How is the listing of SMEs and MSMEs affected?

How is the listing of SMEs and MSMEs affected?

As small and medium enterprises constitute a major part of the market, the SEBI has facilitated some guidelines to be enrolled on the platform provided separately by BSE.

What is the importance of SME and MSME?

Small and medium enterprises secure an important position in the economies around the world and contributed mainly to the fields of employment, gross domestic products, export, etc. In India, the SME provides employment to 111 million people, has a contribution to 29 per cent of the country's GDP and constitute 50 per cent of the total export.

For the purpose of GDP growth, accessibility to the capital is necessary. For the welfare of SMEs, and to promote the market reach of the brand and the growth, the SEBI in 2010, established a framework for the SMEs especially, the set up of a trading platform or stock exchange. There are almost 310 SMEs listed on the Bombay Stock Exchange SME platform. Out of these, 71 companies have migrated to the main board of BSE.

What are the criteria of listing as SME and MSME?

The small companies try to list themselves on the stock exchange, and for that, they require to know the criteria for eligibility. Some must for the small company to get enlisted:

• The company must be incorporated under the Companies Act 2013 or if established before that, must be incorporated under the Act of 1956.

• The paid-up capital of the company must not be more than ₹25 crore and the net tangible assets must not be worth more than ₹3 crore.

• The company, LLP, partnership firm, and proprietorship who wishes to get enlisted should have three years of combined track record. If the entity is not three years old yet, then the record of loan, equity by banks, financial institution, central or state government, etc. are required.

• The companies or any other entity which have been converted into a company should have a positive cash accrual from the operational activities with a positive net worth. Also, it should have a website.

• The trade facilities in Demat securities are necessary for entering into an agreement with the depositors.

• No change in the promoter of the company must take place within one year of filing for the SME listing.

How to list on SME exchange?

It is a part of the SME listing process that the company should appoint a merchant banker to conduct due diligence and prepare an initial public offering structure.

After the issuance of the IPO, the merchant banker is responsible to file the red herring prospectus following the prescribed format with the BSE and SEBI.

The stock exchange on receiving the application will send an offer to the company office for the verification procedure. Also, the promoters of the company shall be called upon for a discussion with the listing advisory committee. On the basis of the recommendation of the advisory committee, an in-principle approval is necessary by the stock exchange of the filing of the required document with the registrar of companies.

On receiving the listing fee, the documents are filed with the exchange for finalization of the basis of allotment. Finally, the Bombay Stock Exchange will issue the notice mentioning the listing and trading.

What are the challenges faces by the MSMEs and SMEs?

The biggest challenge which is faced by enterprises is access to capital. In order to overcome that most of the major capital market have established separate exchange for the segment of SMEs. The purpose of this separation is to create a market architecture of the SMEs and influence SME friendly market as well as support the effective policies and institutions to adopt new kind of investable equities.

The main differences between listing on the mainboard and the SME platforms is the eligibility criteria mentioned above. The criteria for SMEs is quite relaxed.