Wed | Oct 18, 2017

Briefing | Developing a stock market for MSMEs

Published:Wednesday | February 1, 2017 | 12:00 AMAndre Haughton
Financial documents
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Mobile money has been reducing transaction costs and improving the lives of people in many developing countries across the world. Jamaica should seek to create an investment platform for MSMEs to facilitate funding and capital expansion for the dynamic economy of entrepreneurs with a robust support structure using this mobile money platform.

 

THE NANO STOCK MARKET

 

A Nano stocks being traded on a NANO stock market to provide equity funding for MSME's is necessary. The platform to trade Nano stocks will be similar to the Junior Stock Exchange with fewer capital requirements.

The stock options will be sold and bought using mobile phone credit that will store an account for each firm, each broker and each investor. The money will be transferred to the firms account through a broker right away similar to the Junior Stock Market. Three electronic receipts in the form of share certificates will be generated right away, one for the shareholder, one for the system, and the other for the MSME that has sold equity. The Mona School of Business and Management has a trading platform, which the Nano Stock market can utilise.

 

COMPLIANCE

 

This source of funding should inspire borrowers to become regulated and join the formal economy while at the same time increase the avenues for savers to generate new capital to further increase economic activity. Firms listed on the Nano Stock Market will be compelled to become more socially responsible and adopt positive social habits to foster honesty and integrity in the pursuit of individual and national objectives. Management is the most important element of the NANO Stock Exchange's business strategy. Research has indicated that good management and supporting structures are important for the success of these financing initiatives.

 

TECHNICAL SUPPORT FROM THE UNIVERSITY OF THE WEST INDIES

 

Companies listed on the NANO Stock Market will become a part of a special programme and receive technical support from the University of the West Indies, supervised by the Mona School of Business and Management. The Economics Association, the Marketing Association, the Entrepreneurship Association and the Accounting Association will provide mandatory centralised technical support to firms listed on the NANO Stock Market. These associations will themselves be listed as a company on Nano Stock Market, hence will have an incentive to perform optimally. The technical support team will remain flexible, adjusting to suit the needs of firms as the Nano Stock Market expands.

 

TECHNICAL SUPPORT FROM THE JAMAICA STOCK EXCHANGE

 

The Jamaica Stock Exchange already has a dummy platform that it uses for its high-school competition that can be transferred to the Nano Stock Market. High-school and university students who excel in stock trading could be used as brokers for the Nano Stock Market. The pilot programme will comprise of approximately 39 MSME's; three from each parish. Firms will be chosen in a stratified manner based on their scope for growth.

 

THE REGULATORY FRAMEWORK

 

The Nano Stock Market will be governed by similar rules and guidelines to the Junior Stock Market except:

Section 501: Eligibility on Initial Admission section (2): Minimum Requirements;

Section 502: Method of Initial Admission section (1):

Section 505: On Going requirements, section (7) Requirements for Participating Voting Share Capital (a) and (b)

The NANO Stock Market will have a minimum capital requirement of $5 million for the initial public offering instead of the $50 million stipulated for the Junior Stock exchange.

 

SWOT

 

Strengths

- The University of the West Indies, the Jamaica Stock Exchange, and the Ministry of Finance, the Ministry of Economic growth and Job creation and the cell phone providers already have the capacity.

Weaknesses

- Either of the parties outlined above might not understand the concept and its relevance.

Opportunities

- The Nano stock market will seek to capitalise on the growing mobile money industry. The mobile money cell phone credit app platform is the most suitable platform for the Jamaican economy. Digicel and LIME have used the platform for voting in the Digicel Rising Star and Magnum King and Queen of Dancehall.

- It will help to teach the nation about investment. Help to increase financial literacy.

- The Nano Stock market is very relevant given the need for adequate access to funding for MSMEs in Jamaica.

- It will allow the government to slowly incorporate sections of the informal sector into the real economy while at the same time help to create financial independence among MSMEs.

Threats

- It has never been done before. Unlike the Grameen Bank that targets mainly rural area female entrepreneurs, the Nano stock market will not discriminate on the type of owner or type of business.

- It might be difficult to enact policy to support linkages from primary to secondary and tertiary production processes.

- Lack of incentives to enable companies to increase the volume of domestic inputs used in their production processes.

- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona Campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email editorial@gleanerjm.com