Small and Medium Enterprises (SMEs) are significant stakeholders in India’s economic development. Their contribution amounts to about one-fifth of the GDP, and they also count among the top three employment generators in the country. The Securities and Exchange Board of India (SEBI), after a careful examination of the topic about reviving the SME segment, identified the following concerns –

1. The cost of raising capital for SMEs was high.
2. The existing means of financing were not adequate. SMEs did not have easy access to funds from VCs/PE players.
3. The existing compliance costs associated with raising funds were high.

In view of the above observations, it was decided that the eligibility conditions, listing requirements, corporate governance norms and disclosure standards should be suitably relaxed owing to the small sizes and low affordability of the SMEs. The need for a separate dedicated stock exchange for SMEs was therefore strongly felt. In November 2009, SEBI had announced the draft norms, and yesterday (May 19, 2010) it released guidelines for trading on the SME platform after incorporating changes based on opinions voiced by market participants and industry representatives. A post-issue upper limit of Rs. 25 crores capital at face value has been fixed for firms that intend to list in the segment. The disclosure norms have also been relaxed. The firms that intend to list in the segment will not be required to report financial numbers every quarter or even release complete annual reports. However, a statement containing the salient features of all the documents will be required, and periodical financial results may be submitted half-yearly instead of quarterly. The SEBI has the advantage of learning from the experiences of other SME platforms around the world, viz. the Alternative Investment Market (AIM) in London, the Growth Enterprises Market (GEM) in Hong Kong, and MOTHERS in Japan. The setting up of a new SME platform is a positive step, and clearly the expectations are that the SME segment in India should become more competitive.