EGM, a good platform for Small and Medium sized Businesses

Since its launch in 2013, the Enterprise Growth Market (EGM) segment of the Dar es Salaam Stock Exchange (DSE) has attracted some companies that previously could not plan or strategise to access public money via selling of shares. Admittedly, though, the EGM — since its inception has been struggling with the perception challenges: illiquidity, operational underperformance by EGM listed companies, investors expectations and for some, minimal capacity by these SMEs to pursue clear business models, have led to enduring challenges. However, for the market that has just cerebrated its third anniversary — with 5 listing already, attracting 250,000 new investors, capital raising of Tsh. 50 billion, and current market capitalisation of Tsh. 121 billion — there is hope for wide acceptance of the platform by the business community in the days ahead.
With such a wide base of business enterprises to tap from — small and medium enterprises (SMEs) are estimated at 5 million in Tanzania, contributing about 40 percent to the Tanzania’s Gross Domestic Product (GDP) and being one of the largest generator of employment (approximately 5-7 million (depends on the debate of formal and informal) of existing labour force. This and the fact that the Tanzania economy will continue its growth trajectory, at about 7 per cent per annum and the fact that the size of our economy is closer to crossing the $50 billion mark, the need to pay more attentions to SMEs, whose contribution to the GDP and employment is growing by the day, can not be overemphasised, and thus its capital raising mechanisms.
Certainly, despite the challenges, the EGM segment can not be easily written off or underplayed; rather a thoughtful strategic mind can actually attribute this as a gift for the country’s vibrant SME sector — this is why:
First, the trend for declining bank credit towards the private sector especially in the recent months is a good place to start. Latest Bank of Tanzania’s Monthly Economic Review indicates that private sector credit growth has declined by almost 50 percent. According to the Report, I quote: “Credit to private sector increased by TZS 1,744.0 billion to TZS 16,622.8 billion, representing an annual growth of 11.7 percent compared with an increase of TZS 2,935.8 billion to TZS 14,878.8 billion in the year ending September 2015— annual growth of 24.6 percent. It is worth noting that credit growth has remained positive in all major economic activities, with exception of agriculture and manufacturing activities”. So, a growth of 12 percent down from 25 percent over a similar period in previous year, 2015, indicates that SMEs, like other sectors needs to rethink their financing strategies. In my view, SMEs needs to start thinking long term, especially in times where credit to agriculture and manufacturing sectors (largely falling under the SME categorisation) are declining.
Furthermore, this trend may just continue especially at a time when the spread between lending rates and yields in government securities (treasury bills and bonds), narrows down following liquidity challenges in the banking sector — this [liquidity] challenge means there may continue to be less credit for SMEs growth. We observe many banks reducing their lending, especially to SMEs that are also considered by many as risky. For SMEs, therefore, if they can carefully read and understand the moments we face and if they can try hard enough to put their houses in order, the EGM segment could potentially fill their financing gap. With less tightly capital raising requirements, EGM can provide to SMEs a lower-cost alternative for their growth and expansion.
Secondly, EGMs listing is fairly easy compared to the main investment market (MIM) segment. For instance, to list on the main market, a company needs to be in operations for at least three years, of which two years should be of profitability. A company will also be required to indicate a clear future dividend policy, be with issued and paid up capital of at least Tsh. 1 billion and must have audited financial statements for the course of its duration. There are not such requirements in the EGM. In addition, companies listing into the EGM are only required to float at least 10 percent of the shares with at least 100 shareholders as opposed to 25 percent with 1,000 shareholders for the main segment. Furthermore, as it is in the main market, IPO related transaction costs i.e. legal and other incidental costs are corporate tax deductible. There are other several tax incentives provided for all companies that list their shares in the DSE, both in the main board and the EGM.
Lastly, with the EGM segment, SMEs have an opportunity to widen further their funding sources. In addition to the potential for follow up capital raising using instruments such as rights shares issuance to their already wide base on investors, or via issuance of corporate bonds, SMEs listed in the EGM can help easy the relationships between SMEs and banks. A listed SMEs is perceived less risky by banks — for a fact that lending interest rates are a factor of cost of raising capital by banks plus risk premium by the borrower, then the perceived reduced risk by SMEs makes for less borrowing interest rates provided by banks.
Let me finish by saying that platforms that facilitates listings for SMEs, providing less affordable capital raising, low listing eligibility conditions, as well as minimal listing requirements, corporate governance norms and disclosure standards is not our invention. It is a phenomena world wide. Worldwide, government and capital markets recognises the role of SMEs in economic growth and employment, that is why even developed markets have platforms or exchanges for SMES; the case in point are the LSE-AIM, in U.K; GEM, in Hong Kong; MOTHERS, in JAPAN; Catalist, in Singapore; TSX, in Canada; Chinex, in China; etc. Even the Nasdaq Stock Market and Shenzhen Stock Exchange were established in response to SMEs capital raising needs. Mostly, these Exchanges/platforms, while targeting for more inclusiveness, they operate on the philosophy of “buyers beware” and “let the market decide” system, based on a mix of both merit and disclosure regime.
Some countries in Africa have also provided for a separate trading platform to facilitate listing of securities of growth SMEs. Some of them are: the JSE-Altx, in South Africa; the GEMs, in Kenya; GAX, in Ghana; NILEX, in Egypt; SEMDEM, in Mauritius. Other such platform are in Morocco, Uganda, Zambia, and Zimbabwe. All these relates to efforts by the capital markets need of becoming more responsive and part agents for SMEs growth and the wider economic empowerment and financial inclusion agenda.
For the DSE’s EGM, given the experience so far: 5 listed companies in the platform, economic and financial inclusion for at least 250,000 Tanzanians; capital raising of about Tsh. 50 billion via IPOs. The multiplier effect emanating from these companies, as most of the funds raised was for on-lending to other SMEs [noting that 80% of EGM listed companies are Financial Institutions that have raised capital to lend to SMEs businesses). and a market capitalisation of Tsh. 121 billion; there is no doubt that the EGM has a bright future.
For investors, although risks are abound — the reward to tapping into a vibrant, robust and growing SMEs sector are significant. For forward thinking SMEs, EGM segment offers a long lasting and effective solution to some of their key challenges.

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Stock Markets: An Old Idea, and yet New Idea for some of Us

Back in the sixteen to eighteen century, slave trade was not fully controlled by any state or government. It was a purely economic enterprise organised and financed by the stock markets, supporting the ideas of free markets, according to the laws of demand and supply. Private slave trading companies sold shares in the Amsterdam, London and Paris stock exchanges to finance the salve trade enterprise. And middle class European looking for good investment returns bought these shares. Relying on this money, the companies bought ships, hired sailors and soldiers, purchased slaves in Africa and transported them to America. They then sold the slaves to the plantation owners, using proceeds to purchase plantation products such as sugar, cocoa, coffee, tobacco, cotton and rums. They returned to Europe, sold sugar and cotton for good prices and sailed again to Africa to begin another round. As we can only imagine, the shareholders were very pleased with the arrangement, because history tells us that, throughout eighteen century the yield on slave trade investment was about 6 percent a year. So, during that time and age, humanitarian organisation became a business enterprise whose real aim was growth and profits financed by stock markets (and in some cases bank credits).

And this was not only related to Africa and its slave trade history — when in 1821 the Greeks rebelled against the Ottoman Empire, the uprising aroused great sympathy in liberal circles in Britain and other European cities. The London financier saw an opportunity on this as well — they proposed to the Greek Rebel leaders the issue of tradable Greek Rebellion Bonds on the London Stock Exchange. The Greeks would promise to repay the bonds, plus interest, if and when they won their independence. Private investors bought bonds largely motivated by the argue to make a profit, even though there may be some who bought these bonds out of sympathy for the Greek cause. The value of Greek Rebellion Bonds rose and fell on the London Stock Exchange in tempo with military successes and failures on the battlefields. In a way this war turned out to be a financial commodity listed in the stock market — fought, partly in the interest of investors.

One of the largest financial crisis of the eighteenth century was a result of the so-called Mississippi Bubble. In 1717 the Mississippi Company, chartered in France, set out to colonise the lower Mississippi valley, establishing the city of New Orleans in process. To finance its ambitious plans, the company, which was in good connections at the court of King Louis XV, sold shares to the public and listed on the Paris Stock Exchange. John Law, the company’s director, who was also a governor of the central bank of France spread tales of the significant riches and unlimited opportunities in the Americas. French businessmen and members of the urban class fell of these promises and the Mississippi company share prices skyrocketed to almost 10 times within a month of its listing. This, almost euphoria swept almost all the street of Paris, people sold all their possessions and took loans in order to buy the Mississippi Company shares, believing they had discovered the easy way to riches. A few days later, the panic begun, some speculators realised that the share prices were totally unrealistic and unsustainable. Investors started selling these shares, as the supply of shares rose — mainly caused by everyone wanted to get out quickly — their prices declined, setting off an avalanche. In order to stabilise prices, the central bank of France — at the direction of its governor, John Law — bought up Mississippi Company shares, but could not help either, the price of Mississippi shares plummeted and then collapsed completely.

Th Mississippi Bubble was one of the history’s most spectacular financial crashes. Why I am putting this history here? because it is the Mississippi Company that was financed by the selling of shares to the public and listed in the stock exchange that partly contributed to the fall of overseas French Empire into the British hands, when this company crashed and facilitated the crisis in the France’s financial crisis, the British could still access public money via issuance of shares and borrowing money easily by issuance of bonds and at low interest rates to finance some of their oversees business enterprises and its empire. That’s how powerful joint-stock companies and stock markets have been and can be. Some of us probably have heard other seventeen century companies which were financed via joint-stock and listed on the stock markets. Companies such as London Company, Plymouth Company, the Massachusetts Company, the British East India Company or the famous Dutch joint-stock company Vereenigde Oostindische Compagne, or VOC for short that was chartered in 1602. VOC raised money from selling shares to build ships, send them to Asia, and bring back Chinese, India and Indonesian goods. It also financed military actions taken by the company ships against competitors and pirates. Eventually VOC money financed the conquest of Indonesia by the Dutch.

So, the concept and idea of stock market and what it is capable of doing to people, companies, institutions, ideologies and values as well as economies is as big and old as some of these historical moments indicates. Admittedly, for us, as individuals, institutions and government have not given this idea the necessary focus and attention that it requires. Because of our lack to embrace this idea, most of our economic institutions and not as inclusive. There are many opportunities that are being lost because we have not been able to learn to unleash the power of collective ownership through shares that are then listed in the stock exchange for tradability and liquidity. As a result of these we have an economically weak exchange, without adequate supply of securities or investors who could otherwise leverage on the existence of the stock exchange in our midst. So, what are the opportunities and what is the role of the stock exchange in the society?
Promotes capital formation: The stock exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Besides the borrowing capacity provided to an individual or firm by the banking system, in the form of credit, stock exchange is the other common form of capital raising used by companies and entrepreneurs. Thus, the stock exchange plays an important role in capital formation in the country.
Mobilises savings for investment: When people draw their savings and invest in shares (through an IPO or the issuance of new company shares of an already listed company), it usually leads to rational allocation of resources, because funds, which could have been consumed, or kept idle are mobilized and redirected to help companies finance their organizations. This may promote business activity with benefits for several economic sectors, resulting in stronger economic growth and higher productivity levels of firms.
Facilitates companies growth: Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against price volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition. Apart from acquisition mode of growth, even in organic growth, companies use the Exchange to raise capital through IPOs and listing of the same.
Increases government funds for development projects: The government can undertake projects of national importance and social value by raising funds through sale of its securities on stock exchange. At various levels the Government may decide to borrow money to finance infrastructure projects such as sewage and water treatment works or housing estates or building bridges, roads, health facilities, education facilities, etc by selling bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus lending money to the government.
Profit sharing and capital gain to Investors: Both casual and professional stock investors, as large as institutional investors or as small as an ordinary middle-class family, through dividends and stock price increases that may result in capital gains, share in the wealth of profitable businesses.
Promotes the habit of saving and investment opportunity for small servers: Stock exchange provides a place for saving to general public. Thus it creates the habit of saving and investment among the public. The funds placed at the disposal of companies are used for productive purposes. As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the stock exchange provides the opportunity for small investors to own shares of the same companies as large investors.
Corporate governance and safeguarding activities for investors: The stock exchange renders safeguarding activities for investors, which enable them to make a fair judgment of their securities. Directors of listed companies are required to disclose all material facts to their respective shareholders, thus innocent investors may be safeguard from the clever brokers.
By having a wide and varied scope of owners, companies generally tend to improve management standards and efficiency to satisfy the demands of these shareholders, and the rules for public companies imposed by the stock exchange and the capital markets regulator. Consequently, public companies tend to have better management records than privately held companies.

The use of Collective Investment Schemes for Investment of Savings

Savings is a portion of income that is not spent on consumption. It is kept to enable you to plan for your future and that of your family. You may wish to own a home and by saving for a deposit to buy the home you can then apply for a home loan and if the application is successful, you can prepare to buy a home. You may also want to save enough money to pay for your children’s school, etc.

On the other hand, investments have some of the same characteristics as savings. It is an action of preserving money for profit motives. Generally investments make it possible for you to use your money to make more money. Instead of spending your extra money, you can invest this money, either regularly or as and when you have money to invest.

In order to make savings and investments possible and part of your lifestyle, it is important that you budget for this. You should list the amounts for your savings, your investments, and your expenses out of your income and this will help you to make sure that you put money away regularly to provide for your future. One way in which you can save or invest money for your future is to put money in a Collective Investment Schemes.

And so, when contemplating to invest their savings into the securities which are listed in the stock market, private individuals should have the option — to either invest directly or to invest indirectly via the collective investment schemes, also known as mutual funds or unit trusts. For some countries such as India or Sri-Lanka, private individuals (also known as retail investors) are highly encouraged to use the services of fund/investment managers who runs and manages these collective investment schemes, instead of direct investment mainly because of the limited skills on investment matters.

What is a Collective Investment Scheme (CIS)?

CIS (also known as unit trusts or participatory interests) are investments in which many different investors put their money together or pool their money into a portfolio, and then, as indicated above, this pooled money is managed by professional investment managers. These professional investment managers invest this pooled money in different asset classes. These assets include a wide range of shares of companies listed on an exchange: shares, bonds, property and money market instruments.

The total value of the pool of invested money is split into equal portions called participatory interests or units. When you invest your money in a CIS portfolio, you buy a portion of the participatory interests in the total CIS portfolio. The assets of a CIS portfolio are held by the trustees.

The unit price or the net asset value (NAV) of the CIS depends on the market value of the underlying investments in which the pool of money is invested. This unit price rises and falls (fluctuates) according to the value of the underlying investments based on daily calculations.

What are some of the advantages of CIS over direct investment?
• they hire professional investment managers, which may potentially be able to offer better returns and more adequate risk management;
• they provide benefit from economies of scale i.e., lower transaction costs; and
• they increase the asset diversification to reduce some un-systemic risk.

What are some of the benefits of investing in CIS in listed securities:

They are affordable and easy – these collective investments are affordable as an investor can invest small amounts of money. This makes it possible for more people to easily invest in underlying assets that they normally would not be able to afford.
Diversification of risk – as collective investments may be invested in a range of underlying assets, it means that your eggs are not all in one basket. The risk associated with your investment is therefore spread amongst the different underlying assets. If any of these assets perform poorly, your total investment will not necessarily perform poorly as there are other assets that may have done very well.The more diversified your capital, the lower the capital risk.This investment principle is often referred to as spreading risk.
Good returns — the longer you leave your money invested, the greater the opportunity for your investment to grow. An investment in a CIS in securities can be repurchased at any time, however, it is advisable that you invest the money for at least 3 – 5 years. The reason for this is that the value of the units of a CIS in securities can go up or down. If invested for a longer period of time, one can expect to see the benefit of the long-term growth.
Professional investment management — an investment manager manages your investments for a fee; one must confirm if such an investment manager is licensed with the regulator as a financial services provider.
Your money is accessible — CIS in securities are easy to sell which means that you can sell all or part of your investment at any time. However, it is recommended that you invest your money for at least 3 to 5 years so that your investment can grow.
Different investment options — CIS in securities offer flexible investment options: (i) lump sum investments – these can be made at any time once you have opened your collective investment account; (ii) debit order investments – you can make regular payments, e.g. monthly, into your account; and (iii) switching – you can switch between different portfolios.
Reduced dealing costs – If one investor had to buy a large number of direct investments, the amount this person would be able to invest in each holding is likely to be small. Transactions costs are normally based on the number and size of each transaction, therefore the overall transaction costs would take a large chunk out of the capital (affecting future profits).

What informs the choice of where to invest?

It is important that, before you select a portfolio in which to invest, you first understand what you are investing in, and that you carefully consider the amount you commit to invest. A registered financial advisor should assess the amount of risk that you are prepared to take and advise you accordingly. Factors such as your age, health, income, alternative liquid assets, financial knowledge, appetite to risk, whether or not you have dependents and what your investment goals are will all influence the choice of investment.

What are the major types of CIS in securities?

There are two types of CIS in securities:
Open-ended CIS: this is equitably divided into shares which vary in price in direct proportion to the variation in value of the fund’s NAV. Each time money is invested, new units are created to match the prevailing share price and each time shares are redeemed, the assets sold to enable redemption matches the prevailing share price. In this way there is no supply or demand created for units and they remain a direct reflection of the underlying assets.

Closed-end CIS: this is organised as a publicly traded investment company that issues a limited number of shares (or units) for a fixed amount of capital through an Initial Public Offering (IPO) or through private placement. If shares are issued through an IPO, they are then traded like a stock on a stock exchange. If demand for the shares is high, they may trade at a premium to NAV. If demand is low they may trade at a discount to net asset value. Further share (or unit) offerings may be made by the vehicle if demand is high although this may affect the share price.

What is our Local Experience?

We have a few registered fund managers, regulated by both the Capital Markets Regulator (or CMSA) and the pension sector regulator (or SSRA). The most visible CIS manager has been the UTT-AMIS, that manages five open-ended CIS schemes.

We also have some forms of closed-end CIS —TCCIA Investment Company and National Investment Company Limited (NICOL) are some of the examples. How do these work? Closed end funds can be via private placement or via the IPO. TCCIA Investment did via private placement while NICOL did the a combination of both private placement and IPO; it got listed in the stock exchange and later was delisted from the stock exchange because of governance issues.

The Role of Capital Markets in Financing Development

Earlier this year, the Dar es Salaam Stock Exchange was admitted as an affiliate member of the World Federation of Exchanges (WFE), the global body of exchanges, clearing houses and depositories that advocate for their cause, which includes championing, educating and working with country and global policy makers and regulators to ensure regulatory initiatives are well thought out and contribute to orderly, fair and transparent markets across the world. Last week the WFE held its annual assembly and general meeting in the city of Cartagena in Colombia, for which I had an opportunity to attend, interact and share our cause — this being a matter of necessity in our competitive world where global capital is sought after by almost everybody in order to finance their local development projects and enterprises. And, obviously, for a meeting of such a global body, with some member exchanges making significant use of capital markets and having thousands of listed companies within their market infrastructure and billions of US$ in market capitalisation as well as several decades of existence; the agenda for such a conference would normally vary from issues that matters to small and emerging markets, like mechanisms for enhancing of market liquidity to complicated topics that are far fetching for our imagination, given the level and pace of our market development, ideas such as black pools  or blockchains or Distributed Ledger Technologies, or roles of central counters parties (CCPs) in clearing and settlement of OTC and derivative instruments, etc — these are challenging ideas to digest and therefore it made me think of how long our journey still is. However, I am also mindful of what we have achieved in these closer to two decades since the start of our capital markets journey. So, what have we achieved? and what is the potential of capital markets development for our economy? I will explain:

Since the enactment of the Capital Markets and Securities (CMS) Act, Cap. 79 of 1994 and the establishment of the Capital Markets and Securities Authority (CMSA) in 1996 there has been several development in the Capital markets space in our country; notably: the incorporation and operationalisation of the Dar es Salaam Stock Exchange; Introduction of Collective Investment Schemes; Privatisation and Listing of some state owned entities; Listing and trading of Government Bonds at the Exchange; Listing of 25 equity issued companies and 15 corporate bonds in the Exchange; growth of capital markets contribution to the Gross Domestic Product (GDP), to about 25 percent (at the current market capitalisation of about TZS 22 trillion); increase of number of Tanzanian investing through the Exchange to about 460,000; demutualisation of the DSE to make it more effective in responding to markets needs and competition, etc.

Despite the milestones achieved, the potential for capital market’s contribution to the economic growth and social economic development could be better. So, if it could be better, what would it mean? what is the role of the capital market in an open, liberal and democratised economy?

Existence and actually a growing capital market offers a variety of financial instruments that can enable economic agents with the country to raise efficiently priced capital and manage financial risks. Additionally, through assets with attractive yields, liquidity and risk characteristics, the capital market has the potential of encouraging savings in the long term financial form. Capital markets as an integral part of the financial markets plays a pivotal role, essential for government and other institutions in need of long term funds. Government uses the capital market for infrastructure development and private enterprises uses the market for business growth and development.

Taking into account its role in the market economy, the capital markets occupies an important place, through their specific mechanisms, capital markets can efficiently succeed to give its contribution to the economic development of the society. The importance of the capital markets in more significant in the case of emerging markets, like ours (even though we are yet there), being well-known for their contribution in reorienting financial resources to efficient activities, contributing to the economic reform, but also it supports in the privatization process of state-owned entities and also in implementing other economic empowerment and enterprises transparent-based policies. So far, we have only seven privatisation through the Exchange, but the upward potential is large, if we become more sensitive to the role of the capital market in the whole privatisation process.

Economic growth in a modern economy hinges on an efficient and effective financial sector that pools domestic savings and mobilizes capital for productive projects. Absence of effective capital market leaves most productive projects which carry developmental agenda unexploited. That way, Capital market connects the monetary sector with the real sector and therefore facilitates growth in the real sector and economic development. The fundamental channels through which capital market is connected to the economy, economic growth and development is as follows:

The contact between economic agents with deficit of money and the ones with monetary surplus can take place in a direct way (direct financing), but also by the means of any financial intermediation form (indirect financing), situation in which specific operators realize the connection between the real economy and the financial market. In this case, the financial intermediaries could be banks, investment funds, pension funds, insurance companies or other non-bank financial institutions.

Furthermore, Capital market increases the proportion of long-term savings (pensions, life insurance, collective investment scheme funds, etc.) that is channeled to long-term investment. Capital market enables contractual savings industry (pension and provident funds, insurance companies, health insurance schemes, collective investment schemes, etc.) to mobilize long-term savings from small individual household and channel them into long-term investments. Capital markets fulfills the transfer function of current purchasing power, in monetary form, from surplus sectors to deficit sectors, in exchange for reimbursing a greater purchasing power in future. In this way, capital market enables corporations to raise capital/funds to finance their investment in real assets.

The implication of capital markets activities in an economy will be an increase in productivity within the economy leading to more employment, increase in aggregate consumption and hence growth and development. It also helps in diffusing stresses on the banking system by matching long-term investments with long-term capital. The existence of the capital market in an economy encourages broader ownership of productive assets by small savers. It enables them to benefit from economic growth and wealth distribution, and provides avenues for investment opportunities that encourage a thrift culture critical in increasing domestic savings and investment ratios that are essential for rapid industrialization.

Additionally, the capital market mechanism allows not only an efficient allocation of the financial resources available at a certain moment in an economy – from the market’s point of view – but also permits to allot funds according the return and the risk – from the investor’s point of view – offering a large variety of financial instruments with different profitableness-risk characteristics, suitable for saving or risk covering.

The capital market allows risk dispersion between investors (for the diversifiable risk), the risk, that could be realized by the help of different operations, market orders or derivatives, makes the capital markets as a proper mechanism for risk diversification.

Capital market also provides equity capital and infrastructure development capital that has strong socio-economic benefits through development of roads, water and sewer systems, housing, energy, telecommunications, public transport, etc. These projects are ideal for financing through capital market via long dated bonds and asset backed securities. Infrastructure development is a necessary condition for long-term sustainable growth and development. In addition, capital market increases the efficiency of capital allocation by ensuring that only projects which are deemed profitable and hence successful attract funds. This, in turn, improve competitiveness of domestic industries and enhance ability of domestic industries to compete globally, given the current momentum towards global integration. The result is an increase in domestic productivity which then spill over into an increase in exports and, therefore, economic growth and development.

Moreover, capital market promotes public-private sector partnerships by encouraging participation of private sector in productive investments. The need to shift economic development from public to private sector to enhance economic productivity has become inevitable. Capital markets, therefore, assists the public sector to close the financial resource scarcity gap, and complement its effort in financing essential socio-economic development, through raising long-term project based capital. It also attracts foreign portfolio investors who are critical in supplementing the domestic savings levels. The capital markets facilitates inflows of foreign financial resources into the domestic economy.

The role of capital markets is vital for inclusive growth in terms of wealth distribution and making capital safer for investors. Capital markets creates greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite.

Therefore, in the overall, existence of the capital market in the country creates a sustainable low-cost distribution mechanism for multiple financial products and services across the country. It enhances efficient financial intermediation. It increases mobilization of savings and therefore improves efficiency and volume of investments, economic growth and development.