ADB pledges further US $ 75mn to serve Lankan MSME sector

By Shabiya Ali Ahlam
As Sri Lanka continues to perform below the potential in making finance accessible to small and medium enterprises (SMEs), compared to the nations with similar economic status, the Asian Development Bank (ADB) last week pledged it would continue to support the island nation to improve access to financing for small businesses.

Having already rolled out a US $ 100 million financing programme for the Lankan micro, small and medium enterprises (MSMEs) over the last two years, ADB said it has allocated a fresh financial intermediation loan of US $ 75 million, for the year 2019. 

Approved last year, US $ 25 million of the total loan amount has already been disbursed within the first quarter. The senior ADB officials shared that the remaining US $ 50 million would be disbursed by June.

In addition to the US $ 175 million allocation over the two years, ADB has also made available a grant of US $ 2 million for technical assistance. The said grant is supported by the Japan Fund for Poverty Reduction. 

According to ADB, the objective of the loan is to provide long-term financing to the underserved MSMEs to help them develop their businesses. It in turn would lead to enhance economic activities, increase income and generate more employment through private sector development. 

Speaking to reporters in Colombo, ADB Public Management, Financial Sector and Trade Division Director Bruno Carrasco asserted that Sri Lanka has much to improve in increasing access to finance, specially to the businesses that are established in rural areas.

“Sri Lanka’s position, in terms of supporting SMEs, does not correspond to what it should be, when looking into the overall income per capita levels. 

The dilemma is largely missing markets, that is financial entities are continuing to serve repetitive customers, who are easily accessible, instead of looking to serve the businesses that are harder to reach,” said Carrasco.

He stressed that the objective of ADB support is to assist where typically credit does not flow into. 

For this purpose, ADB is working in close partnership with the Finance Ministry and 10 banks in the country. 

The joint effort intends to develop a model project that improves the MSMEs’ access to finance, specially targeting the first-time borrowers and women entrepreneurs in financially underserved areas. 

In an effort to ensure the funds reach the relevant groups, ADB has structured behaviourally-driven models that provide incentives and penalties to banks. 

ADB said in terms of development impact, the results have been positive, as the initial loan facility of US $ 100 million disbursed over 2.5 years supported over 1,700 small businesses.