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Sri Lanka planning SME development bank, credit guarantee agency: CB Governor

ECONOMYNEXT – Sri Lanka is planning a new development bank to fund small and medium enterprises and a credit guarantee fund, as part of building a ‘developmental state’ and directed lending, Central Bank Governor W D Lakshman said.

”Discussions are underway in the central bank now to establish a National Entreprenuership Development Bank which could support SMEs and start-ups,” Governor Lakshman said delivering a lecture marking 70 years of its establishment.

”Also under discussion is a plan to introduce a permanent credit guaranteeing institution.”

Sri Lanka’s central bank said it will guarantee risky credit given by banks to Coronavirus hit firms earlier in 2020 after the Treasury, which should take on such tasks apparently declined to do so.

The central bank is also giving re-finance (printed money) to given loans, which could potentially put pressure on the rupee, amid a rising budget deficit though private credit was negative in May and June.

Lakshman said central banks had contributed equity to industrial and agricultural banks.

Sri Lanka had a poor record in development banking, he claimed.

He said up to now directed credit has been given through ‘isolated types of exercises’ but directed credit will have to be given through ”well defined economic plans’. (Colombo/Aug28/2020)