AP_COM_EO_1

This article was first published in the September 2017 international edition of Accounting and Business magazine.

Sometimes, the capital market functions as a laboratory. Out of necessity, products and rules are introduced without firm evidence as to their likely impact.

It is not as if regulators can rely on clinical trials, market research or beta testing before making the changes. In some situations it is possible to forecast outcomes by using computer simulations but that hinges upon having a wealth of data, sturdy assumptions, and well-designed models.

Although the experiences of other jurisdictions can be an indicator, unique local conditions frequently lead to very different results. More often than not, it is about taking a leap of faith. And so it may well be with Bursa Malaysia’s LEAP market. If this is considered an experiment, it is certainly one worth conducting.

The LEAP (Leading Entrepreneur Accelerator Platform) market came into being in June with the issuance of listing requirements and amended rules to support the platform. The aim, says the exchange operator, is to enable SMEs to raise funds and boost visibility through the capital market.

The SME sector has a key economic role in countries all over the world. Well over 90% of Malaysian businesses are SMEs and in 2015, the sector’s contribution of value added accounted for 36.3% of national GDP.

The sector’s huge importance to growth and employment is reflected in the fact that the government declared 2017 as Startup and SME Promotion Year.

It is fitting therefore that the LEAP market was launched this year. Bursa Malaysia CEO Datuk Seri Tajuddin Atan says the move addresses the funding gap faced by SMEs. This refers to the fact that 96% of SME financing is from financial institutions, which means very few SMEs get money from the capital market.

SME Corporation Malaysia, the government’s central coordinating agency for the sector, believes that SMEs’ changing needs will require these businesses to look elsewhere for funds.

Bursa Malaysia positions the LEAP market as a complement to the main market and the ACE (Access, Certainty and Efficiency) market. The main market is for companies with a profit track record or sizeable operations, or both, while the ACE market was set up to allow smaller companies with growth potential to tap equity funding.

On paper, the ACE market should be a desirable destination for the not-ready-for-primetime businesses.

However, for many SMEs, an initial public offering is not a cost-effective option. Bursa Malaysia has found that the size of companies seeking to list on the ACE market is increasing, and that between 2012 and 2015, the average cost of raising capital on the ACE market was RM2.5m.

As Bursa Malaysia sees it, what the country needs is a platform that connects SMEs with sophisticated investors, that is, high net worth individuals and professional investors.

This is indeed an intriguing experiment. If it turns out to be a successful one, the benefits will be enjoyed nationwide.

Sometimes, the capital market functions as a laboratory. Out of necessity, products and rules are introduced without firm evidence as to their likely impact.

It is not as if regulators can rely on clinical trials, market research or beta testing before making the changes. In some situations it is possible to forecast outcomes by using computer simulations but that hinges upon having a wealth of data, sturdy assumptions, and well-designed models.

Although the experiences of other jurisdictions can be an indicator, unique local conditions frequently lead to very different results. More often than not, it is about taking a leap of faith. And so it may well be with Bursa Malaysia’s LEAP market. If this is considered an experiment, it is certainly one worth conducting.

The LEAP (Leading Entrepreneur Accelerator Platform) market came into being in June with the issuance of listing requirements and amended rules to support the platform. The aim, says the exchange operator, is to enable SMEs to raise funds and boost visibility through the capital market.

The SME sector has a key economic role in countries all over the world. Well over 90% of Malaysian businesses are SMEs and in 2015, the sector’s contribution of value added accounted for 36.3% of national GDP.

The sector’s huge importance to growth and employment is reflected in the fact that the government declared 2017 as Startup and SME Promotion Year.

It is fitting therefore that the LEAP market was launched this year. Bursa Malaysia CEO Datuk Seri Tajuddin Atan says the move addresses the funding gap faced by SMEs. This refers to the fact that 96% of SME financing is from financial institutions, which means very few SMEs get money from the capital market.

SME Corporation Malaysia, the government’s central coordinating agency for the sector, believes that SMEs’ changing needs will require these businesses to look elsewhere for funds.

Bursa Malaysia positions the LEAP market as a complement to the main market and the ACE (Access, Certainty and Efficiency) market. The main market is for companies with a profit track record or sizeable operations, or both, while the ACE market was set up to allow smaller companies with growth potential to tap equity funding.

On paper, the ACE market should be a desirable destination for the not-ready-for-primetime businesses.

However, for many SMEs, an initial public offering is not a cost-effective option. Bursa Malaysia has found that the size of companies seeking to list on the ACE market is increasing, and that between 2012 and 2015, the average cost of raising capital on the ACE market was RM2.5m.

As Bursa Malaysia sees it, what the country needs is a platform that connects SMEs with sophisticated investors, that is, high net worth individuals and professional investors.

This is indeed an intriguing experiment. If it turns out to be a successful one, the benefits will be enjoyed nationwide.

Errol Oh is executive editor of The Star