Government to ease SMEs’ credit snags

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  • Scheme to be launched by 4Q21
  • Alleviates collateral burden for rural businesses
  • ADB agrees to provide $ 100 m in capital

The Government is set to begin issuing credit guaranteed funds for Small and Medium Scale Enterprises (SMEs) in the country before the end of this year, with the proposed launch of a Credit Certification Scheme, a brainchild of Budget 2021.

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 Treasury Secretary S.R. Attygalle stated that the purpose of the credit certification scheme is to support SMEs in rural areas that face challenges in obtaining financial support from banks in Sri Lanka. 

“Banks ask for collateral, which is an issue for SMEs, hence with this new scheme of the guaranteed fund, a percentage of the total loan will be a guarantee to banks when SMEs seek financial support,” Attygalle explained. 

He also noted that the credit certification scheme will include relevant Government officials, as well as all financial institutes (banks) in Sri Lanka that will contribute in supporting SMEs in rural areas by providing required financial assistance. 

According to Attygalle, relevant ministries are currently working on the initial capital; however, the Asian Development Bank (ADB) has already agreed to support the initiative by providing $ 100 million in capital to Sri Lanka. 

“Hopefully, we plan to commence this initiative by the fourth quarter of 2021 (4Q21), however, with the prevailing Covid-19 pandemic the preparation might get delayed to early next year, 2022,” Attygalle added. 

Attempts to contact the Central Bank of Sri Lanka (CBSL) proved futile. Meanwhile, the Monetary Board of the Central Bank recently implemented a priority sector lending target on credit granted to support individuals and businesses in the micro, small, and medium enterprises (MSME) sector.

Accordingly, the Central Bank advised licensed banks to increase their loans to small businesses by a minimum of 20% in 2021, as it is not satisfied with the pace of growth in loans given to the private sector, specifically to certain priority sectors.

Speaking to us in April, Central Bank Deputy Governor T.M.J.Y.P. Fernando said that this initiative was taken to facilitate the growth of the economy by encouraging the MSME sector to increase its production capacity.

“The Government has targeted a production-led economy in order to achieve the growth, hence the CBSL is now having an accommodative policy. The expectations are high but with this, MSMEs will be given priority with extra attention,” Fernando added. 

SMEs are considered the backbone of the Sri Lankan economy, as they provide 45% of total employment and comprise 75% of the total enterprises in the country. Sri Lanka has more than half a million SMEs.

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