Concessional loans for SME sector

The Central Bank (CB) launched a new concessional credit scheme Saubagya for the Small and Medium Enterprise (SME) sector last week. Under the scheme SMEs can obtain credit up to Rs.20 million from any registered commercial bank or registered specialised bank at 9 percent and 10 percent interest.

The SMEs affected by the conflict, economic downturn or a natural disaster can obtain a maximum Rs.20 million credit at 9 percent interest to restore the business. SMEs can obtain credit up to Rs.500,000 at 10 percent interest for expansion activities. New ventures are also covered under this scheme.

The repayment period of the loan is five years with a maximum grace period of six months. The CB has allocated Rs.500 million for the scheme.

All income generating activities in the SME sector are eligible for consideration. SMEs affected by disaster are required to prove the nature of the disaster and its impact with evidence from the authorities and the SMEs should submit a comprehensive project report with the cash flow.

Assistant Governor of the Regional Development Department of the CB W.M.Karunarathne said that the credit scheme was launched recognising the credit needs of the sector and its importance in the country’s economy. The SME sector growth was slow over the past three decades due to the conflict in the country. The global economic crisis also affected the SME sector.

The SME sector has vast potential in employment generation, specialisation and diversification of production and use of resources. With the dawn of peace there is tremendous potential for the SME sector in the North and the East as well as in the rest of the country.

However, lack of credit is a major issue faced by the sector and SMEs in rural areas do not have access to the formal credit system, Karunarathne said.

The total value of the credit is refinanced by the CB to lending banks at 4 percent interest.

Therefore, the banks may not use their money for this scheme. The lending system has been simplified and the total amount of the fund will be disbursed among borrowers without huge administration costs. Collateral on the loans will be decided on by the bank. The bank loan will cover 85 percent of the project cost and the entrepreneur will have to invest 15 percent.

CB Governor Ajith Nivard Cabraal said that the CB will provide Rs.27.8 billion for 12 special loan schemes over the next three years targeting the SME sector, agriculture, livestock development and self-employment creation for students who have passed out from vocational training institutes.

GW.