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Sri Lanka: Small and Medium-Sized Enterprises Line of Credit Project - Third Additional Financing

Sovereign (Public) Project | 49273-004 Status: Proposed

Based on the successful implementation of the ongoing project, the government has requested ADB for additional financing to expand and deepen its outreach to targeted SME segments, in particular (i) women-led/owned SMEs, and (ii) tea smallholders as key export-oriented SME cluster. An $80 million new additional loan was included in the recent Country Operational Business Plan (COBP) as 2020 firm project. The consultation mission on 20 22 June 2019 confirmed government's commitment on the proposed new additional financing.

 
Project Name Small and Medium-Sized Enterprises Line of Credit Project - Third Additional Financing
Project Number 49273-004
Country Sri Lanka
Project Status Proposed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan: Small and Medium-Sized Enterprises Line of Credit Project - Additonal Financing
Ordinary capital resources US$ 115.00 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Finance / Small and medium enterprise finance and leasing

Gender Equity and Mainstreaming Effective gender mainstreaming
Description Based on the successful implementation of the ongoing project, the government has requested ADB for additional financing to expand and deepen its outreach to targeted SME segments, in particular (i) women-led/owned SMEs, and (ii) tea smallholders as key export-oriented SME cluster. An $80 million new additional loan was included in the recent Country Operational Business Plan (COBP) as 2020 firm project. The consultation mission on 20 22 June 2019 confirmed government's commitment on the proposed new additional financing.
Project Rationale and Linkage to Country/Regional Strategy

SME finance ecosystem development with focus on women entrepreneurs. Over 3.5 years of implementation, PFIs have been undergoing their transition to mainstream their SME operations and proactively reach out to underserved SMEs, such as women-led, first-time borrower, and located in rural areas. The continuation of ADB's credit line will further expedite this PFIs' transformation. The ongoing initiative is being further strengthened by another ADB project to strengthen Regional Development Bank, a state-owned financial institution following a mandate on promoting financial inclusion in rural areas.

In particular, support for women's business should be further promoted as policy priority in Sri Lanka given its low-level of women's economic participation despite gender parity in access to social services. Although the ongoing blended-finance has been accessed by 482 women-led/owned SMEs exceeding the original target of 250, the continued financial support, utilizing the remaining We-Fi grant balance of $3.07 million, will further enhance the effectiveness of the GEN project with the ongoing We-Fi TA for strengthening capacity of banks, government, women-led/owned SMEs, and other key stakeholders to promote sustainability and systemic behavioral change.

Support for tea smallholders. In Sri Lanka, tea sector has been an important socio-economic fabric with significant macroeconomic policy implications in terms of earning foreign exchange and promoting inclusive economic growth. The sector accounts for 15% of the exports and employs 10% of the workforce, majority of whom are less educated and stuck at the bottom of the social ladder with chronically low wages. The tea sector currently depends for 75% of the total production on over 400,000 tea smallholders, most of which are informal family business with landholdings less than one acre. Despite its brand recognition, the Sri Lanka tea has been recently losing international competitiveness with declining quality and quantity of tea leaves due to aged tea bushes and lack of technological upgradation in agricultural practices, including climate change adaptation. The current replanting rate is only less than 1% while the ideal rate is 2% 3%.

Although tea smallholders are eligible SMEs for the ongoing ADB's credit line, only a few loans have been provided to tea smallholders while tea processing factories have adequately modernized and upgraded their facilities. The underinvestment by tea smallholders in replanting, business upgradation, and other productivity enhancement measures is caused by (i) their limited access to formal long-term financing; (ii) their limited access to trainings, knowledge on good agricultural practices, technology, and market information; and (iii) ineffective enabling policy framework to strengthen international competitiveness of the sector.

Impact Employment opportunities in small and medium-sized enterprises increased (Vision 2025)
Outcome SMEs' access to finance strengthened
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 and tea cluster strengthened

Gender-inclusive policy and regulatory framework and support enhanced

Evidence based on women entrepreneurship development to inform future policymaking strengthened

Geographical Location Galle, Kandy, Matara, Ratnapura District
Safeguard Categories
Environment FI
Involuntary Resettlement FI
Indigenous Peoples FI
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services ADB will recruit consultants to monitor and evaluate the progress of the non-financial component of the JFPR grant and ensure the achievement of the targets and indicators in the DMF and GAP. At overall project level, the full-time national consultant at ADB's Sri Lanka Resident Mission who has already been recruited under the TA will coordinate with the PMU, PFIs, and consultants.
Procurement Not applicable
Responsible ADB Officer Hoshino, Takuya
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Ministry of Finance
The Secretariat Building
Colombo 01
Sri Lanka
Timetable
Concept Clearance 07 Nov 2019
Fact Finding 21 Oct 2019 to 24 Oct 2019
MRM 10 Jun 2020
Approval -
Last Review Mission -
Last PDS Update 24 Jan 2020

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Tenders

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Contracts Awarded

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Procurement Plan

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