Supporting Sri Lanka's SMEs ;Propoal of Harsha de Silva and CUBA's Call for Reform
News Summary.
SMEs are quite significant to the Sri Lankan economy. They generate over 50%of the GDP of the country, and give employment to approximately 4.5 million of its citizens. However, SMEs have issues of poor access to finance, excessive regulations, and poor government support. Recently, SJB MP Dr. Harsha de Silva, Ceylon United Business Alliance(CUBA), had a proposal on how these issues can be solved to allow SMEs a greater role in the economy.
Dr. Harsha de Silva's proposals
1.Export-focused Diplomacy
Sri Lanka brought commercial officers and ambassadors to
train at an economic diplomacy program with the Havard kennedy School in 2017
on commercial promotion of Sri Lankan exports. This program was stopped, and
embassies have not played a role in helping exports. Harsha put forward the
proposal to revive it by putting trade officers of the export development board
in embassies. These officers would liaise with the central bank, Treasury and
the BOI to link up the SMEs with the foreign markets.
In simple terms, Sri Lanka should not only utilize embassies
to conduct politics but also to market its products to the rest of the world.
Access to long-term loans is the greatest concern of SMEs . The local banks grant mainly short-term credits; however, the SMEs require longer-term growth loans. Previously, this was facilitated using World Bank and ADB funds through development banks, but now the funds are no longer available. So Hrsha propose that we can use a part of the employees' provident fund and employee trust fund to boost the SMEs. Because the EPF and ETF hold over 5 trillion.
As it is,95 percent of this cash is held in government securities. Harsha added that some of it could be diverted into an SME credit facility, enabling banks to loan long-term and continue to hold on to the savings of the workers.
CUBA's Proposals
1. One-stop service
platform
Meanwhile, at the same event, CUBA president Tania Abeysundara also demanded an emergency reform.It is often the case that SMEs have delays because of numerous approvals. So she offered the single window system under which all SME services and approvals will be dealt with at a single window.
2. improve access to global markets.
CUBA International would like to establish a platform where SMEs would have direct access to foreign buyers. She added that embassies must take an active role in the formation of B2B opportunities.She emphasised the need to promote businesses owned by women as well.
In My view.
The news highlights that SJB MP Dr. Harsha de Silva has proposed measures to support small and medium enterprises (SMEs) in Sri Lanka, promoting exports and accessing long-term financing. The above proposals are strongly connected to the development banking sector, intended to support projects that can boost economic growth, such as those that do not necessarily yield profits.
Reasons Development Banks Exist.
The objectives of development banks are to undertake long-term finances in sectors that are vital in national development, like SMEs, agriculture, and infrastructures. They are aimed at financing strategic projects that commercial banks tend to ignore due to the increased risk or longer repayment terms of the projects. Profit is not just the aim, but also the development of economic growth and promotion of job creation and the industry.
Development banks vs Commercial Banks.
The main aim of commercial banks is to make a profit. They depend on temporary deposits and lend loans which are secure and can be repaid within a short time. This restricts them to finance projects that need multi-year financing, which may include SME development, use of technology, or export expansion. As opposed to that, development banks aim at supplying patient capital, in other words, loans corresponding to long-term business requirements.
|
Feature |
Commercial banks |
Development banks |
|
Purpose |
Profit
making,saving |
Promote
economic growth and development |
|
Type
of lending |
Short
term(1-3 years) |
Long
term(5-20 years) |
|
Source
of funding |
Customer
deposits |
EPF,ETF,International
aid |
|
Risk |
Lower risk |
Higher
development risk |
|
Role
in economy |
Provide
day to day financial Services |
Fills
market gaps, Support industries |
Relation to News.
Dr. de Silva emphasized that the conventional development banking system in Sri Lanka failed once it was a middle-income country because it ceased being concessionary due to its institutions, such as the World Bank and ADB. A lot of development banks became commercial banks, and SMEs were not left with any long-term finance. He suggested that a special credit facility should be established under which SMEs could access credit by tapping the domestic long-term funds, which include the Employees Provident Fund (EPF) and Employees' Trust Fund (ETF). This would enable the banks to revive their development banking activities and, at the same time, set up a mechanism by which the SMEs can be allowed to access multi-year growth loans to finance their growth and expand into export markets.
Conclusion.
It is evident in the news that development banking will play a role in filling the funding gap that the SMEs are encountering. With the separation of development banking and commercial banking and by tapping long term domestic sources of funds, Sri Lanka can supply the SMEs with adequate funds, which they require in order to expand, be self-competitive, and build up the economy. The development banking industry can be resurrected through concerted policies and sustainable funding that can facilitate sustainable economic growths.
References.
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