ECONOMYNEXT- Sri Lanka-based small and medium enterprise (SME) lender Sarvodaya Development Finance (SDF) is looking to take local village products to international markets after its listing in Colombo Stock Exchange, an official said.
The SDF has kicked off its initial public offering (IPO) to raise 1 billion rupees through selling a 30 percent stake of the company.
SDF started rural financing by promoting savings using rural people’s money to develop the same village.
Most banks in Sri Lanka raise deposits from small savers in rural areas but do not always lend to them.
“There was no capacity building opportunity to do business in the villages,” Channa de Silva, chairman of SDF said referring to the plight of rural people when SDF started operations 30 years ago.
“They were never given the capital, they were never looked at as valuable clients for lending, but for deposits, they were the most valuable.
“So it was one flow to Colombo and never was it back. So the main thesis behind the Micro Finance Initiative of Sarvodaya 30 years ago as village capital will be based in the village.”
Contribution from the SMEs accounts for over 50 percent of the island nation’s GDP.
But they face greater growth obstacles compared to larger firms as SMEs are more constrained by different obstacles, and limited access to finance is an important one of these.
Although there is a developed and competitive formal financial market in Sri Lanka, borrowing for SMEs is not easy as it requires a tedious process.
And micro financing was seen as a remedy for this.
De Silva said SDF identified the financing needs along with empowering the village people and now there are even opportunities to give them international exposure or their products.
“Empowerment is, you give them confidence that they can have a stake in the future, otherwise what happens is the size remains to be the same,” he said.
“There is no continuous improvement, there is no capacity development. So, they are stagnating at that level that has been a classical economic development for the village set up in Sri Lanka,” he said referring to the status of rural enterprises.
“So, we need to move beyond that and actually have a plan for them where their product gets developed.”
“It is actually in today’s context in today’s world this is an all global village which is a fantastic opportunity which is unfolding for them because if there are products, they can take the products internationally, they can scale it up and they can move very quickly.”
SDF caters to the bottom of the pyramid market through over 5,600 community-based organizations called Sarvodaya Societies.
The over 9-billion-rupee total asset worth company was originally started to create a rural-area centric business to keep the savings of rural depositors in the same area and to serve needy entrepreneurs.
De Silva said many finance companies have focused only on profit maximization instead of capacity building in rural entrepreneurs.
“So it is very shortsighted, whereas our aim is to build these entrepreneurs to really develop capacity on a long term basis,” he said.
“However, because we are a regulated finance company market, there are stakeholder expectations for the delivery, we also become very profitable. So we are profitable, but our broader focus is to really serve the community and get them to develop their businesses.”
As of now, 52 percent of the SDF is owned by Sarvodaya Economic Enterprises Development Services (SEEDS) Limited, 22 percent by Sarvodaya related entities, and 13 percent each by Japanese Gentosha Total Asset Consulting Inc. and other existing shareholders.
The SDF has 30 branches and 21 service centers island wide and its profit after tax in the past four years (2018/2021) has shown a growth of 23.4 percent calculated on a three-year compounded annual growth rate (CGAR).
The profit after tax in the last financial year ended on March 31 rose 80.3 percent year-on-year to 183.4 million rupees, the company data showed.
The total asset and equity also have expanded at 12.4 percent and 24.5 percent compiled on the same three-year CGAR basis.
The loan growth, which was at 2.76 billion in 2016 had almost tripled in the last financial year ended in March 31, 2021 to 7.9 billion rupees.
It also had a total deposit of 4.55 billion rupees from customers by the end of 2018/19 financial year.