SME Exchanges in India

SME exchanges are electronic exchanges on which shares of listed SME companies are bought and sold. They enable SME companies to raise capital from the public. They also offer investors the opportunity to invest in growth-oriented companies.

SME exchanges are important for promoting innovation, entrepreneurship, and economic growth because they can facilitate SMEs' access to finance. In addition, SME exchanges serve as a startup listing platform for new companies and offer emerging companies the opportunity to raise capital and accelerate their growth.

SME stock exchanges generally have specific listing requirements and regulatory structures that are tailored to the particular needs of smaller companies.

1. SME Exchanges in India

The SME exchanges in India are specialized stock trading platforms where the shares of SME companies can be listed and traded. These exchanges are primarily meant for SMEs with high growth potential, i.e. companies whose paid-up capital after the issue is between Rs 10 and Rs 25 crores.

SMEs are making an essential contribution to India’s growth, but it is difficult for these companies to get listed on the BSE and NSE due to stricter listing requirements. Hence, the need for a dedicated platform for SMEs was recognised to provide a solution to their financial requirements and support their expansion plans.

At present, there are two SME exchanges in India - BSE SME and NSE Emerge.

1.1. Need for SME Exchange

The need for SME exchanges in India arose primarily due to the following reasons:

• SMEs played a significant role in the development of the Indian economy.
• SMEs accounted for the majority of employment generation.
• SMEs did not have easy access to fund and support their capital requirements.
• Cost of raising capital through loans, debt and borrowing is high.
• The requirements for listing on main stock exchanges like NSE and BSE were quite stringent.

Therefore, a special platform with relaxed requirements was needed to provide aspiring entrepreneurs with easy and cost-effective access to capital.

2.2. History of SME Exchange in India

The 1^st SME exchanges were launched in 2012. The history of the SME Exchange in India marks a crucial development for SMEs by facilitating access to capital markets.

1.3. Benefits of SME Exchange for Companies (Benefits of SME listing)

SME exchanges offer a host of benefits to SME companies.

• Visibility - Listing on the SME Platform can increase an SME company's visibility, which can help build credibility with stakeholders like clients, shareholders, employees, and the government.
• Cost-effective access to the market - SMEs can have easy access to capital at low cost. It helps unlock its potential which may otherwise would have got restricted due to the unavailability of finance.
• Employee incentives - Listed companies can use stock options and other equity-based incentives to attract and retain talent. This can help boost employee confidence and foster a culture of commitment and ownership.
• Encourages growth of SMEs - SME exchange listing provides SMEs with various growth opportunities like expansion, mergers, acquisitions.
• Corporate governance - Good governance can assist small and medium-sized enterprises (SMEs) in establishing strong business processes and preparing them for expansion. Additionally, it can enhance their accountability and transparency in operations, making them more attractive for investment and financing.
• Open doors for mainboard listing - SME Exchange listing prepares SME companies to move to the Mainboard.

2. BSE SME Exchange

Launched in 2012, BSE SME is a platform that facilitates listing of SMEs. The BSE SME Exchange is a specialized exchange platform operated by BSE. Its main objective is to enable SMEs to list on the BSE SME exchange platform and grow.

• Purpose: The BSE SME platform is tailored to SME companies and offers them a special channel for raising capital by issuing shares to the public and get listed at BSE stock exchange.
• Dedicated SME platform: BSE SME is a separate dedicated platform for SME listing operated by BSE. It is not a separate exchange but falls within the purview of BSE with relaxed norms and regulations.
• Entrepreneur and Investor-Friendly Environment: The SME Exchange provides a conducive environment for entrepreneurs and investors by facilitating the listing of SMEs from India's dispersed unorganized sector in a regulated and organized framework.
• Access to Finance: Listed SMEs can access equity capital via the SME platform to support their growth and expansion initiatives.
• Facilitating Growth and Development: The SME platform helps SMEs to become full-fledged businesses by providing the funding they need to develop.
• Pathway to Main Board Listing: Over time, SMEs listed on the BSE SME platform can qualify to move to the Main Board of the BSE, provided they comply with the laid down rules and regulations. This development is a sign of their growth and maturity in the capital market.

3. NSE Emerge Platform

Launched in 2012, NSE Emerge is the SME platform operated by NSE. NSE Emerge offers emerging companies an easy way to raise equity capital from a wide range of investors.

NSE Emerge helps these companies to realize their growth potential and increase their market presence. EMERGE not only facilitates access to venture capital for emerging companies, but also offers investors attractive opportunities to invest in promising SMEs and technology start-ups.

Key highlights of NSE Emerge platform

• NSE Emerge offers a unique platform for small and medium-sized enterprises (SMEs) to list and take their shares public.
• SMEs can go public on the NSE Emerge more quickly and cost-effectively, as it has less restrictive listing standards than the main Stock Exchange.
• The platform supports SMEs' growth ambitions by providing them with a way to raise capital to expand, innovate, and scale their businesses.
• NSE Emerge promotes entrepreneurship by providing a platform for SMEs to list themselves and gain visibility.

4. BSE SME vs NSE Emerge

An SME company can list its shares on only one of the SME stock exchanges in India i.e. NSE Emerge or BSE SME. Therefore, the issuing company should evaluate both the stock exchanges and choose the one that suits it best. The below comparison of key features can help the issuer to better understand each SME platform.

It should be noted that the relationship or comfort of the lead manager with the exchange usually plays an important role in the selection of platform.

In addition to the listing criteria, the company should also consider the time required for approval of the DRHP when selecting the exchange.

Considerations:

• Listing Requirements: BSE SME Platform may be preferable for companies seeking easier listing norms.
• Market Reach: NSE Emerge Platform offers broader national exposure.
• Investor Base: BSE SME may attract different types of investors compared to NSE Emerge.
• Support and Compliance: Evaluate which platform offers better support tailored to your needs.
• Trading and Liquidity: NSE Emerge typically sees higher liquidity, which can impact trading volumes.
• Migration and Expansion: Consider which platform offers better opportunities for growth and future expansion plans.

Key Takeaways

• SME exchanges like BSE SME and NSE Emerge help small and medium enterprises raise capital and grow by offering specialized trading platforms.
• Both BSE SME and NSE Emerge cater to companies with paid-up capital between Rs 10 and Rs 25 crore and offer easier access compared to the major exchanges.
• The BSE SME exchange, launched in 2012, allows SMEs to list on the exchange and provides a route to the BSE Main Board, indicating growth and maturity.
• The NSE Emerge exchange, launched in 2012, offers emerging companies a faster and more cost-effective way to raise equity and access venture capital.
• SMEs need to choose between BSE SME and NSE Emerge depending on their specific needs, as each platform offers different features and benefits.