ADB plans $100mn investment in Sri Lankan SME credit guarantee firm

Sri Lanka rupee

ECONOMYNEXT- The Asian Development Bank (ADB) said it will in February review a proposal to invest 100 million US dollars in a credit guarantee firm which will serve small and medium sized enterprises (SMEs).

A management review meeting will be held on February 24. A management review meeting is the final step before a project is presented to the ADB board for approval.

The Manila-based lender had approved the concept in February 2017, after submitting a report to the cabinet in 2016. The ADB then went on a fact finding mission to support setting up the new non-bank finance firm.

The finance firm will be set up through the Treasury, with a 500,000 US dollar technical assistance grant from the ADB.

SMEs make up 52 percent of Sri Lanka’s gross domestic product, but have trouble accessing finance to expand their businesses, due to a highly traditional and risk averse banking sector.

The ADB said the Sri Lankan government in the past had introduced various SME credit guarantee schemes, but none had succeeded due to slow claims processing, limited guarantee coverage and high premiums.

“The new guarantee institution should be well-funded, efficiently managed, financially sustainable, removed from political influence, operated with the highest level of corporate governance, and subject to central bank regulation and supervision,” ADB said.

The regional lender has already provided a 175 million US dollar credit line to support SMEs in Sri Lanka, with a special focus on empowering women-owned businesses. (Colombo/Jan09/2019)