The scope of cottage and small industries (CSI) in the economy is expanding with various initiatives taking off to address the financing gap.

To compliment the new priority sector lending policy and revolving fund under the economic stimulus plan, the Royal Securities Exchange of Bhutan (RSEB) has come up with small and medium enterprise (SME) board.

The SME board will provide small and medium enterprises (SME) opportunities to raise fund from the capital market. The RSEB has created a separate market board for SME companies, which includes a group of SME incorporate under the Companies Act, either as private or joint venture.

CSIs in Bhutan do not have access to cheaper source of long-term capital and collateral-based lending by the financial institutions is beyond the capacity of new entrepreneurs. This new initiative is expected to create a platform for the SMEs and other startup companies to raise long-term capital from the institutional investors and at the same time inculcate sustainable business practices.

Any SME or newly formed company, which does not fulfill the requirements of the initial public offering (IPO) and rules governing official listing of securities but desires to raise capital for further expansion can apply for listing.

However, such SME can offload its shares only to the institutional investors. Retail shareholders shall not be permitted to participate in such IPOs. For instance, if a new startup wants to raise fund from the capital market for expansion, only Institutions such banks or other large companies can buy its shares.

When SME Companies mature to the level of fulfilling the IPO and listing requirements, it may be then upgraded to the main board for issuance of shares to the general public. The main board consists of large companies already listed on the stock exchange.

Such SME group must comply with bare minimum disclosure obligations and track records until qualifying for listing on the main board.

RSEB is developing rules and regulation on the classification of market board to be finally approved by the RMA.

A report from the RSEB states that while it is important to consider the risk in investing in CSIs and start-ups, business viability of these companies in the early stages are assessed by the promoters. “On the other hand, institutional investors in Bhutan are constrained by limited avenues for investment opportunities combined with lack of structured institutional framework for institutions such as investment bank, venture capital and hedge funds which are able to assess the risk and return of the CSIs and start-up companies.”

SME board aims to bring together the small and medium industries and start-ups seeking funds with the potential investors who are willing to take the risk and invest.

However, the companies wishing to be listed on the SME board should be incorporated under the companies Act and the issuer must have minimum paid-up capital of Nu 5M.

Paid-up capital is created when a company sells its shares on the primary market directly to investors.

Tshering Dorji

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