Strong, robust and focused institutional infrastructure is important to create the overall environment for making credit enhancement and credit supplementation initiatives for SME sector more effective in Sri Lanka, Central Bank governor Dr. Indrajit Coomaraswamy said.
In any economy, Dr. Coomaraswamy said it is the small and medium enterprise sector that nurtures inclusive social and economic growth. In addition, the SME sector generates employment, reduces inequality and poverty, and promotes entrepreneurship and innovation. Further, SME contributes significantly to balance the regional development as well.
“Credit supplementation initiatives are extremely important, as their impact can be only be maximized if overall environment for SME development is conducive. Hence, it is important to have a holistic approach thereby facilitating initiatives relating to training and marketing , access and technology and finance in order to maximise the benefits of credit supplementation initiatives,” Dr. Coomaraswamy told the inauguration of 32nd Annual Conference of Asian Credit Supplementation Institutions Confederation held in Colombo yesterday. The event will be held during October 28 to 30, 2019 in Colombo, under the theme, ‘Credit Supplementation: Towards Sustainable Development’. And the event will see the participation of around 110 participants including 50 foreign delegates.
“In my view, the most intractable problem is marketing; if marketing channels are cleared, even access to finance and everything else become much easier. In Sri Lanka, we’ve had numerous SME development programs, but we tend to focus on the production functions and not pay enough attention to marketing,” he said.
Speaking further about the institutional architecture for supporting SME development, he said Sri Lanka has a plethora of institutions trying to assist SME development, however, he pointed out that there are many challenges in terms of coordination and cooperation.
Furthermore, he stressed the need to rationalize institutional structure to support SME development and to ensure there is strong cooperation and coordination across these institutions. According to the Ministry of Industry and Commerce in Sri Lanka, the SME sector accounts for more than 75% of total number of enterprises in the country and provides 45 % of the employment and contributes to 52% of GDP.
According to the latest published information, SME sector comprises one million establishments and around 2.3 million personnel are engaged in working in this sector. Recognising the importance of this sector for social and economic well being, various initiatives have been introduced by successive Sri Lankan governments and non government organizations to strengthen the SME sector, he noted.
He said further that there are several constraints faced by SME with regard to access to finance and these will include high interest rates, high emphasis on collaterals by lending institutions. He emphasised that these are the most frequently cited constraints that affect SME development in the country.
Furthermore, contribution of SME financing by formal financial institutions is limited hence the private informal money lenders play a key role in SME financing, he noted. In order to address constraints faced by SME in Sri Lanka, CBSL has continued to coordinate, facilitate and implement various refinancing, interest subsidies, credit guarantee schemes. These are funded by the CBSL, the government of Sri Lanka, international donor agencies and commercial banks.
Accordingly, CBSL has disbursed loans under nine re-finance schemes and two interest subsidiary schemes.
In addition to implementing various schemes, CBSL provides a range of credit supplementary services to individuals and SMEs across the country. These comprise both credit guarantee schemes and insurance schemes. Furthermore, CBSL has taken some concrete measures to enhance the inclusive and balance nature of the economic growth while increasing the financial inclusion in the country. And these include the development of National Financial Inclusion Strategy with the technical assistance from the International Finance Corporation (IFC).
CBSL’s Regional Development Department jointly with the IFC has identified relevant government, semi government and private institutions and academia as stakeholders for the National Financial Inclusion Strategy program. The key objective of NFIS is to promote effective and efficient process to improve financial inclusion across the country.
The Governor added that a financial inclusion survey with the assistance of IFC has also been conducted to understand the overall landscape of financial inclusion levels across the country.
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