The proliferation of unethical lending in microfinance, in particular, has led to a crisis situation in some parts of the country. To address this, the government has written-off micro-finance debts of more than 45,000 women that amounted to more than Rs. 1.25 billion.
“It is essential that steps are taken to prevent such irresponsible lending recurring in the future,” Minister of Finance and Mass Media Mangala Samaraweera said at the Bank of Ceylon hosted policy forum of Asia Pacific Rural and Agricultural Credit Association (APRACA) inaugural ceremony in Colombo last week.
“The government is drafting new measures for the microfinance sector, stipulating industry standards in protecting borrowers from exorbitant and unnecessary charges and other malpractices commonly seen in the industry,” he said.
In the Vision 2025 policy document, the government has identified the importance of the SME sector and initiated the ‘Enterprise Sri Lanka’ scheme to address some of these obstacles and minimise the SME finance gap in Sri Lanka. Some of the issues targeted by this programme would be to make market interest rates more affordable by subsidising interest payments and addressing the pervasive issue of, lack of collateral. Youth unemployment is addressed partly by enabling young graduate’s to start-up companies, through access to interest free loans, he said.
There are several subsidised loans for the agricultural sector, at various points of the value chain, in an effort to improve productivity and value addition in that sector. Other targeted investments are - technology, funded through Enterprise Sri Lanka, which would enable SMEs to be more competitive in their industries.
Inclusivity is a priority in this program. The scheme promotes inclusivity of, often disadvantaged groups of society. For example; preferential interest rates are given for enterprises headed by women and those who are differently abled. Through specific incentives provided, Enterprise Sri Lanka promotes investments in good business practices, he said.
I am pleased to note that up to now, nearly 20,000 have applied to the participating banks for these loans since its inception and the government anticipates further growth in these figures.
Through these schemes and associated multiplier effects, the government expects that one million new jobs will be added to the economy. As much as access to finance is promoted through government programs, “I believe the government also should focus on encouraging responsible lending practices,” he said.
“Investments in solar power for SMEs signify a transfer to a reliable and sustainable source of power for SMEs. Concessionary loans are provided to invest in public transport to ease road congestion and reduce negative externalities.
“The government’s intention is to integrate SMEs into the formal sector and also to establish hard and soft infrastructure frameworks to facilitate their growth. Measures are being taken to improve access to credit, access to markets, and encourage integration of value chains connecting SMEs and large firms.
“We will encourage project-based lending rather than collateral based lending, rationalise upfront taxes that hinder expansion, and encourage knowledge sharing between R & D institutions and SMEs,” the Minister said.
Globally, SMEs represent a significant component of all enterprises. In Sri Lanka, the majority of companies are of the SME category and contributes the bulk of employment as well. Every country in the world has identified the importance of SMEs in their economies as a practical instrument in achieving sustainable economic growth. Nevertheless, they persistently face difficulties in setting-up and running businesses. In fact, in most surveys done around the world, access to finance is a striking obstacle faced by SMEs, and this is no different in Sri Lanka and the rest of our region,” he said.
Drawing from the experiences of APRACA member countries, this forum provides an excellent opportunity for knowledge sharing. The coverage of the forum addresses many issues directly relevant to Sri Lanka’s goals such as stock taking of the current state of affairs in financing SME’s, the role of SME’s as a driver to enhance efficiency of entrepreneurship, supporting the development of value chains, among others, he said..
This year the APRACA member banks from Asia-Pacific region gathered under the theme “Financing Micro, small and Medium enterprise; Solutions for Missing Middle” on a three day forum.
“The Nepal Rastra Bank has been actively participating in the APRACA since its foundation in 1977. APRACA has made continuous efforts to promote the development of rural financial institutions for enhancement of rural livelihood through varieties of rural and agricultural credit facilities in the region. During four decades, the number of member institutions of APRACA has increased to 84 financial institutions spread over 24 countries and providing continuous support to APRACA. This year, we are participating in the policy forum on “Financing Micro, Small and Medium Enterprises: solution for Missing Middle” and 70th APRACA EXCOM and 21st General Assembly in Colombo, Sri Lanka” Deputy Governor, Nepal Rastra Bank and Chairman, APRAC,” Shiba Raj Shrestha said.
This policy forum is a matter of interest and concern for millions of small and micro-entrepreneurs that are the backbone of both developing and developed economies. Financing SMEs plays a key role in promoting entrepreneurship and ultimately strengthening society and eradicating poverty,” he said.
“The Bank of Ceylon has an inherent interest to promote financial inclusion in the country through contributing to develop MSME sector with special focus on rural and agricultural based businesses. This has made BOC a significant driving-force in the Government of Sri Lanka’s agenda for economic sustainability. It is a privilege therefore, to host the Regional Policy Forum, 70th APRACA EXCOM and 21st General Assembly on behalf of Sri Lanka and Sri Lankan member institutions to facilitate a platform that guides members of Asia-Pacific region to develop innovative strategies to ensure financial stability and fiscal sustainability” CEO/General Manager Bank of Ceylon and the Vice-chair APRACA Senarath Bandara said.
“This event also offers the opportunity for participating local banks and financial institutions to expand and strengthen their network with other similar foreign institutions in the regions” he said.
It is after many years that Sri Lanka hosted this internationally significant event. The forum discussed challenges and tools to enhance access to finance by MSMEs (micro, small and medium enterprises)in the Asia Pacific region. As such the focus was on market based approaches and the role of central Banks, Development Banks, commercial Banks etc. to improve countries’ lending infrastructure and financial regulation, opportunities and challenges arising from the rapid expansion of “fintech” in the region, identify needs for further cooperation among member institutions and countries, efforts to further improve access to financial and non-financial services that are innovative and tailored to suit market needs to further bridge the financing gap for MSMEs. Recommendations emanating from the regional forum are expected to provide guidance to the APRACA member on strategies to enhance MSME financing while ensuring financial stability and fiscal sustainability.
APRACA is a non government international organisation involving central banks, agricultural and development banks, commercial banks, apex organisations, federations of financial institutions and rural development institutions in the region who are involved directly in agriculture credit and rural development. Its headquarters is situated in Bangkok, Thailand. APRACA’s training and research arm CENTRAB centre for training and research for agricultural banking was established in 1989 in Manila, Philippines with the aim of formalising existing informal arrangements to stimulate and facilitate cooperation in the area of training and research and encourage knowledge and understanding of financial, monetary, banking and economic development issues relating to agriculture and rural areas.