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| Sunday, 24 February 2002 |
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| News Business Features Editorial
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ADB strengthens Small and Medium Enterprises The Asian Development Bank (ADB) will provide a financial package amounting to US$ 176 million (over Rs 16 billion) to the Government of Sri Lanka to strengthen the Small and Medium Scale Enterprises in Sri Lanka. The agreement was signed last week by Treasury Secretary Charitha Ratwatte and ADB Country Director John Cooney. The total package amounting to US$ 176 million consists of loans worth US$ 86 million and a partial credit guarantee of US$ 90 million to support commercial co-financing. The Small and Medium Enterprise (SME) sector development programme will enhance the business environment, strengthen business capabilities and improve access to finance. The programme will use information technology to improve access to markets and technology and thereby enable banks to reduce lending costs. The integrated strategy of the programme is to introduce policy reforms and capacity building, said the ADB Country Director. Principal Economist of ADB Jaseem Ahamed, who prepared the project, said SMEs create jobs and help reduce poverty. Therefore, it is necessary to support them. He said that the government and banks are realising that SMEs do not need subsidies. " Give them the support, but not protective policies, a regulatory environment, and they will take the lead," said Mr Ahamed. According to the ADB, the government sees private sector development as the main avenue for achieving sustainable growth and reaching the target of seven to eight per cent growth by 2010. In the first phase, the ADB will provide a US$ 20 million loan to support reforms. It will cover administrative costs of institutional changes as well as establishing and operating the SME Task Force, operational costs of a deregulation committee and losses in revenue from tax and tariff reforms. Half of the first stage funds amounting to US$ 10 million will be released soon, he said. The second stage will see a US$ 6 million investment loan for the consulting contracts and procurement associated with the Business Services Support facility. A US$ 60 million investment loan will be given in the third stage to the five participating credit institutions - National Development Bank, DFCC Bank, Hatton National Bank, Commercial Bank and Sampath Bank to finance SMEs on commercial terms. He said that banks will be permitted to raise funds in the capital markets in the future for funding SME activities. Speaking of interest rates, Mr Ahamed said that banks will be given the option to decide the interest rate, based on the average weighted deposit rate. The partial credit guarantee of US$ 90 million available under the agreement will enable participating banks to access additional funding from commercial co-financiers for lending to SMEs. The agreement will also facilitate a technical grant of US$ 1.25 million to establish an SME Baseline Survey, prepare deregulation studies, prepare a framework for secured transactions and promote the use of information technology by SMEs. This will be funded by the Japan Special Fund. The executing agencies for the programme are the Ministry of Finance and the Ministry of Enterprise Development, Industrial Policy and Investment Promotion. |
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