The Asian
Development Bank (ADB) said it would review a proposal in February to invest
US$ 100 million in a credit guarantee company serving small and medium-sized
enterprises (SMEs). A conference to discuss the management will take place on
24 February. The final step before a proposal submitted to the ADB board for
approval is a Management Review meeting.
After sending a
report to the cabinet in 2016, the Manila-based lender approved the definition
in February 2017. The ADB then embarked on a fact-finding mission to support
the creation of the new non-bank finance firm. SMEs account for 52 percent of
Sri Lanka's gross domestic product but have difficulty accessing finance to
grow their businesses due to a highly conservative and risk-averse banking
sector.
The ADB said the
Sri Lankan government had launched various credit guarantee schemes for SMEs in
the past, but none had succeeded due to slow processing of claims, limited
coverage of the guarantee, and high premiums.
"The new
guarantee institution should be well-funded, controlled efficiently,
financially sustainable, free from political influence, run at the highest
level of corporate governance, and subject to central bank regulation and
supervision," ADB said.
The regional
lender has already provided a credit line of US$ 175 million to support SMEs in
Sri Lanka, with a particular focus on empowering women-owned businesses. The
original loan facility of US$ 100 million approved in the latter part of 2016 was
fully expended over two and half years to over 1,700 MSMEs with exceeding
targets of its first-time borrowers and women borrowers.
Considering the
importance of economic development and job creation in Sri Lanka, the ADB had
approved an additional US$ 75 million financings for the MSME line of credit
project to increase the available loans for ten participating banks to US$ 175
million by 2020, from the original loan figure of US$ 100 million approved in
February 2016.
According to
reports, the program has included a US$ 2 million technical assistance grant
project supported by the Japan Fund for Poverty Reduction to educate the MSMEs
on ethical business practices. “I urge banks to reach out and realize MSMEs
without creating market distortion, ADB’s projects structured to be
behaviourally-driven models that provide enticements and penalties to banks,”
Hoshino has said.
According to
him, the program had targeted 5% of the lending to women-led MSMEs initially,
which had expanded the target to 20% by October 2018, and funding had disbursed
to 27.6% to MSMEs led by women.
The government
of Sri Lanka is engaged in a massive island-wide development drive to take the
country to the next level in development. Sri Lanka’s development program is
being carried out in all parts of the country and covers all vital economic
sectors. This project has stemmed from the opening up of many
business/investment opportunities for foreign businesses/investors.
OSL Take: The
Asian Development Bank’s commitment towards helping the upliftment of MSMEs in
Sri Lanka is an encouraging sign for foreign businesses/investors interested in
forming joint ventures with local businesses. Sri Lanka’s economy is on an expansion
path, and the government’s development agenda together has created many
business/investment opportunities in the country.
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