Sri Lanka: Enhancing Small and Medium-Sized Enterprises Financial Services Outreach

Sovereign Project | 50349-003

A proposed ADB technical assistance (TA) of $800,000 for Enhancing Small and Medium-Sized Enterprises Financial Services Outreach will support implementation of the proposed Small and Medium-Sized Enterprises Credit Guarantee Institution Project in Sri Lanka (the ensuing project), which is included in the country operations business plan for Sri Lanka, 2021-2023.

Project Details

  • Project Officer
    Hoshino, Takuya
    South Asia Department
    Request for information
  • Country/Economy
    Sri Lanka
  • Sector
    • Finance
Project Name Enhancing Small and Medium-Sized Enterprises Financial Services Outreach
Project Number 50349-003
Country / Economy Sri Lanka
Project Status Active
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 6903-SRI: Enhancing Small and Medium-Sized Enterprises Financial Services Outreach
Financial Sector Development Partnership Special Fund US$ 300,000.00
Technical Assistance Special Fund US$ 500,000.00
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 A proposed ADB technical assistance (TA) of $800,000 for Enhancing Small and Medium-Sized Enterprises Financial Services Outreach will support implementation of the proposed Small and Medium-Sized Enterprises Credit Guarantee Institution Project in Sri Lanka (the ensuing project), which is included in the country operations business plan for Sri Lanka, 2021-2023.
Project Rationale and Linkage to Country/Regional Strategy

Development challenge. Small and medium-sized enterprises (SMEs) are critical for Sri Lanka's sustainable economic growth. They are responsible for 52% of the country's gross domestic product. SMEs are arguably even more important for poverty reduction as they provide 45% of employment and considered as source of innovation. Despite their importance, SMEs struggle to access financing for business growth. Key constraints include banks' insufficient lending capacity, SMEs' limited business development capacity, networking, and insufficient policy and institutional framework. These issues are more severe for women-owned SMEs (WSMEs), which is represented only around 8% among formal enterprises.

The Asian Development Bank (ADB) has supported the Government of Sri Lanka to address the issues with strong focus on women empowerment through a series of loans, grants and TAs. In particular, Small and Medium-Sized Enterprise Line of Credit Project has brought positive impacts in changing the behaviors of banks and SMEs. During 2016-2020, $175 million worth of ADB loans have reached out to 3,539 SMEs, of which 1,339 (37.8%) are WSMEs, with semi-annual lending targets for participating banks and cofinancing grant for WSMEs. However, banks still rely heavily on collateral-based-lending, resulting to further financial exclusions of many SMEs, in particular WSMEs, who do not have collateral.

Impact of the coronavirus disease pandemic. The coronavirus disease (COVID-19) pandemic has severely impacted the SME sector in the country. Decline of global demand, supply chain disruption, and slowdown of local economic activities due to the social distancing and containment measures have caused many SMEs to face liquidity shortage which severely hampered business continuation. The government has provided economic relief measures targeting the vulnerable SMEs: (i) the Central Bank of Sri Lanka (CBSL) relaxed monetary policy, launched an LKR150 billion concessionary refinancing program to provide liquidity to SMEs; (ii) financial institutions were allowed to reschedule nonperforming loans without downgrading asset classification; and (iii) the government announced a debt repayment moratorium on bank loans for SMEs until December 2021. In spite of these measures and although banks are well-capitalized, there is a risk that the lending capacity of the banks will decline as asset quality worsens and profitability declines due to prolonged impact of the pandemic.

In November 2020, ADB approved the third additional financing to the Small and Medium-Sized Enterprise Line of Credit Project to provide affordable working capital financing through 10 local banks to SMEs under its Emergency Response Component (ERC). As of 30 September 2021, around $37.5 million equivalent of the ERC were onlent to 1,260 SMEs, and 526 (42%) were without collateral against real estates or financial assets, which exceeds an original target of 20%. However, its outreach remains constrained. State-owned banks tend to provide non-collateralized subloans to rural micro enterprises but require personal guarantee, and private sector banks have less reliance on personal guarantee while merely meeting the minimum non-collateralized subloan target of 20% by focusing on medium-sized enterprises. To mobilize liquidity to a wider range of SMEs, a well-functioning credit guarantee scheme is critical for mitigating banks' risks especially under the current market environment. The credit guarantee scheme can also catalyze banks' lending to long-term capital investments to accelerate post-pandemic economic recovery and transformation. Notwithstanding, the COVID-19 pandemic has also created opportunities for economic diversification and innovation, including the rise of e-commerce and other knowledge-based services, which currently do not have much asset for collateral thus face difficulty in financial access.

Sustainable SME credit guarantee. Recognizing the timely need for enha

Impact
Project Outcome
Description of Outcome
Progress Toward Outcome
Implementation Progress
Description of Project Outputs
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
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 engage the consultants following the ADB Procurement Policy (2017, as amended from time to time) and its associated project administration instructions and/or staff instructions._All the disbursements under the TA will be made in accordance with ADB's Technical Assistance Disbursement Handbook (2020, as amended from time to time).
Procurement The procurement of consulting services will follow the ADB Procurement Policy (2017, as amended from time to time) and its associated project administration instructions and/or staff instructions.
Responsible ADB Officer Hoshino, Takuya
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Department of Development Finance
Ministry of Finance
Timetable
Concept Clearance -
Fact Finding -
MRM -
Approval 10 Jan 2022
Last Review Mission -
Last PDS Update 10 Jan 2022

TA 6903-SRI

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
10 Jan 2022 02 Feb 2022 02 Feb 2022 31 Dec 2026 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
800,000.00 0.00 0.00 0.00 0.00 0.00 800,000.00 17 Jun 2022 14,406.00

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

The Access to Information Policy (AIP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.

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Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.


Evaluation Documents See also: Independent Evaluation

None currently available.


Related Publications

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The Access to Information Policy (AIP) establishes the disclosure requirements for documents and information ADB produces or requires to be produced in its operations to facilitate stakeholder participation in ADB's decision-making. For more information, refer to the Safeguard Policy Statement, Operations Manual F1, and Operations Manual L3.

Requests for information may also be directed to the InfoUnit.

Tenders

Tender Title Type Status Posting Date Deadline
Senior Risk Management Advisor (SME Credit Guarantee Institution) Individual - Consulting Closed 15 Feb 2022 28 Feb 2022
Senior SME Banking Advisor (SME Credit Guarantee Institution) Individual - Consulting Closed 15 Feb 2022 28 Feb 2022

Contracts Awarded

No contracts awarded for this project were found


Procurement Plan

None currently available.