this platform and how BSE SME is helping them do this? Do you have any support system or program to help SMEs to introduce this platform as not many businesses would be aware of it?

Answer: The Ecosystem related to listing on SME platform has been made simpler by relaxing the eligibility criteria and the process smooth with the help of merchant bankers. The officials of the BSE SME team keep on organizing various events and one-to-one meetings with the SMEs to familiarise them with the whole process and timeline.

The merchant bankers who act as intermediaries do proper handholding of the SMEs in doing due diligence, compliances, preparing the prospectus, filing with the Exchange, and getting the approval. The merchant bankers also ensure that the company’s public issue gets fully subscribed and gets listed on time. The whole process takes not more than three months.

7. What are the achievements of BSE SME to date and where do you see this platform in the next 5 years?

Answer: BSE was the first Stock Exchange to launch the SME and Start-up Platform. BSE thus became the pioneer in creating an equity culture among SMEs. Listing has helped the SMEs in raising funds, unlocking value, become more organized and transparent, create visibility, trust, and grow into a bigger company.

The growth of listed companies has created huge employment. Today BSE SME Platform is the largest SME Platform in India where 341 SMEs got listed, raised Rs 3512 Cr, and created a value of Rs 31,000 Cr. There are another 60 SMEs who have filed their prospectus and are in the process of listing. We expect big growth on the SME Platform and expect another 1000 SMEs to get listed in the coming 5 years.

8. What is your future strategy and vision to promote this platform? 

Answer: We plan to proactively reach SMEs across the country especially in Tier-II and Tier-III cities. The strategy will be to collaborate and partner with industrial and professional associations, industrial clusters, state governments, and central govt to create awareness about equity funding, arranging meetings with merchant bankers, and bringing all other stakeholders together to help in the growth of SMEs.

We will also help the listed SMEs in creating visibility and networking. BSE has already signed MOU with Govt of Maharashtra, UP, West Bengal, Haryana, and Telangana for creating awareness about equity financing among SMEs in the respective states. We have also signed MOU with Yes Bank and ESDC. We are in talks with other State Govts for the signing of the MOU.

9. What do you suggest the SMEs push their business to the next level?

Answer: SMEs need to focus on the following areas which can boost their business:

  • Adoption of Technology
  • Leveraging the e-commerce trend
  • Financial Management
  • Efficient Management of Inventory and Working Capital
  • Access to new markets
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