‘Bank consolidation should focus on SMEs’
The proposed consolidation of the banking and finance sector has
certain economic objectives and priorities envisaged by the regulator,
said Chairman and Managing Director, Lanka Financial Services for
Underserved Settlements and CEO, CCC Solutions, Chandula Abeywickrema.
He said that the extent of financial inclusivity in the consolidation
plan is not clear as yet. If the consolidation is to have a major impact
on the SME sector, banking and financial sector inclusivity is
Making banking and financial services available, accessible and
affordable are vital for SME sector empowerment. In an economic
ecosystem there is room for many entities to cater to various market
segments as in developed economies such as USA, Japan and Germany.
He said that though every stakeholder in the public and private
sector acknowledges the importance of SME sector development for
economic growth, serving the SMEs has been confined to rhetoric and a
topic for seminars and discussions. Creating access to finance for the
SME sector has been advocated for a long period and despite many efforts
SMEs, to a certain extent, are marginalised due to many factors. The
banking sector alone is not responsible for facilitating SME sector
financing but there are a number of stakeholders including SMEs which
should build capacity to make it a vibrant sector.
“To formulate a strategy for SME sector financing by banks, the
banking sector has to move away from collateral-based financing and
focus on cash-flow based financing and create greater access and
affordability for SMEs,” Abeywickrema said.
He said that banks face difficulties in financing SMEs due to the
stiff regulatory and compliance needs to maintain the loan book
Banks have to employ specialists in various sectors at the evaluation
and delivery points to facilitate SME financing due to the diversity of
the SME sector which comprises manufacturing, agriculture, trading and
Abeywickrema said that there are a number of public and private
sector entities that facilitate and support SMEs.
Many multilateral agencies such as the World Bank , ADB, IFC launch
programs to facilitate this sector.
“An entity should be set up to get all stakeholders including, the
regulators, the public and private sectors, banks and donor agencies to
empower SMEs. There should be pragmatic solutions than a policy per se
to boost SME development.
He said that regulations could be introduced for banks, as in India,
making it mandatory to lend to SMEs, but that will be like putting the
cart before the horse because without addressing industry
capacity-building issues, regulations alone will be ineffective.
The SME sector is the backbone of the economy. It accounts for around
80 percent of all businesses and makes a major contribution to export
earnings. SMEs are spread across many sectors of the economy, primary,
secondary and tertiary and provides employment for those of different
In the service sector, SMEs accounts for more than 90 percent of
SMEs are an essential source of employment and are estimated to
contribute about 35 percent of employment opportunities.