23/05/2024 11:29 AM

KUALA LUMPUR, May 23 (Bernama) -- Various measures are needed to ensure capital market solutions are more inclusive and adaptable to the diverse micro, small, and medium enterprise (MSME) and mid-tier company (MTC) business models, according to the Securities Commission Malaysia (SC).

In its Catalysing MSME and MTC Access to the Capital Market: Five-Year Roadmap (2024-2028) released today, the SC noted that these businesses frequently encounter high fundraising costs, especially concerning professional fees and compliance expenses.

While this applies to various capital market instruments, market engagements have revealed that high costs and compliance requirements are particularly challenging when it comes to listing, said the SC.

“The estimated total listing costs for the LEAP Market is approximately RM1 million to RM2 million (constituting 13 per cent of total funds raised).

“This translates to higher average listing costs relative to the raised amount when compared to only nine per cent in the ACE Market and four per cent in the Main Market, which adds to the consideration for listing on the LEAP Market,” said the SC.

It also said that the high costs of preparing for listing also stem from the lack of readiness to meet compliance requirements, including the need to seek additional time and professional advice in areas where enterprises lack expertise.

Although the process of obtaining listing approval has been expedited from a regulatory perspective, market engagements indicate that there are instances where the preparation to meet the compliance requirements for listing may take two to three years.

“This highlights a need for targeted measures aimed at reducing costs and addressing the readiness of MSME and MTC to move the needle for high potential companies that are capital market-ready and primed for listing,” it said.

Meanwhile, the SC said feedback from market engagements has indicated that the MSME and MTC still struggle with fundamental financial reporting and are not fully aware of or do not understand equity issuances, which indirectly fosters a preference for debt-based financing instruments.

“One of the main barriers cited is their fear about the potential loss of control,” it said.

Furthermore, most programmes by MSME and MTC development agencies focus on financial management and broader growth and development, which may not directly address awareness and readiness to access the capital market.

In easing MSME access to financing, government efforts are concentrated on providing financial assistance, the SC stated. 

In 2023, out of 96 programmes addressing access to financing, 86 per cent were related to micro-financing, guarantee schemes and grant schemes.

For investors, among the key issues and challenges faced by them were limited access and investment restrictions contributing to liquidity and exit concerns.

This may act as a barrier to a greater supply of capital for these market segments.

“Market engagements have highlighted that despite the lower disclosure requirements of equity crowdfunding (ECF) platforms, they are more accessible to a wider range of investors compared with the LEAP Market,” the SC said.

It also said that investors face challenges in assessing the risks associated with MSME investments because of the lack of credible and transparent information.

“The inherently informal MSME nature results in a higher level of information asymmetry, making it challenging for investors to perform assessments.

“The inability to accurately assess the risks associated with MSME fosters a perception of higher risk, creating barriers to MSME investments,” SC added.


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