Sri Lanka banks exceed revised SME lending targets

ECONOMYNEXT- Sri Lankan banks have exceeded revised lending targets for micro, small and medium scale enterprises (MSMEs) under programs with the Asian Development Bank (ADB), officials said.

"At first, we set some targets because there was no previous data, and we later revised these targets," ADB Financial Sector Specialist Takuya Hoshino said in Colombo.

"These targets were exceeded," he said.

The ADB had given 100 million US dollars in credit to the Sri Lankan government at Sri Lanka Inter Bank Offer Rate plus 50 basis points between 2016 and 2018, which had been borrowed by four local banks at policy rates.

The banks had in turn given loans to 1,750 MSMEs at retail market interest rates.

The maximum loan a business could take was 50 million rupees.

The program had targeted 5 percent of the lending to women-led MSMEs initially, and had expanded the target to 20 percent later.

By October 2018, 27.6 percent of the funding had gone to women-led MSMEs.

A target of 10 percent of funds to go to first-time borrowers had been increased to 20 percent, but the program achieved 26 percent.

A target of 50 percent of funding to go to agribusiness had been increased to 70 percent, but the banks had given 91.4 percent to the main target group.





Under a new 75 million US dollar credit line from ADB that was started in 2018, 41 percent of loans given were to women.

Due to the success of the ADB’s lending program, it has now won a bid to disburse a 12.5 million US dollar multilateral grant for developing female entrepreneurs in Sri Lanka, Carrasco said.

ADB Public Management, Financial Sector and Trade Division South Asia Department Head Bruno Carrasco said the non-performing loans under the credit lines are below the industry average.

"Because the loans are performing well, banks can continue to lend to MSMEs in the future through their own balance sheets," he said.

The program had included a 2 million US dollar technical assistance program from the Japan Fund for Poverty Reduction to train the MSMEs on good business practices.

Carrasco said around 30 percent of businesses in Sri Lanka felt access to finance was a major constraint to business.

A lack of understanding of accountancy, marketing and low financial literacy also discouraged growth of small businesses, he said.

The participation of MSMEs in the economy was low, and hindered exports and growth, he said.

Banks are usually more inclined to service repeat clients from urban areas, according to Carrasco.

Hoshino said banks have good reason to not give out smaller loans due to high administrative costs in keeping track of clients.

More efficient processes and a change of behaviour at banks could make MSME lending more sustainable, he said.

"We always encourage business-based lending, but banks have requirements for collateral," he said. (Colombo/Mar01/2019-SB)





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