In a much-awaited move, capital market regulator Sebi has set the stage for the launch of a dedicated exchange for SMEs. Given the growing importance of the SMEs and their requirements to raise capital, the move seems to be a noble one, but the success of the proposal, if at all it materializes, will depend upon the sincere efforts of all parties, including the SMEs, investors and the intermediaries.

The Small and Medium Enterprises (SMEs) sector plays a critical role in economic development. In India, it accounts for around one-fifth of the GDP, and is the second largest employer after agriculture. Notwithstanding these, the SMEs in India are also facing a host of problems, and undoubtedly capital inadequacy tops the list. And for capital, the SMEs largely depend on the banks which, however, are not in a position to meet the growing demand for funds by the SMEs.

Realizing the growing significance of the SMEs in the Indian economy and their need for capital, the market regulator, the Securities and Exchange Board of India (Sebi) is currently making serious attempts to kick-start a dedicated stock exchange for SMEs which would lay a platform for continuous supply of capital to the SMEs. The aim of the Sebi is to develop a market so that SMEs can access capital easily, quickly and at lower costs. Such dedicated exchange is expected to provide better, focused and cost-effective services to the SME sector.

But, interestingly, this is not the first attempt to set up an exchange specifically designed to cater to the needs of a specific segment. Towards this end, the Over The Counter Exchange of India (OTCEI) was set up in the early 1990s, and the Indonext of the Bombay Stock Exchange (BSE) was launched in 2005. And in 1997, the Inter-connected Stock Exchange of India (ISE) was set up by 13 regional stock exchanges for trading specially in the securities of companies listed on these regional stock exchanges. Though all these initiatives started quite nicely, they fizzled out subsequently as the BSE and the NSE continued to hold center stage.

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