ADB Extends $50M Loan to Sri Lanka to Promote SME Development

News Release | 7 December 2007

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is lending $50 million to Sri Lanka to help promote the development of small- to medium-sized enterprises (SMEs) located outside the country's western province.

The Small and Medium Enterprise Regional Development Project aims to accelerate the development of SMEs based outside the urbanized western province by improving their access to credit and business development services, and providing links to information, technology and markets.

The project comprises a credit facility that will be made available through private commercial or specialized banks. The credit facility is accompanied by three complementary components. The first supports the strengthening of corporate governance of private commercial or specialized banks, while the second seeks to strengthen their risk management capability. The third aims to promote the bankability of SMEs outside the western province.

Private commercial or specialized banks will provide $16.67 million, while SMEs contribute $22.22 million to complete funding for the project.

"The policy priority of the government of Sri Lanka is to foster economic development outside the western province to address regional inequalities," said Syed Ali-Mumtaz H. Shah, financial sector specialist of ADB's South Asia Department. "The government's development agenda for the underdeveloped provinces recognizes the private sector as the engine for growth and employment."

SMEs outside the western province comprise 75% of the country's 30,000 registered SMEs, and account for most of the private sector in the underdeveloped provinces.

An investment climate assessment conducted by ADB and the World Bank in 2004 indicated that while Sri Lanka compares well in South Asia for its skilled labor and ease of doing business, access to credit, in particular those carrying medium to long terms, remains a key constraint for SMEs. Lack of credit access is more pronounced outside the western province where credit availability meets only about 40% of the existing demand. As a result, SMEs are unable to realize their full potential and generate employment.

Sri Lanka is faced with a growing regional divide in terms of employment and economic growth, even as the country managed to post a 7.2% rise in gross domestic product for 2006 and an average per capita income of $1,355, the highest in South Asia. The western province enjoys a regional per capita gross domestic product of approximately $1,467, which is two to four times higher than other provinces.