CHAPTER 30% return by Morgan Stanley Capital International



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Background of the Study

West Africa in the early 1990s saw the establishment
of stock exchanges in member countries, due to the fact that it was a
precondition for the introduction of a free market economy, led by
International Monetary Institutions. This move was to help facilitate the
privatisation schemes of these countries that have chosen to liberalise trade
in the economy. Ghana Stock Exchange (GSE) was established successfully I n
1989 and but did not start trading activities until 1990. This stride achieved
by the country has also been commended as a good financial market initiative. Since
its inception of operation in 1990 many companies have benefited by raising
huge sums for their long term and medium activities. In 2004 the GSE was named
as the world’s best-performing market with an annual return of 144% in US
dollar terms compared with 30% return by Morgan Stanley Capital International
Global Index (Databank Group, 2004).

The GES has met the capital needs of Ghanaian
businesses successfully, this is respect of companies who have attained some
level of maturity in terms of size and operations. Sadly Small and Medium
Enterprises (SMEs) have not had the opportunity of raising funds from the
exchange. The establishment of Ghana Alternative Market (GAX) in 2013 was to
allow SMEs to also raise capital to augment their inadequate capital. According
to United Nation Industrial Development Organisation (2004) it is believed that
lack, of finance is the single most important factor inhibiting the growth of

In Ghana and Africa at large, the only sources of
finance to SMEs is normally bank loans, windfalls, personal savings, retained
earnings and borrowing from family and friends. According to Akorsu and
Agyapong (2012), SMEs contribute to GDP, encourage innovations, provide
employment, developing our human resources and poverty alleviation yet they are
still constrained by access to credit. Alternative sources of financing
involving equity and debt instruments (hybrid financing securities) are no even
mentioned in the circles of SMEs. The issue of debt and/or equity instruments
by SMEs has been viewed as a cheap, safe and a very sustainable source of

An efficient and functioning securities exchange platform
for SMEs is a very vital mechanism to foster the growth of an economy. Kenya in
an efforts to attract SMEs to the Nairobi Stock Exchange the Capital Market
Authority of Kenya, established the Alternative Investment Market Segment
(AIMS) with less stringent requirements. Likewise the Ghana Alternative Market
(GAX) (as a capital market for SMEs) was introduced by the Ghana Stock Exchange
for SMEs to raise medium to long term finance for their activities. The main
aim of the GAX is to provide easier access to long term capital, access to long
term capital at a relatively lower cost, improve the financial position of
listed companies, enhance the status of the company both to local and the
international, help investors realize value on their investments, and improved
liquidity on the Ghana Stock Exchange.


Statement of the Problem

Keith (2006), posits that SMEs normally self-finance
and have very limited capital most often than not and also rely on external
finance. SMEs are constrained to revise their capital structure as the cost of
finance has risen while economic conditions have worsened. SMEs primarily use
short-term financing options such as overdrafts, lines of credit and bank
loans.  According Wyman (2014), majority
of SMEs rely on self-financing for setting up their businesses and when they
are growing rely mostly on retained earnings and bank loans.

The currently used sources of finance for SMEs are
valuable in meeting short-term needs, never the less, they do not provide the
luxury of long-term financing required as firms expand and seek growth. SMEs
cannot rely solely on these commonly used sources. According to International
Organisation of Securities Commission (2015) financing via a transparent,
orderly functioning, organised and reliable capital market provides an
important alternative source of finance for SMEs. The Ghana Alternative Market
is an alternative source of financing available to SMEs to list both debt and equity

SME-focused capital markets have sprung up across the
globe, offering an alternative to main listing boards on national stock
exchanges. Capital markets for SMEs have relaxed listing requirements and costs
less to list as compared to the main markets so as to encourage SMEs to list as
a sustainable solution for providing medium to long term finance. As a new
scheme of financing for SMEs, there are few researches which brings the views
of the SMEs about their views and reason why they would adopt such schemes of
financing. The GAX requires SMEs to have some level minimum of capital and
other requirements. This study shall investigate how owners of SMEs see the
listing requirements of GAX, the opportunities they see, their willingness and
capability to raise medium to long term finance using GAX. This research shall
also look at the current sources of funding to these SMEs.



The following
objectives guide the study