Institutional Support to Create
Thriving SMEs in Sri Lanka
Dr. B.M.S. Batagoda
Deputy Secretary to the Treasury
Ministry of Finance and Planning
Sri Lankan Economy and
Achievements since 2009
• After the end of 30 years long conflict situation
prevailed in the country the ‘conflict country’ has
now become a country with ‘emerging economy’
• The 2005 - 2010 period witnessed the ending of a
26 year long terrorist insurgency placing the
country on a path of peace, reconciliation and
rapid development.
•
Sri Lanka has emerged strongly as a middle
income country with promising outlook.
Sri Lankan Economy …
Key Achievements
Item
Unit
2005
2010
2013
GDP
USD bn
24.4
49.6
67.2
Per capita Income
US$
1,241
2,400
3,280
Inflation- GDP
deflator
%
5.7
7.3
6.7
Exports
US$ bn
6.3
8.3
10.4
Unemployment
%
7.2
4.9
4.4
Poverty
%
15.2
7.6
6.4
Literacy Rate
%
92.0
92.5
95.6
Literacy RateComputer
%
9.7
20.3
40
Sri Lankan Economy …
•
•
Impressive growth rate of 7.3 percent in 2013 recovering
robustly from the lower growth rate of 3.5 percent recorded in
2009
Per capita income increased to US$ 3,280 in 2013 from US$
2,057 in 2009
Sri Lankan Economy …
Strong performance in all three sectors of agriculture,
manufacturing and services
•
Share of GDP at Current Factor Prices from 1950-2013
70
60
40
Agriculture%
Industry %
30
Services %
20
10
0
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
As a %
50
Year
Sri Lankan Economy …
• Low Inflation at 6.7 percent in 2013
• Overall budget deficit was reduced to 5.9
percent of GDP compared to the target the high
deficit of 9.9 percent in 2009
• Unemployment rate declined to 4.4 percent
in 2013 from 5.8 percent in 2009
Foreign Direct Investment -FDI
FDI Inflow
FDI
FDI
Inflow (as a
Year
(US$ % of
Mn) GDP)
1,600
1,400
1,200
800
600
400
200
FDI Inflows
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
-
1990
US$ mn
1,000
1990
42
0.52
1995
16
0.12
2000
173
1.04
2005
287
1.18
2010
516
1.04
2015
2500
2.5
2020
7500
4.0
Macro Fiscal Targets and Socio Economic Outcomes 2013 - 2016
Indicator
GDP (Rs. Bn)
Economic Growth
Per Capita Income (US $)
Inflation – GDP Deflator
Budget Deficit as a % of GDP
Total Government Debt as % of GDP
Total Investment as a % of GDP
Public Investment as a % of GDP
Exports (US $ Bn)
International Trade Turnover (US $ Bn)
International Services Income (Net) (US $ Bn)
Earnings from Tourism (US $ Bn)
Remittances (US $ Bn)
Access to Electricity
Access to Telecommunication
Women in Labor Force
Unemployment Rate
2013
2014
2016
8,513
9,790
12,799
8%
9%
9%
3,638
4,171
5,394
5%
5%
5%
6%
5%
4%
78%
76%
75%
30%
31%
33%
7%
7%
7%
12
14
15
32
36
2
1
2
2
6
44
3
3
6
100%
100%
7
100%
93%
95%
100%
36%
37%
40%
4%
3.7%
3%
Industry Related Key Targets by 2016
Increase Export
Earnings
Securing valuable
foreign exchange
to the country
• Enhancement
of
potential
export
based industries to
increase
export
earnings to US$ 15
billion
• Saving US$ 3 billion
per
year
by
promoting import
replacement
industries
Development of
SME sector
• Convert 5 percent
of country’s SMEs
to Medium Scale
Industries in every
year
• Develop 5 percent
of medium scale
enterprises to large
scale enterprises
• Ensure proper
access to finance
• Make available
affordable
technologies for
SMEs
Key Development Strategies






Create more conducive environment for investment
Integrate into the Global economy through five hubs
Empower the rural economy
Diversification and growth of regional economies
Urban -rural connectivity
Revitalize the Agriculture sector

Expand production, efficiency and quality of
industries

Globally competitive industrial sector

Meeting energy needs of the country
Knowledge-based economy
Strategic reorientation of state owned enterprises (SOEs)
Environmentally friendly urban development
Sports Economy




domestic
Comparative Advantage - Sri Lanka

A functioning democracy

Environmental superiority

Locational advantage (Hub-status)

Promising Human resources / skilled labor

Capacity to feed the rest of the world
AAA Economy (Agriculture, Aquaculture, Animal-husbandry)

Capacity to brand Sri Lanka - tea, natural rubber, spices, gem and
jewelry,IT, bio-diversity and tourism, apparel
(Contd…..)
Comparative Advantage - Sri Lanka





Potential heavy industries
cement, steel, textile, sanitary-ware & ceramics
Prospects in food industries
sugar, dairy, agri- processing, value chain activities, food and
beverages
Health Economy- best regional Medicare
clinical trials/ research/ pharmaceuticals
Emerging knowledge-hub
medical, legal, accountancy and finance expertise
Asia’s best tourist destination
eco- friendly, bio diversity, best beaches
Significance of SMEs in Sri Lanka
The Small and Medium Enterprises are the backbone and the
engine of the growth. Some robust statistics indicating the
significance of the SME sector




EMPLOYMENT – 32 % by SMIs
VALUE ADDED - 27 % by SMIs
GDP Contribution
Establishments
- 52 % by SMEs
- 80 % by SMEs
13
Significance of SMEs in Sri Lanka
• The small-holders in the plantation industry account for 70 percent of
total tea production of the country.
• Similarly , 50 percent of the apparel and garment manufacturing is
handled by individual entrepreneurs.
• Over 70 percent of the public transportation sector is being dominated by
individually owned bus and lorry operators.
• About 80percent of domestic trade activities is done by sole
proprietorships and partnerships.
• Around 45 percent of tourism and recreation services are handled by
family entrepreneurs.
• At least 50 percent of the local construction industry is supported by small
and medium enterprises.
Export Performance of SMEs
Number of Exporters ( %)
Export Turnover
(Rs.Mns)
SME
exporters
8%
Large
Exporters
10%
SME
exporters
90%
Large
Exporters
92%
Key Elements for SME Development
 Ensuring proper access to finance
 Improving access to technology
 Improving access to market
 Facilitating backward forward linkages
 Maximum value addition and quality improvement
 Creating a skill labor force
 Simplified labor legislations and tax system
Existing Institutional Support System for SMEs
Public Sector
Ministry of Finance & Planning
Department of National Planning, Department of Development Finance
Ministry of Economic Development
Ministry of Technology and Research
Industrial Technology Institute
Ministry of Industry & Commerce
National Enterprise Development Authority
Ministry of Investment Promotion and -BOI
Ministry of Traditional Industries & Small Enterprise Development
Industrial Development Board, SMEA
Ensuring Access to Finance
Government implemented, is implementing several credit line
projects to enhance the availability of the credit through
existing banking network.
1. Donor Funded Projects
•
Small and Medium Industry I – IV project (SMI I-IV)
- Status :- Completed
- Project Duration :- 1979-1998
- Funding :- WB - $ 110 mn and ADB $45 mn
- Total Loan Granted :- Rs. 7462.2 mn (15551 No of Loans)
- Eligible Sectors :- 20 Sectors
- Project Area :- Island wide
- PFIs :- BOC,PB,HNB,DFCC, CB, NDB, SB,Seylan,RRDBs
(Contd…..)
Ensuring Access to Finance

Small and Medium Sector Development Project (SMESDP)
-

Status :- Completed
Project Duration :- 2002 – 2007
Total Loan Granted :- Rs. 5947.9mn (2020 No of Loans)
Eligible Sectors :- 20 Sectors
Project Area :- Island wide
PFIs :- DFCC, CB, NDB, SB
Small and Medium Enterprise Regional Development Project
- Status :- Completed
- Project Duration :- 2008 – 2011
- Total Loan Granted :- Rs. 4261.8 mn (966 No of Loans)
- Interest rate :- Monthly AWDR + Operational cost + Margin
- Eligible Sectors :- 21 Sectors
- Project Area :- Out of Western Province
- PFIs :- DFCC, CB, NDB, SB
(SMERDP)
(Contd…..)
Ensuring Access to Finance
•
Small and Medium Enterprise Development Facility Project
(SMEDeF) – WB funded
Status :- On going
Project Duration :- 2010 – 2015
Interest rate :- Average Monthly AWDR + 2%
Eligible Sectors :- 23 Sectors
Project Area :- Island wide
PFIs :- BOC,PB,NHB,CB,NDB,SB,RDB,DFCC
•
EIB Loan Scheme – European Investment Bank
Status – On going
Project Area :- Island wide
Project Duration – 2014-2015
Project Cost – Euro 90 mn
PFIs – DFCC,CB,RDB
(Conted…..)
Ensuring Access to Finance
•
New Comprehensive Rural Credit Scheme
-
Status :- On going
Project Duration :- 1994 – up to date
Interest rate :- Farmer 8% (6% interest subsidy)
Eligible Sectors :- 32 crops
Project Area :- Island wide
PFIs :- BOC,PB,NHB,CB,Seylan Bank,SB,RDB,
(Conted…..)
Ensuring Access to Finance
2. Local Funded Projects
•
Krushinavodaya
Status :- Completed
Project Duration :- 2007 – 2010
Interest rate :- 8 percent for borrower and 9 percent interest subsidy per annum
Eligible Sectors :- Cultivation loans for Small farmers
Project Area :- Island wide
PFIs :- BOC,PB,NHB,CB,SDB,SB,RDB,LDB
•
Agro Livestock Development Loan Scheme (ALDL)
Status :- Completed
Project Duration :- 2008 – 2012
Interest rate :- Small dairy farmers 8% (6% interest subsidy)
Investors 12 % (2% interest subsidy)
Eligible Sectors :- Agriculture and Dairy farming, Livestock, milk processing
Project Area :- Island wide
PFIs :- BOC,PB,NHB,CB,NDB,SB,RDB,DFCC,SDB,UB
(Contd…..)
Ensuring Access to Finance
Investment Fund Account (IFA) & SME Bank Branches
• The steps were taken to establish an IFA by reducing tax on profit
from 37 to 28 percent in each bank.
• 10 percent out of IFA to be lent to each agriculture and SME sectors
– Budget 2012
• setup a special SME bank branch by district under the Bank of
Ceylon (BOC), People’s Bank (PB) and Regional Development Bank
(RDB) – Budget 2012
Bank
SME Branches
IFA Balance
Bank of Ceylon
12
6.9 billion
People’s Bank
15
6.1 billion
RDB
SME unites were established in 633 million
each regional office

(Contd…..)
Ensuring Access to Finance
Loans granted by Sectors – 2013
Sector
Total (Rs. mn)
Amount
Agriculture
%
663.3
3.1
3,472.1
16.6
13,045.1
61.9
Hotels
2,470.0
11.7
Other
1,420.8
6.7
Total
21,071.3
100.0
SME
Infrastructure
Improving Access to Technology
National Enterprise Development Authority (NEDA) was established
Prime Objectives:





Providing policy and institutional support to encourage promote and
facilitate enterprise development within Sri Lanka (With special
emphasis on the Small and Medium Enterprise Sector of the
country).
Stimulating the growth, expansion and development of Sri Lanka’s
economy by encouraging, promoting and facilitating small and
medium enterprise development within Sri Lanka.
Formulate policies, plans, promotional incentives appropriately
designed and effectively support and promote trade and
development in industry, agriculture services.
Empowerment of people of human capital development with
technical skills as an integral component of enterprise development.
Development infrastructure
development needs.
facilities
required
to
make
the
(Contd…..)
 Facilitate the access to finances
development and operations.
to
entrepreneurs
for
enterprise
 Establish a technology development fund to promote research and
development, product development, technological enhancement and
commercialization of patents.
 Facilitate regional economic development.
Tax and related concessions
Income tax was reduced to 10%
 Steps were taken to shield the sector from unfair import
competition
 Steps were also taken to increase bank loans and reduce
interest rates
 Propose to amend tax laws to permit SMEs, whose
turnover does not exceed Rs. 500 million, to deduct
expenditure of the year prior to the commencement of
the enterprise, from the income of the first year in which
tax become payable
 Small enterprise engaged in the collection of fresh milk,
green tea leaves, cinnamon, latex will be exempted from
Nation Building Tax

(Contd…..)




SMEs with a quarterly turnover of less than Rs. 500
million to be exempted from having to pay Economic
Service Charge, up to Rs. 100 million
Reduce taxes on the importation of machinery and
equipment, where such items are not manufactured in
Sri Lanka to promote the modernization of such factories
Bank of Ceylon, Peoples Bank and Regional Development
Bank will each set up a special SME bank branch in all
districts
Reduce prevailing income tax from 28% to 24% for the
interest income from such banking and other fee levying
activities
(Contd…..)

A 50% Government guarantee will be given for those banks
providing loans to restructure SMEs to restructure their
performance

Increase the threshold income of the Economic Service
Change for rs.25 million to Rs.50 million and thereby simplify
the application of such tax.

Ministry of Technology and Research provides their service to
their service to the SME sector at a rate of 40%.

The Ministry bares 60% of the cost of service regarding
Research and development
(Contd…..)
Threshold for the registration for VAT
Threshold of registration for VAT was increased by the
VAT (Amendment) Act No.17 of 2013 with effective from
01.01.2013
from Rs.650,000/- per quarter or 2.5 million per 12
months
to Rs.3 million per quarter or Rs. 12 million per 12
months.
Accordingly SMEs with less than above threshold are not
required register for VAT
Similar amendment was introduced to NBT also
30
Thank You
31