IFC study says small business is big in Sri Lanka but needs critical boost
IFC, the private sector arm of the World Bank Group, has released the results of a comprehensive study on smaller businesses in Sri Lanka that highlight opportunities for growth and underscore the challenges these companies face, such as lack of access to finance.
The IFC-commissioned study examines businesses in several key industries and suggests concrete steps to improve the local business environment. Smaller businesses account for nearly 70 percent of employment in Sri Lanka’s business sector and, therefore, play a key role in the country’s economic development. According to the study, a number of obstacles prevent them from growing more rapidly, such as access to finance, complicated loan procedures, lack of technical and management skills, marketing constraints, inadequate infrastructure, outdated technology, and inflexible labor laws. Recommendations include enhancing the funding capacity of banks by introducing dispute resolution mechanisms, establishing a small business credit rating agency, and creating a moveable assets registry.
At the launch of the report in Colombo, Dr. C. Prabhu, Associate Director, Strategic Advisory of Rabo India Finance Limited, said, “An interesting finding is that the average annual turnover of companies across sectors increased by 14 percent in 2005. This reflects the growing importance of the SME sector as a whole.” Of the sectors studied, the greatest growth was seen in deep sea fishing and in construction, due to the flurry of post-tsunami reconstruction, he added.
According to Gilles Galludec, IFC Country Manager for Sri Lanka and Maldives, “The study is an essential tool to help bankers identify their target market segments, manage their risk and reward mechanisms more efficiently, refine their strategies for small businesses, and develop appropriate banking products. This will contribute to making SME financing profitable in Sri Lanka.”
Small and medium enterprises are seen as a key source of entrepreneurship and innovation in more industrialized economies. They have played a key role in transforming economies in Asia, including Japan, South Korea, Singapore, and Taiwan. In Sri Lanka, SMEs are also an important strategic sector with significant potential to promote economic growth and social development.
The study was conducted by Rabo India Finance Limited under the leadership of IFC Advisory Services in the region – the SouthAsia Enterprise Development Facility and a group of leading local private sector banks engaged in small business financing,. The sectors covered by the study include tea, rubber, printing, gems and jewelry, foundry, deep-sea fishing, construction, commercial transport, and coconut-based industries. The key findings of the study were presented at an event for CEOs and SME heads of banks operating in Sri Lanka. Attendees included Nihal Welikala, CEO NDB Bank; H. A. Ariyaratne, Executive Vice President, DFCC Bank; Chandula Abeywickrama, DGM Personal Banking and Network Management, Hatton National Bank; and Ravi Dias, Senior DGM Personal Banking, Commercial Bank of Ceylon.
IFC, the private sector arm of the World Bank Group, promotes open and competitive markets in developing countries. IFC supports sustainable private sector companies and other partners in generating productive jobs and delivering basic services, so that people have opportunities to escape poverty and improve their lives.
Through FY06, IFC Financial Products has committed more than $56 billion in funding for private sector investments and mobilized an additional $25 billion in syndications for 3,531 companies in 140 developing countries. IFC Advisory Services and donor partners have provided more than $1 billion in program support to build small enterprises, to accelerate private participation in infrastructure, to improve the business enabling environment, to increase access to finance, and to strengthen environmental and social sustainability. For more information, please visit www.ifc.org.IFC-SEDF is a multidonor funded facility, managed and operated by IFC. It is one of 11 regional programs managed by IFC worldwide. The facility is funded by IFC, the governments of the Netherlands and Norway, the European Commission, DFID (United Kingdom), CIDA (Canada), and the Asian Development Bank. Set up promote the growth of SMEs in the region, it facilitates increased access to finance and provides quality business development services to projects in Bangladesh, Bhutan, northeast India, the Maldives, Nepal, and Sri Lanka.
IFC-SEDF also works to create a business-enabling environment that is supportive of SMEs and assists in the value addition to firms through sector development, organization-specific advisory services, capacity-building programs, training, and research. The ultimate goal is to assist in private sector development to create market opportunities for SMEs and promote economic growth in the region.
In Sri Lanka and Maldives, the facility is jointly funded by IFC and the governments of the Netherlands and Norway.