Sri Lanka to integrate SMEs into formal sector to facilitate their growth : Fin Min

Oct 09, 2018 (LBO) – Sri Lanka’s Minister of Finance said the government aims to integrate small and medium scale enterprises into an official sector and establish hard and soft infrastructure frameworks to facilitate their growth.

“Every country in the world has identified the importance of SMEs in their economies as a practical instrument in achieving sustainable economic growth,” he said.

Access to finance is a striking obstacle faced by SMEs, and this is no different in Sri Lanka and the rest of our region.

He says that with regard to SMEs, the Sri Lankan government’s intention is to integrate SMEs into the formal sector and also to establish hard and soft infrastructure frameworks to facilitate their growth.

“Measures are being taken to improve access to credit, access to markets, and encourage integration of value chains connecting SMEs and large firms.”

The Minister was speaking at the Asia-Pacific Rural and Agricultural Credit Association meeting held in Colombo on Monday.

In Sri Lanka, the majority of companies are of the SME category and contributes the bulk of employment as well.

However, the SMEs persistently face difficulties in setting-up and running businesses. In fact, in most surveys done around the world, access to finance is a striking obstacle faced by SMEs, and this is no different in Sri Lanka and the rest of our region, he said.

“We will encourage project-based lending rather than collateral based lending, rationalize upfront taxes that hinder expansion, and encourage knowledge sharing between R & D institutions and SMEs,” the Minister added.

“Towards this end, as part of Vision 2025 policy document, our government has identified the importance of the SME sector and initiated the ‘Enterprise Sri Lanka’ scheme to address some of these obstacles and minimize the SME finance gap in Sri Lanka.”

He said that some of the issues targeted by the program would be to make market interest rates more affordable by subsidizing interest payments and addressing the pervasive issue of, lack of collateral.

According to the Minister, the youth unemployment is addressed partly by enabling young graduate’s to start-up companies, through access to interest free loans.

There are several subsidized loans for the agricultural sector, at various points of the value chain, in an effort to improve productivity and value addition in that sector.

Other targeted investments are – technology, funded through Enterprise Sri Lanka, which would enable SMEs to be more competitive in their industries.

Inclusivity is a priority in this program. The scheme promotes inclusivity of, often disadvantaged groups of society. For example; preferential interest rates are given for enterprises headed by women and those who are differently abled.

Enterprise Sri Lanka also promotes investments in good business practices through specific incentives provided.

Investments in solar power for SMEs signify a transfer to a reliable and sustainable source of power for SMEs. Concessionary loans are provided to invest in public transport to ease road congestion and reduce negative externalities.

The Minister noted that up to now, nearly 20,000 have applied to the participating banks for these loans since its inception and the government anticipates further growth in these figures.

Through these schemes and associated multiplier effects, the government expects that one million new jobs will be added to the economy.

The Minister said the government also should focus on encouraging responsible lending practices as much as access to finance is promoted through government programs.

The proliferation of unethical lending in microfinance, in particular, led to a crisis situation in some parts of the country. To address this, the government of Sri Lanka has written-off micro-finance debts of more than 45,000 women that amounted to more than Rs. 1.25 Billion.

“It is essential that steps are taken to prevent such irresponsible lending recurring in the future,” he said.

Towards this end, the government is drafting new measures for the microfinance sector, stipulating industry standards in protecting borrowers from exorbitant and unnecessary charges and other malpractices commonly seen in the industry.