LCCI, NASD rally SMEs on capital market funding

The Lagos Chamber of Commerce and Industry (LCCI) and NASD Plc are actively rallying Small and Medium Enterprises (SMEs) towards capital market funding, presenting a crucial alternative to traditional bank financing. This initiative addresses the persistent challenges SMEs face in accessing long-term capital, such as high interest rates and stringent collateral requirements. The collaboration aims to educate SMEs on the opportunities within the capital market, particularly the NASD OTC Securities Exchange, and to guide them on meeting essential requirements for attracting investment. Legal professionals must understand the evolving regulatory landscape, including the Investment and Securities Act and the Companies and Allied Matters Act, to effectively advise SMEs on corporate governance, financial transparency, and disclosure obligations necessary for successful capital market participation.

Small and Medium Enterprises (SMEs) are widely recognized as the backbone of the Nigerian economy, contributing significantly to GDP, employment, and innovation. Despite their pivotal role, a dominant challenge for these enterprises remains access to adequate and sustainable financing. Traditional bank lending in Nigeria often presents hurdles such as exorbitant interest rates, stringent collateral demands, and short repayment tenors, which are frequently misaligned with the long-term growth cycles of SMEs.

In response to this critical financing gap, the Lagos Chamber of Commerce and Industry (LCCI), in partnership with NASD Plc, has launched a concerted effort to guide SMEs towards the capital market as a viable alternative for medium- and long-term funding. This initiative, highlighted by a recent stakeholders' forum themed “Financing Growth: Propelling the Real Sector Through the Capital Market,” seeks to bridge the divide between investable capital and deserving businesses. This article will delve into the legal and regulatory framework underpinning capital market access for Nigerian SMEs, examining the requirements for attracting investment and the implications for legal practitioners advising these businesses.

The landscape for SME financing in Nigeria has historically been dominated by commercial banks, which often impose conditions that prove prohibitive for smaller enterprises. High interest rates, sometimes exceeding 20%, coupled with demands for substantial collateral, have stifled the growth potential of many SMEs. Furthermore, a lack of tailored financial products and widespread financial illiteracy among SME operators exacerbate these challenges.

Against this backdrop, the capital market offers a structured avenue for long-term financing. The NASD OTC Securities Exchange, established in 2013, serves as Nigeria's only licensed Over-The-Counter (OTC) exchange, regulated by the Securities and Exchange Commission (SEC) under the Investment and Securities Act 2007. It provides a formal platform for trading securities of public companies that are not listed on other registered exchanges in Nigeria. The LCCI, as Nigeria's pioneer and most influential business membership organization, plays a crucial role in advocating for a conducive business environment and supporting enterprise growth, making its collaboration with NASD a significant development for SMEs.

The legal framework governing capital market operations in Nigeria is primarily anchored by the Investment and Securities Act (ISA) and the rules and regulations issued by the SEC. The Companies and Allied Matters Act (CAMA) 2020 also provides the foundational corporate law, introducing significant reforms aimed at easing the burden on SMEs, such as permitting single-member companies and increasing thresholds for qualifying as a small company, thereby fostering their participation in the formal economy. Notably, the recently enacted Investment and Securities Act 2025 (ISA 2025) further modernizes this framework, enhancing capital market readiness, expanding SEC enforcement powers, and formally recognizing emerging asset classes like crowdfunding, which are crucial for startups and SMEs.

For SMEs to successfully leverage capital market funding through platforms like the NASD OTC Securities Exchange, adherence to specific legal and regulatory requirements is paramount. The NASD market offers two primary routes for securities to be traded: Admission of the Company (issuer-led listing) or Admission of Securities (investor-led introduction). All securities of unlisted public companies must be bought, sold, or transferred through a system approved by the SEC, such as the NASD OTC platform, to ensure transparency and investor protection.

Central to attracting investment is demonstrable business readiness, which extends beyond mere ambition. SMEs are increasingly required to exhibit sound corporate governance structures, proper financial record-keeping, and transparent cash flow records. While the stringent corporate governance requirements of major exchanges like Nasdaq (which include a majority of independent directors, audit committees, and codes of conduct) may not apply in their entirety to smaller, unlisted entities, the underlying principles of accountability and transparency are critical. The Companies and Allied Matters Act 2020 (CAMA 2020) has introduced provisions that, while generally aimed at optimizing corporate regulation, also provide a framework for improved governance within SMEs, such as rules around financial assistance and share capital.

Disclosure obligations are another key legal requirement. Companies admitted to trade on NASD are obligated to submit audited financial statements and disclose any material information that could affect their securities. This aligns with the broader principles of fair disclosure mandated by the SEC for public companies. The SEC, as the apex regulator, is also exploring innovative financing mechanisms for MSMEs, including crowdfunding, which the ISA 2025 formally recognizes as a viable fundraising tool, subject to SEC registration and disclosure of valuation, investor rights, and exit opportunities.

Despite these opportunities, challenges persist. Many SMEs suffer from low awareness of capital market opportunities and a lack of financial literacy. Furthermore, the informal nature of many SME operations, characterized by a lack of proper financial records and clearly defined ownership structures, makes them less attractive to institutional investors. Legal practitioners must therefore guide SMEs not only on the technical aspects of listing but also on fundamental structural and operational improvements to meet investor expectations and regulatory compliance.

The concerted efforts by LCCI and NASD to channel SME funding towards the capital market represent a pivotal shift in Nigeria's financing landscape, offering a sustainable alternative to traditional debt. For legal practitioners, this presents a growing area of advisory work. Guiding SMEs through the intricacies of capital market access requires a deep understanding of the Investment and Securities Act, the Companies and Allied Matters Act, and the specific rules and regulations of platforms like the NASD OTC Securities Exchange.

Practitioners must emphasize the critical importance of robust corporate governance, diligent financial record-keeping, and transparent disclosure practices. Advising SMEs on structuring their businesses to meet these requirements, preparing comprehensive financial statements, and navigating the admission processes will be key to unlocking long-term capital. Furthermore, staying abreast of ongoing regulatory developments, such as the provisions of the ISA 2025 and the recently passed Factoring, Assignments and Receivables Financing Bill, 2026, which aims to improve access to finance by unlocking working capital, is essential to provide holistic and forward-looking counsel to Nigerian SMEs seeking to scale through capital market funding.