The Ghana Alternative Market; A Gift To Budding SMEs

• Published date: 08 February 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, Commodities/Derivatives/Stock Exchanges, Corporate and Company Law, Securities, Shareholders
• Law Firm: Koranteng & Koranteng Legal Advisors
• Author: Abraham Jojo Afun

Perhaps the most recurring answer given when small businesses are asked about barriers to their business's growth, is "access to capital". Over the years, financial advisors have devised ingenious ways of dealing with the challenge of access to capital, whether for administrative costs, procurement of business resources or scaling up the business in general. These methods include but are not limited to debt financing strategies, hybrid instruments and equity financing, all of which are chosen, taking into consideration the nature of the business and its operating cycle. For budding small and medium scale enterprises, equity financing has the potential to bring in far more cash than debt However, the requirement for listing on stock exchanges for example has proved a challenge for these small and medium scale enterprises. The situation is no different in Ghana.

In view of this, the Securities and Exchange Commission ("SEC"), launched the Ghana Alternative Market (GAX) in 2013, operated by the Ghana Stock Exchange ("GSE") and regulated by the SEC, to provide equity financing solutions to businesses with potential for growth, i.e., Small to Medium Enterprises (SME) at various stages of their development. The key benefits of this bourse include:

1. Easier access to long-term capital at a relatively lower cost: GAX provides companies with a platform to access capital over the long term with little to no short-term obligations such as interest or principal repayment on debt instruments.
2. Increased Brand Awareness and Enhanced Positioning: Listing on GAX raises the investment community's awareness of the company and its products which will invariably lead to an enhanced market status and attract general business opportunities.
3. Investment Value Realization: Since the market regulator, GSE does a price determination of the stocks and valuation of a company's shares, owners can realize the value of their equity in the company.
4. Improvement in the Company's Financial Position: The injection of equity funds improves the company's balance sheet, provides capital for expansion and improved profitability and efficiency with the right kind of market discipline and corporate governance.
5. Reduce Risk and Improved Liquidity: Equity financing is a less risky method of capital raising since there is no repayment in the form of interest or principal as typically required for debt financing. Also, listing on GAX provides investors with liquidity as their equity can be converted to...