WB support for SME sector

US $ 57.4 million worth project:

Eight financial institutions have been selected to participate in a US$57.4 million World Bank project that supports the Sri Lanka Government’s efforts to improve access to finance for Small and Medium Enterprises (SMEs) affected by the global financial crisis.

Diarietou Gaye

“The SME sector is expected to be one of the key elements in economic development in Sri Lanka. Strengthening institutional capacity, applying more modern lending technologies, modernizing risk management procedures and creating an enabling environment to generate more employment opportunities for inclusive growth constitute this IDA lending operation, which became effective in January 2011,” World Bank Country Director for Sri Lanka and the Maldives, Diarietou Gaye said. Finance and Planning Ministry is responsible for the implementation of this project.

In December 2010, the Finance and Planning Ministry launched a nationwide competitive process to select the participating financial institutions to the two facilities provided under the Small and Medium Enterprise Development Facility Project. The selection process was completed on schedule and the participating financial institutions were announced recently.

Effective since January 2011, the project provides two facilities: a line of credit to participating state and private commercial banks to refinance SME loans; and a risk sharing facility administered by the Sri Lanka Insurance Company providing partial credit guarantees to reduce the bank’s risk of lending to SME borrowers. Seven banks have been elected to participate in the Line of Credit facility and one bank to participate in both facilities.

Under both facilities, participating financial institutions will be required to implement a technical assistance program to strengthen their SME banking capability over time and to provide capacity building to SMEs. The Government plans to enter into agreements with the selected banks by the end of February. The banks will be able to access the line of credit for eligible SME loans approved starting from the date of these agreements.

However, since the success of the facilities will depend on the application of modern SME lending technologies, the banks will also be required to enter into individual technical cooperation agreements with the Government to agree on a technical assistance program co-funded by the Project.

The Finance and Planning Ministry is currently conducting a diagnostic of the capacity building program proposed by each participating financial institution.