Sri Lanka banks should honour marketing strengths of small firms: CB Governor
ECONOMYNEXT- Banks should check the marketability and future potential of micro, small and medium enterprises (MSMEs) instead of just their current financial position when giving loans, Sri Lanka Central Bank Governor Indrajit Coomaraswamy said.
"We’re focused on the production function, training, finance, inputs but haven’t paid sufficient attention to the marketing aspect," he said at the Regional Policy Forum of the Asia Pacific Rural and Agricultural Credit Association.
"The most intractable problem for MSMEs is marketing," Coomaraswamy said.
"If the marketing channel is clear, bankers can give the money."
Bankers should be confident of marketing strengths of MSMEs to sell their products.
"You should see if MSMEs can be linked to local supply chains, cross border supply chains and international supply chains," Coomaraswamy said.
He said banks should set up special MSME windows with specially trained staff who can analyse problems specific to such businesses and set up a credit rating system.
While most MSMEs do not have collateral to offer, some sectors are able to market their products and services in an effective manner, which warrants extending credit, he said.
"Bankers identify MSMEs to be high risk," Coomaraswamy said.
"As a result, the credit to sector tends to be constrained."
"But there are focus areas of excellence. In Sri Lanka the ecosystem of ICT start-ups is impressive," he said.
The governor said banks should have a fundamental change in management attitude when dealing with MSMEs.
He said banks should know how to deal with MSMEs in critical condition.
Banks should also not only give financing, but mentor MSMEs, he said.
In assessing MSMEs financial institutions must rely less on the current financial position of the client but think of the project’s scope, market conditions, future cash flow, the exposure to foreign exchange risks and use sophisticated loan management techniques such as portfolio stress testing, Coomaraswamy said. (Colombo/Oct10/2018)