Micro-small and medium enterprises owned/led by women are known to be an important source of employment and poverty alleviation in Sri Lanka
- AfDB agrees to reallocate US$13.5m line of credit to support working capital needs of MSMEs
- Finance Ministry says SL cannot apply for new AfDB loans due to debt repayment freeze
- Funds will be disbursed through eight local banks at a prime rate of 11-12%
The government has entered into an agreement with the Asian Development Bank (AfDB) to disburse the remaining US$13.5 million of the AfDB-funded Small and Medium Enterprise Line of Credit (SMELoC) project among micro, small and cash-strapped medium-sized businesses. enterprises (MSMEs) through eight local banks to meet their working capital needs in the context of the current crisis.
An agreement was signed in this regard on September 22 with Treasury Secretary Mahinda Siriwardana signing on behalf of Sri Lanka and AfDB Resident Director Chen Chen on behalf of the AfDB.
The Ministry of Finance noted that there are technical difficulties in applying for new lines of credit from the AfDB following Sri Lanka’s decision to freeze repayments of its external debt in April. The country also needs to get final approval from the International Monetary Fund (IMF) for a bailout.
Therefore, the ministry said the government is focusing on reallocating existing credit lines with AfDB and other multilateral lenders to provide relief to MSMEs and the public affected by the current economic crisis.
As a result, eight banks received an equal share of the US$13.5 million (4.9 billion rupees) or 612 million rupees each. The eight participating banks are; Bank of Ceylon, Regional Development Bank, Hatton National Bank, Commercial Bank of Ceylon, Seylan Bank, National Development Bank, Nations Trust Bank and Sampath Bank.
Banks are expected to provide working capital facilities to MSMEs active in the agriculture and tourism sectors as well as export-oriented MSMEs.
Under the working capital loan facility, MSMEs are able to secure their working capital needs at a preferential rate of 11-12% compared to 20-25% prevailing market rates.
SMELoC was originally designed to provide credit through 13 Participating Financial Institutions (PFIs) to targeted Small and Medium Enterprises (SMEs) in Sri Lanka, including women-led SMEs that are first-time borrowers, with insufficient collateral and located outside of Colombo.