US$ 13.5mn ADB credit line to support working capital needs of crisis-hit MSMEs

Women owned/led Micro Small Medium Enterprises are known to be an important source of employment and poverty reduction in Sri Lanka

• ADB agrees to repurpose US$ 13.5mn credit line to support working capital needs of MSEMs
• Finance Ministry says SL cannot apply for new loans from ADB due to debt repayment freeze
• Funds to be disbursed via eight local banks at a concessionary rate of 11-12%

The government has reached an agreement with the Asian Development Bank (ADB) to disburse the remaining US$13.5 million of the ADB-funded Small and Medium-sized Enterprises Line of Credit (SMELoC) Project among the cash-strapped micro small and medium-sized enterprises (MSMEs) through eight local banks to support their working capital needs amid the ongoing crisis. 

An agreement was signed in this regard on September 22 with Treasury Secretary Mahinda Siriwardana signing on behalf of Sri Lanka and ADB Resident Country Director Chen Chen on behalf of the ADB.

The Finance Ministry noted that there are technical difficulties in applying for new lines of credit from the ADB following Sri Lanka’s decision to freeze its foreign debt repayments in April. The country is also yet to secure the final approval from the International Monetary Fund (IMF) for a bailout package.

Hence, the Ministry said the government is focusing on re-purposing existing credit lines with the ADB and other multilateral lenders to provide relief to MSMEs and to the public affected by the ongoing economic crisis. 

Accordingly, eight banks have been given an equal portion of the US$13.5 million (Rs.4.9 billion) or Rs.612 million for 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.
The banks are expected to grant working capital facilities to MSMEs engaged in agricultural and tourism sectors as well as export-oriented MSMEs. 

Under the working capital loan facility, MSMEs are able to secure their working capital requirements at a concessionary rate of 11-12 percent when compared with 20-25 percent prevailing market rates. 
The SMELoC was originally designed to provide credit through 13 participating financial institutions (PFIs) to targeted small and medium-sized enterprises (SMEs) in Sri Lanka, including SMEs that are led by women and who are first-time borrowers, with insufficient collateral and located outside Colombo.