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Can Stock Exchanges Support the Growth of Small and Medium-Sized Enterprises? Lessons from India, South Africa, and Jamaica

Jul 13, 2017

Jacqueline Irving, John Schellhase, and Jim Woodsome


Despite their importance in creating private-sector jobs and diversifying economies, small to medium-sized enterprises (SMEs) often struggle to access adequate finance. This problem has only become worse since the global financial crisis, due to bank deleveraging and possibly the adoption of stricter prudential regulations. This more challenging financial environment has spurred policymakers, international donors, civil society organizations, and the private sector to seek out and encourage alternatives to traditional bank financing for SMEs, including public equity financing through dedicated SME market segments.

Today, there are around 30 SME-dedicated market segments on stock exchanges in emerging-market and developing economies, the majority of which have been established in the past 15 years. While public-equity financing is not a broad solution to SME financing challenges, especially in emerging-market and developing economies, it may be a solution for a particular subset of SMEs—specifically, those SMEs that have strong growth prospects and that are sufficiently institutionalized to handle the necessary reporting and corporate governance requirements. 

As far as we know, there has been very little research at the country level that comprehensively examines the effectiveness of SME exchanges from the perspective of listed and unlisted SMEs themselves. Through a survey instrument that we created jointly with the World Federation of Exchanges (WFE), the Milken Institute Center for Financial Markets carried out evidence-based research to compare how approaches to SME boards have varied across countries. We surveyed listed SMEs on the SME boards and main markets of three focus countries—IndiaJamaica, and South Africa—to compare why these firms list, whether they have had better access to finance since going public, and whether their post-listing experience has met their expectations. We looked at whether, and to what extent, SME platforms are “graduating” SMEs—that is, incubating them for later listings on the main board.

Key Questions

  • Why do SMEs list—and where?
  • Does listing help SMEs access finance—and how?
  • Would listed firms list again?
  • What keeps unlisted firms away?
  • How could listing be made more attractive?
  • Are SMEs graduating to main boards—and is this an actual aim of the firms and stock exchanges?