SMEs play critical role in country's economy

by Surekha GALAGODA

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Small and Medium Enterprises (SMEs) play a critical role in a country's economy, be it job creation, entrepreneurship or income generation.

They make up more than 80 per cent of all businesses, account for about 35 per cent of employment and about 20 per cent of total industrial value addition. Most importantly SMEs have been the backbone of economic growth in most countries.

Finances were a hindrance in developing SMEs in Sri Lanka in the past as they could not furnish the collateral but with commercial banks taking measures to provide loans, taking into consideration the cash flows of the SMEs and with lesser collateral, it was solved in most instances.

As Sri Lanka has been classified as a Middle Income earning country, our country won't be eligible for any concessionary lending under refinance schemes like in the past.

Therefore, banks will have to borrow at market rates, said Assistant General Manager, Commercial Credit and Development Banking, Sampath Bank, Upul Karunaratna.

The only concession the banks might get under future refinance schemes, is a longer repayment period, but the funds will be given at market rates. The bank is a partner to the credit line SMERDP (Small and Medium Enterprise Regional Development Project) offered by the Asian Development Bank (ADB).

It was launched in April this year and is aimed at accelerating the development of SMEs outside the Western Province by improving their access to credit and business development services.

Under this scheme Start up SMEs and SMEs undertaking expansion or modernisation, provided their annual turnover does not exceed Rs 300 Million or their fixed assets do not exceed Rs 100 Million (excluding Land and Building) are eligible to access long term loan facilities at rates lower than the market rates.

Apart from the SMERDP credit line, the Bank participates in the following credit line under which loans are granted to SMEs at concessionary rates. SMILE 11 Revolving Fund to finance the small and micro industries and service sector projects islandwide.

SPREAP (Southern Province Rural Economic Advancement Project) - To assist micro businesses of the Southern Province.

In addition to this scheme the bank caters to the requirements of SME customers whether there are any other specific schemes available or not. He said that the bank believes in individual solutions as the needs are different. Therefore, at any time the bank is prepared to tailor-make the loan according to the customer's requests and it will be handled by the branch network.

The bank also has an exclusive department to handle SME customers at the Head Office.

Sampath Bank is opening branches in the outstations to provide a quick and easy service to its customers while provision has been made to carry out any type of transaction from the outstation branches including processing of loans. The bank has developed a computer based loan approval system and the entire branch network of Sampath Bank can use this system to send the credit papers to the head office. Therefore, decision making is much quicker said Karunaratna. The bank has already opened seven branches this year, all in outstation areas and is planning to open a few more branches before the end of the year.

Inflation has affected everybody's purchasing power and when the purchasing power drops the demand for products reduces. In addition when inflation increases the interest rates increase resulting in borrowings being affected which in turn affects profitability. According to the Department of Census and Statistics inflation is dropping and if this trend continues then it will help the SMEs.

The bank accommodates customers' requests in all sectors and SMEs engaged in export and import activities ask for foreign exchange while the others don't.

At times SMEs have requested for restructuring of their loans and we have accommodated them by restructuring the loan to suit the customer's cash flow, .

Karunaratna said that they will continue to help the SMEs adding that some of the SMEs who started with the bank in the late 1980's have expanded globally and are now corporates which makes us feel proud of them.