SMEs, crucial for job creation

By Gamini Warushamana

SMEs are crucial for the creation of jobs, reduce the level of poverty and increase shared prosperity, Senior SME banking advisory service specialist, International Finance Corporation (IFC), Andrew McCartney told the SME forum organised by Ceylon Chamber of Commerce (CCC) last week.

Globally the environment has improved for SMEs, but with a $1 trillion credit gap, access to finance remains a key constraint for growth. The IFC's work with the G20 identified a number of areas that policy makers need to consider in further supporting SMEs.

The recommendations have also driven IFC's own strategy to support the financing of 10 million SMEs by 2020, he said.

McCartney said that SMEs in Sri Lanka represent over 50 percent of GDP, but access to finance remains a constraint. The IFC strategy for Sri Lanka focuses on addressing key areas, including: informality, gender and FI (Financial Institution) outreach issues with a focus on post-terrorism and lagging regions and targeting specific growth sectors such as agriculture and tourism.

Today, there is a high level of informality in the sector and only 2% SMEs operate as legal entities.

This is a key constraint to growth in certain sectors such as tourism. IFC supports financial institutions to launch programs targeting informal entities and supports simplification of registration and reporting processes.

In Sri Lanka, women are in low growth occupations and labour force participation has been low during the past three decades, but comparatively, the level of participation is higher in rural areas.

The unemployment rate for women is double that of men.

"Our strategy to address gender issues include supporting banks with investments and advisory packages to reach women, develop gender focused Micro, Small and Medium Enterprises (MSME programs), leverage innovative financing models and partner women organisations," he said.

In financial outreach, 64 percent of MSMEs in Sri Lanka do not have current and savings accounts. The IFC encourages financial institutions to launch lending products for MSMEs and introduce weather index, insurance products and mobile banking facilities.

"We need to penetrate the lower end of the financial spectrum. FIs lack focus, liquidity and appropriate tools to lend to SMEs. The IFC as a market leader in SME financing space has the investment and advisory products and services necessary to further support SME growth in Sri Lanka," McCartney said.