Equity financing is a key ingredient missing from the business growth recipe of small and medium enterprises (SMEs) in Barbados.
That is the assessment of Marlon Yarde, managing director of the Barbados Stock Exchange (BSE), who is confident that SMEs on the island will “go to the next level” if they grab the opportunity to get equity capital and list on the BSE’s Innovation and Growth Market (IGM), which is its junior market.
However, Yarde believes that, as proven with the big success of the Jamaica Stock Exchange’s junior market, incentives will be needed to give listed entities, the IGM, investors and ultimately the economy their best chance of getting a capital market-led boost.
His views were shared by Professor Dermot Cahill, research and policy director at United Kingdom-based consultancy HelpUsTrade Ltd.
The two officials were speaking in an interview ahead of a November 4 sensitisation session at Hilton Barbados Resort for SMEs who may wish to participate in the Innovation & Growth Market (IGM200).
Interested entrepreneurs and investors can register and attend the event for free. IGM200 is a national initiative in Barbados to support 200 SMEs through training, mentoring, and helping them access equity financing via the BSE’s IGM.
The programme is led by the Ministry of Energy and Business, the BSE, and the Small Business Association, with technical assistance and funding support from partners including the Caribbean Development Bank. HelpUsTrade Ltd and SFa Communications are providing expert marketing and communications support for the programme.
Yarde said that many SMEs typically relied on loan financing to get their businesses going, but that “as the business grows, there’s a need for equity financing, which is a cheaper form of financing, and it gives other persons an opportunity to help grow your business”.
“The Barbados Stock Exchange recognised this a long time ago, and we had approached government as it relates to getting this project going, and we saw that the best way to do that is by creating this marketplace and also looking, at the same time to find ways to incentivise issuers and investors to participate in SMEs within Barbados,” he noted.
Cahill said that a key objective was to “raise awareness about the benefits of taking in some equity investment into your business in order to accelerate the business’s growth”.
“The companies who will percolate through the initiative as being the most suitable for listing will actually be given a lot of mentorship and advice and support on how to prepare for somebody to ring the bell at the exchange on the day their shares first trade,” he explained.
“Our objective is to get at least 200 companies from across the span of the Barbados economy, whether it’s retail, the leisure industry, manufacturing, services, agriculture or the maritime sector.”
He added that companies which wanted to actually
list on the IGM would be put into a pool of 50, “and we will then carry out more intensive engagement with them, and then out of that, we will boil that down to about 20 companies and the programme support will be available to them as they proceed towards the day of listing”.
Giving up an opportunity
Yarde said that some SMEs may be concerned about losing control of their business if they pursued equity financing, but he stressed that “once you have at least 50.9 per cent or 51 per cent in your company, you still have control of that company”.
“All you’re doing is giving up an opportunity for other people to participate in your business and also give yourself an opportunity to grow your business with some other people’s capital or money,” he observed.
“Sometimes it’s better to own 60 per cent of a $100 million business than 100 per cent of a $100 000 business. You have that opportunity to grow your business and have at least something that other persons can participate in.”
Yarde said the success of Jamaica’s junior stock market since 2009 when it was started, including raising more than US$126 million in equity capital, providing employment for 41 000 people and creating 48 new compaies, show the potential benefits for Barbados.
He added, however, that incentives were needed, although he accepted that the big tax breaks offered in Jamaica were not necessarily required for Barbados.
“Our tax rates are pretty low, but there are other incentives that we have requested based on our own market, and those incentives are both to incentivise companies to list on the Innovation and Growth Market, and also incentives to encourage individuals and investors to participate by investing in securities listed on the Innovation and Growth Market of the Stock Exchange,” he said.
“With more people in being employed, the incentives given by government will be more than offset by the number of people being employed, the [income tax] that is going to be paid in, the [National Insurance] that is going to be paid in, the [value added tax] that’s going that’s going to be recovered by these as a result of companies growing.
“So at the end of the day, everyone would benefit from a growing and thriving Innovation and Growth Market,” said Yarde.
“Jamaica’s economy is growing in no small part to efforts of the Jamaica Stock Exchange being vibrant and growing as a consequence of the Jamaica Stock Exchange doing so well.” (SC)
The post ‘Equity financing’ the answer appeared first on nationnews.com.
