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Rs. 16 b to boost SME sector

A five-fold strategy at a cost of US $ 178 million (Rs 16 billion) will be put in place to revive, strengthen and boost the Small and Medium Enterprise (SME) sector in the country, Enterprise Development, Industrial Policy, Investment Promotion and Constitutional Affairs Minister Prof. G.L. Peiris said in a press release yesterday.

The Minister has successfully negotiated and secured an integrated Sector Development Program of assistance from the Asian Development Bank (ADB) for this project.

The program will focus on enhancing an enabling business environment for SME's, improving the sector's access to financial resources and developing the capacity of the country's business development sector to provide better services to SME's.

A five-fold strategy will be put in place to realise the objectives of the program. First, a USD 20 million assistance to the government to bring about reforms to improve the policy and enabling environment. Three key elements of this activity are the articulation of a clear vision relating to the SME sector, the setting up of an SME policy unit and the creation of a deregulation committee. This unit will deal with a host of financial and legal issues that impact on the SME sector.

A USD 6 million loan will be earmarked for a facility to enhance business services support. This will include the provision of management, technology and consulting in addition to other services that are utilised by SME's. This facility will play a coordinating role in sharing of resources and knowhow.

A major facet of the program will be a USD 60 million loan through the government to selected commercial and development banks which will in turn provide financing to the SME sector. The government will bear the foreign exchange risk and the loans will be made available to entrepreneurs on a commercial basis. The competition created by the infusion of these additional funds will assist in naturally limiting interest rates on credit to the SME sector.

Fourth the ADB will make a partial credit guarantee on credit obtained via international co-financing up to an extent of USD 90 million. This will further boost the lending capacity of the participating banks which include Commercial and Sampath Banks, DFCC, NDB and Hatton National Bank. A counter-guarantee will be provided by the government. ADB's policy imperative will be adhered to in obtaining co-financing.

The fifth and final facet of this program is a USD 1.5 million technical assistance grant which will support the policy and deregulation units, improve access of SME's to non-bank financing and foster the use of information technology in developing this sector which has been identified as an important part of the government's program to develop the industrial sector in Sri Lanka.

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