Private sector players have since time immemorial bemoaned limitations IN accessing finance for either seed capital or business boost.
Be that as it may, commercial banks continue to enjoy huge returns from growing loan portfolios, a testament that the market is thriving.
However, one market where businesses could easily raise long-term finance is the Malawi Stock Exchange (MSE).
The MSE has equity and debt platforms.
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Through equity, financing is done by way of a company selling shares to investors, making them part owners of the business. Equity finance can be accessed from individual private investors or venture capitalists.
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The MSE has some 16 companies listed on the equity platform.
The debt platform is where companies looking for funds borrow for a given period of time by issuance of bonds.
Surprisingly, the debt platform on the MSE has only been utilised by the government, if not for the one time MyBucks Banking Corporation (now Centenary Bank) issued a bond in 2021.
For example, the government securities had a nominal value of K2.33 trillion as of June 30 2023.
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MSE Chief Operating Officer Keline Kondowe said by nature, governments will mostly dominate the bond market due their large demand for financing.
She added that Malawi’s private sector has a significantly small presence when compared to counterparts in the region.
“There are a lot of factors that have contributed to this scenario, including the practical knowledge gap on how to access capital markets, to issues of duration taken when accessing the market. There is also an aspect of the private sector having to compete with the government on yields being provided especially when operating in a tight monetary policy environment.
“However, we believe there is a place for the private sector in the bond market. It is well known that for businesses to succeed they need access to patient and affordable capital which is what they will precisely get in the capital markets. There are a lot of benefits tied to public debt raising including profiling of the entity, competitive yields, long tenors and hedging against foreign currency risks when compared to foreign borrowing,” Kondowe said.
She said the government’s presence on the platform is sending the right signal to the private sector and other institutions to look to domestic market for financing.
Financial market analyst Bond Mtembedzeka said absence of private sector players on the platform is largely because companies perform better and do not need such huge finances as could be raised on the market.
“Mostly their (private companies) cashflows are also better and if there is need for cash it’s convenient for them to go to commercial banks and negotiate debt as opposed to the hustle of approaching MSE and fulfilling all the requirements and then list the debt,” Mtembedzeka said.
Another analyst Kondwani Makwakwa reiterated that lack of knowledge among the private sector is stifling their participation on the market platform.
“There is a need for more knowledge and proper education in this area. Companies need to know that bond financing is often less expensive than equity and does not entail giving up any control of the company. There is a need for more awareness in this area to make private companies participate in the bond market as opposed to short borrowing,” Makwakwa said.
The MSE’s debt platform was introduced in 2010 after considering the possibility that some entities might not be willing to bring in shareholders in their companies.
Accessing the debt market could possibly protect companies from concentration risk, making them vulnerable to changes in lending policies or economic conditions that come with relying solely on commercial banks for funding.
The platform also allows businesses to tap into a broader investor base, including institutional investors, pension funds, and retail investors, who may have a different risk appetite and time horizon compared to traditional bank lenders.
