Budget promotes non-collateralized lending to small and medium enterprises

•  Proposes to set up development bank with EXIM window

The government yesterday floated the idea for clean lending in a direct challenge to banks’ centuries-old model of collateral-based lending, which may have turned away thousands of high potential small businesses and business startups.  In his quest to make Sri Lanka a ‘paradise for entrepreneurs’ under the government’s ‘Enterprise Sri Lanka’ initiative, Finance Minister Mangala Samaraweera said credit should not be denied due to lack of security and the banks should provide finance based on the viability of business proposals.

Presenting the third budget of the good governance regime and the first cohesive one with a broader economic framework, the government proposed to establish a ‘SME Guarantee Fund’ to act as collateral when small businesses raise funds from banks.

The government will allocate Rs.500 million as seed capital for the fund initially, which could be later be built by the government itself or the SME community or both together.

“We will also establish a Small and Medium Enterprise (SME) Guarantee Fund which will further augment the SMEs’ capacity to borrow, given that it will be considered as collateral”, Samaraweera said, presenting his maiden budget as the Finance Minister.

The budget 2018 speech, which lasted little less than 2 hours contained proposals, which are mostly futuristic, laid the foundation for a sustainable, green and lean economy built on individual liberty and entrepreneurship.

Samaraweera’s proposed guarantee scheme will not be just for traditional mom-and-pop SMEs but will also cover the information technology startups and such exporters who need bit of a nudge to get their IT services off the shores.

The Sirisena-Wickremesinghe regime considers IT and IT services as an industry, which has a potential of US $ 5.0 billion in export earnings in the mid-term. Under its IT initiative, the government will allocate a further Rs.300 million in 2018 and Rs.3.0 billion during the next 5 years to support local startups and to attract foreign startups, small and medium-sized IT companies and to create the enabling environment by supporting the establishment of incubators.

Meanwhile, Samaraweera rekindled the idea for a development bank with a strong export and import (EXIM) finance window to support the long-term financing for the private sector.

 This was originally proposed by the Rajapaksa administration when they proposed to set up a stronger development bank with the amalgamation of NDB Bank and DFCC Bank in 2014.

 But the merger was abandoned after the Sirisena-led coalition gained power in 2015 ousting Mahinda Rajapaksa.

The government allocated Rs.10 billion as seed capital for setting up this bank.

 Among the other initiatives to encourage entrepreneurship, Samaraweera proposed to allocate Rs.50 million from the proposed ‘Enterprise Sri Lanka Credit Scheme’ to give credit facilities for women on lower interest rates.

 The differently-abled will also be eligible to access the scheme. The government proposed to allocate Rs.15 million for this.

 “We will also continue the ‘Erambuma Credit Scheme’which supports the startups with a credit facility of Rs.1.5 million per annum per idea per person with a government guarantee”, Samaraweera noted.