State signs MoUs with BSE, NSE to train cash-strapped small-scale entrepreneurs in the ways of the stock exchange.
New Delhi: The Uttar Pradesh government will begin encouraging small entrepreneurs to list their firms on stock exchanges to help them raise money and get around the problem of borrowing funds from financial institutions to set up shop or expand in the state.
Discussions at last month’s two-day UP Investors Summit in Lucknow, where owners of several small and medium businesses were invited as ‘udyog bandhus (friends of business)’, showed funds crunch as the biggest hurdle to their expansion.
Officials said that while the government wants to push entrepreneurship and encourage new business ideas, potential entrepreneurs face financial hurdles as bank loans are harder to come by on the basis of ideas alone.
The idea behind the government’s plan is to let small and medium entrepreneurs generate money from the stock market, and thus reduce their dependence on banks. The UP government plans to help companies that have strong fundamentals and are based on viable business ideas get the required ratings and facilitate their listings.
“Since we don’t have a stock exchange in our state, that route to generate funds is largely untapped. We have signed MoUs with both the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange) to facilitate the listing of such companies,” UP infrastructure and industrial development commissioner Anup Chandra Pandey said.
“It is at a nascent stage but we are serious about the idea and are working to achieve it,” he added.
What’s the idea
Private companies get listed on the stock exchange by way of making an initial public offering (IPO).
The BSE and the NSE both run exclusive segments for small and medium enterprises with a “high growth potential”, which, according to Indian Economic Service portal Arthapedia, otherwise find it difficult to get listed on the main exchanges or gain visibility.
To qualify, a firm’s post-issue paid-up capital should not be more than Rs 25 crore.
Two birds, one stone
“The IPO route will solve two problems. First, entrepreneurs can generate funds from the market based on their competence. Secondly, it would make their processes more transparent, which is mandatory for any listed company,” Pandey said.
As part of the MoUs with the UP government, the two stock exchanges will hold several training programmes in the state to teach entrepreneurs, among other things, how the IPO route would benefit them.
A strengthening trend
The idea to have small and medium enterprises listed on the stock exchange has gained much traction over the past few years.
“Three to four years back, this was just an idea. But in the last two years, a lot of encouragement for small and medium businesses has come from the stock exchanges,” said Jagannadham Thunuguntla, senior vice-president and head of research (wealth) at Centrum, a financial services company.
“The BSE and NSE have created a platform for SMEs within their exchanges and around 200 companies have got listed,” he added.
Thunuguntla said that doing so had helped the companies generate funds from the market and that they had become wealth creators for investors because of the robust capital market.
“The only thing is that they need advice and guidance at the early stage as it is very easy for a new business to get carried away,” he added.