Financial inclusion of small and medium-sized enterprises (SMEs) in Sri Lanka remains a key development priority for the government given SMEs' large demand for credit, the financial barriers facing SMEs, and SMEs'' potential for reducing unemployment and regional inequalities. This additional financing will provide loans to Sri Lankan banks to encourage them to grow their SME portfolios; and will extend the current successful project, which otherwise would close ahead of schedule, through March 2020.
|Project Name||Small and Medium-Sized Enterprises Line of Credit Project-Additional Financing|
|Project Type / Modality of Assistance||Loan
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change||Gender Equity and Mainstreaming
Governance and capacity development
Private sector development
|Sector / Subsector||
Finance / Small and medium enterprise finance and leasing
|Gender Equity and Mainstreaming||Effective gender mainstreaming|
|Description||Financial inclusion of small and medium-sized enterprises (SMEs) in Sri Lanka remains a key development priority for the government given SMEs' large demand for credit, the financial barriers facing SMEs, and SMEs'' potential for reducing unemployment and regional inequalities. This additional financing will provide loans to Sri Lankan banks to encourage them to grow their SME portfolios; and will extend the current successful project, which otherwise would close ahead of schedule, through March 2020.|
|Project Rationale and Linkage to Country/Regional Strategy||A vibrant SME sector has the potential to mitigate several of Sri Lanka's most difficult development challenges. SMEs have higher growth potential, can create jobs, and, over time, increase the tax base at a quicker pace than larger enterprises. They can also reduce regional inequalities. While all firms in Standard & Poor's Sri Lanka 20, the main national stock market index, are headquartered in Colombo, SMEs are spread throughout the country. For women, whose participation in the Sri Lankan workforce lags that of international peers, and for youths, whose unemployment rate exceeds the national average, start-up businesses offer an opportunity to participate meaningfully in the economy. A more vibrant SME sector could also increase exports and attract foreign direct investment.|
|Impact||Employment opportunities in SMEs increased (Vision 2025)|
|Description of Outcome||SMEs' access to finance strengthened|
|Progress Toward Outcome||Outcome indicators are on track with a higher than anticipated percentage of the funding lent to targeted SMEs.|
|Description of Project Outputs||
Financing to SMEs through formal intermediaries increased
Innovative SME financing schemes developed
Capacity of SMEs in targeted clusters to access financial services enhanced
International competitiveness of the ICT BPO cluster strengthened
|Status of Implementation Progress (Outputs, Activities, and Issues)||
1. The original line of credit project fully disbursed in January 2018. As of end-August 2018, 85% of the first allocation under the additional financing for the line of credit project was disbursed.
2. Auction was piloted and used for the first 12 months of the project. The development of an SME credit guarantee institution is ongoing.
3. Although the training of SMEs in targeted clusters is behind schedule, over 100 women-led SMEs in the targeted clusters have now been trained.
4. ICT BPO work is nearly completed.
|Summary of Environmental and Social Aspects|
|Environmental Aspects||Minimal or no adverse environmental impact.|
|Involuntary Resettlement||Not applicable.|
|Indigenous Peoples||Not applicable.|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design||There were multiple consultations organized by the Ministry of Finance and Mass Media that gave participating financial institutions the opportunity to contribute to the project's original design.|
|During Project Implementation||ADB communicates information about this project and the outcome of this project through its publications, presentations, and on its website. ADB also communicates with the project s internal stakeholders through written documents.|
|Consulting Services||Not applicable.|
|Procurement||Procurement under ADB-financed subloans will be in accordance with ADB's Procurement Guidelines (2015, as amended from time to time) as they relate to financial intermediary loans. Subborrowers will be required to undertake procurement in accordance with established private sector or commercial practices that are acceptable to ADB (paragraph 3.12 of the ADB Procurement Guidelines).|
|Responsible ADB Officer||Lambert, Donald J.|
|Responsible ADB Department||South Asia Department|
|Responsible ADB Division||Public Management, Financial Sector and Trade Division, SARD|
Ministry of Finance and Mass Media
The Secretariat Building
|Fact Finding||15 Aug 2017 to 17 Aug 2017|
|MRM||02 Oct 2017|
|Approval||15 Jan 2018|
|Last Review Mission||-|
|Last PDS Update||25 Sep 2018|
|Approval||Signing Date||Effectivity Date||Closing|
|15 Jan 2018||16 Feb 2018||16 Apr 2018||30 Sep 2020||-||-|
|Financing Plan||Loan Utilization|
|Total (Amount in US$ million)||Date||ADB||Others||Net Percentage|
|Project Cost||75.00||Cumulative Contract Awards|
|ADB||75.00||15 Jan 2018||0.00||0.00||0%|
|Cofinancing||0.00||15 Jan 2018||25.00||0.00||33%|
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ADB Provides Additional Funds to Support SME Development in Sri LankaADB's Board of Directors has approved $75 million in additional financing to continue support toward the development of small and medium-sized enterprises (SMEs), considered vital for economic growth and job creation in Sri Lanka.
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