Empowering SMEs for economic revival and poverty alleviation | Sunday Observer

Empowering SMEs for economic revival and poverty alleviation

26 April, 2020

It is a well known fact that small and medium scale enterprises (SMEs), comprising trade, service and manufacturing, put in a large proportion of revenue, employment and innovation to the Sri Lankan economy. SMEs make up 52% of the GDP, 45% of national employment and contribute immensely to national output and employment. The Government’s attention to the growth of the SME sector can have a substantial economic and social impact and play a pivotal role in achieving sustainable development goals. However, the common belief in the stakeholders of the SME sector is that they are being somewhat neglected by successive Governments.

In the aftermath of the global economic downturn created by the coronavirus pandemic, Sri Lanka, more than ever before, needs to focus on the empowerment and improvement of this crucially vital sector, particularly the industrial segment of SMEs. President Gotabaya Rajapaksa, in a recent prime time television discussion said that the pandemic has presented the country with a fresh opportunity and indicated his intention to diversify and strengthen local industries.

As another well timed significant move, on April 22, the President has appointed a Presidential Task Force for economic revival and poverty alleviation under the chairmanship of Basil Rajapaksa, comprising an elite membership covering every related sphere. This team will undoubtedly concentrate on empowering the indigenous SMEs, especially, the manufacturing segment.

Even long before the outbreak of the pandemic, in chapter five of his election manifesto, the President has directed his focus on Small and Medium Industries (SMI) stating that he will develop a method for one organization to serve all needs of the sector and pledged necessary encouragement to the sector. If managed properly, this is one of the most opportune times to develop and exploit indigenous industries, not only to achieve self sufficiency in many fields but also earn the much needed foreign exchange revenue.

As in many business segments in any country, Sri Lanka too has common barriers for the SME growth. Therefore, a comprehensive approach is needed to address these obstacles that currently avert SME entrepreneurs from achieving their true potential. It is clear that if the productivity of the SME segment could be improved even by small percentage points, the overall benefit to the country would be enormous by way of both finances and employments. At this critical juncture of employment losses due to the impact of Covid 19, new employment creation provides one of the most significant effects by the SME segment which would have strong social and economic implications.

Therefore, extending maximum Government assistance to the already established organizations could bring in a large reward to the economy. Most of these organizations are sustainable, possess resources to grow and have plenty of experience in business. However, the drawback is that a majority of these entrepreneurs lack adequate knowledge of management practices. Most of the entrepreneurs make business decisions on an impulse instead of analyzing the issues. Therefore, at this moment they require management guidance and financial assistance to expand.

Most of the existing SMEs have aspirations to be self employed and have financial independence while some are motivated to build successful business units. Both these types require direction and support from the authorities to enhance their contribution. However, despite their contribution to the socio economic growth, SMEs face many challenges.

Constraints on capital due to insufficient access to finance are the foremost issues the entrepreneurs often confront when they start an enterprise and also while operating. Almost every Bank in Sri Lanka offer SME loans at reasonable interest rates stipulated by the Central Bank. Nevertheless, the pertinent question is whether obtaining the loan is as easy as their propaganda campaigns declare.

Several medium scale business owners who met this writer stated that obtaining a loan requires many strenuous measures. As most of these small and medium entrepreneurs are not abundantly aware of preparing the required documents such as project reports, etc., ultimate approval is either delayed or rejected in full. Their grievance is that most of these Banks offer facilities to large organizations on special interest rates and concessions. Therefore, they expect the Government to intervene to offer more conveniences and concessions for the financial requirements of SMEs.

In contrast, several Bankers who expressed their views said that the Banks have to be extremely alert about the credibility of the borrowers, hence, they apply stringent rules. According to them, there were many instances where the borrower utilized the funds obtained from the SME scheme for personal luxuries such as purchasing vehicles and building houses, etc. However, the common view of the Banks is that they are releasing as many loans as possible for SMEs under the guidance of the Bank supervision department of the Central Bank.

Attracting capable manpower is another challenging issue for SME owners. More skilled employees usually are recruited by large and established commercial institutions. Therefore, they have to either rely on the available mediocre workers or hire better staff, paying high salaries which escalate the costs of production and operations. Similarly, most of these industry owners lack proper infrastructure facilities, at times resulting in low production.

In addition, the Government must focus on introducing modern technology; provide access to information and improvement in management and technical skills by way of training and other methods of offering guidance. Also, assistance from the Government fiscal policy by introducing low interest rates and offering more reasonable emphasis on collateral by the lending institutions is important to uplift the success of this segment.

The lack of marketing know-how is another vitally important issue that must be addressed with regard to SMEs in Sri Lanka. The success of a small or medium sized business is largely dependent on the owner’s ability to market the product both locally and internationally. In Sri Lanka, there are plenty of small time exporters who successfully market their products overseas. If marketing is done correctly, to a plan, any potential buyer would be able to identify and single out a product.

Marketing also helps the business to compete with large organizations that are in the same business line, often giving a competitive edge due to the personal attention a smaller organization can provide to a customer. SMEs must be given the message that good marketing efforts lead to sales which is the most important factor for the growth of the business.

By empowering small and medium sized enterprises and including them in the Government’s economic drive, the country as a whole can achieve outstanding monetary and social benefits. Encouraging them to develop their business will also create the much needed employments, domestic tax revenues and enhanced overall growth.