Transcript Slide 1

Creating an Enabling
Environment for
SMEs in Sri Lanka:
The Role of the Public Sector
Saman Kelegama
Institute of Policy Studies of Sri Lanka
1. Quick Take + Policy Framework
2. Key Issues
3. Role of the Public Sector
4. Key Action Areas
5. Way Forward
SMEs in Sri Lanka: quick take
How many SMEs in Sri Lanka? – difficult to quantify, no survey
Approx 70% of all enterprises are SMEs (MoFP)
91% of industrial establishments are SMEs (ASI
2008)
Contributes to around 26% of employment in
industries
Of 4,700 exporters, nearly 80% are SME suppliers
(EDB)
Current framework for the
development of SMEs in Sri Lanka…
GOSL Vision for the Future (2010)
 Implement a process to upgrade 5000 small-scale enterprises to
medium-level and 200 medium-scale enterprises to large-level
every year
 Establishment of entrepreneurial centers to encourage small and
medium scale entrepreneurs
 National Strategy for SME Sector Development - White Paper –
December 2002
Issues highlighted in 2002 SME White Paper are still relevant
today
Draft SME Policy 2010 – with JICA Consultant attached to NEDA
SMEs in Sri Lanka: Key Issues
Lack of widespread Business Development Services (BDS)
providers
Constraints in access to finance (both demand and supplyside issues)
SME owners need better managerial capability, strengthen
entrepreneurial potential
Productivity improvement and access to technology
Improved access to markets (better linkages in with local and
foreign value chains – subcontracting, etc.)
Rationale for Public Sector Support
Small size
• Lack of economies of scale
• High cost of information
Widely
dispersed
• Lack of collective voice
• Lack of influence on policies
Limited
resources
• Limited in management
capability
Role of the Public Sector
Public Support
Objectives
Regulatory
environment
• Address market failures to open
market access
• Improve transaction efficiency &
reduce risks
• Reduce fixed costs
Access to finance
• Increase competitive pressure in
financial markets
• Reduce risks & transaction costs
• Strengthen financial institutions’
capacity to serve small clients
Business
Development
Services
• Provide market support structure to
help build SME competitiveness
• Foster markets for services fit for &
demanded by SMEs
• Develop low-cost service “products”
and delivery mechanisms needed by
SMEs
Regulatory Environment
• Tax/labour legislation, competition policy
• Registration/licensing/administrative fees
• Commercial law/intellectual property
rights
• Infrastructure connectivity – roads,
transport, communication, IT, etc.
• Regulatory compliance should be SME
friendly
Access to Finance
Banks strong focus on collateral/security-based lending.
(Need to move to risk/cashflow-based lending)
Risk averse in lending to SMEs, particularly long-term
capital. Working capital is less of an issue
Branch officers unable to evaluate loan applications with an
SME-lens
Lack of SME-friendly credit rating/scoring scheme
Previous evidence of concessionary loan schemes low
disbursement rates – banks keen to promote their own
products?
Business Development Services
•
•
•
•
•
•
•
•
•
Information services
Management training/Entrepreneurship
Subcontracting activities
Standards
Project preparation
Incubators
Markets
Private-public partnerships
Technology/machinery
SME Policy formulation– looking East
 Countries in the Asian region have been found to share
similar constraints in the SME sector as Sri Lanka
 But they have far more robust SME development policies
whereas Sri Lanka does not:
Thailand  SMEs Promotion Plan (2007-2011)
Philippines  National SME Development Plan,
‘Magna Carta’ for SMEs
ASEAN Policy Blueprint for the ASEAN SME
Development Decade 2002-2012
Need to learn from the best practices in these countries
in developing a robust and comprehensive SME plan for
Sri Lanka
Access to Finance: Examples
Planters Bank Experience
(Philippines)
• Commitment to and focus on
its defined market – SMEs
• Profit consciousness to
ensure sustainability in its
operations
• Innovative approaches in
credit risk management
• Simplification of operations,
while remaining focused on
what it does best
Credit Guarantee Fund
(Korea)
• All banks pay an annual
0.225% of total outstanding
loans into the fund
• Staffed by qualified
graduates from a business
administration/
management background
• Following a credit rating
exercise, provide between
75-90% of loan coverage for
an SME seeking a loan
• Loans to SMEs rose from
35% of all loans in 1975, to
77% by 2013
Key action areas…
Expansion of BDS providers across the country, training
in business facilitation, building SME management skills,
accounting/finance skills, etc.
Improving SMEs access to and utilization of technology
(leverage on the Vidatha centres across the country?)
SME access to financing survey/study
Move forward faster on a National SME Policy with an
apex body that brings all stakeholders on board
Way Forward
Need coherent policy direction – strengthen apex
institutions
• SL needs strong, capable national institutions that can play an
effective role in SME development
• Currently SME-mandated government institutions are
scattered, measures are often taken on an ad-hoc basis and
too many government institutions are involved
• Need for better coordination to effectively and holistically
support the sector/address the core constraints inhibiting SME
growth
• While the NEDA was originally envisioned as the apex SME
‘one stop’ body to cater to these needs the current status of
NEDA falls short of this objective
• If NEDA is to become the apex ‘one stop’ body there is
streamlining to be done and more funds made available to
NEDA
Way Forward
Public procurement and linkages with larger firms
• Government agencies can be directed to increase the amount of
procurement made from SMEs, track this and report on progress to
the Ministry of Finance and Planning
• They could also be required to demonstrate annual incremental
increases in this
Encourage inter-enterprise cooperation and sub-contracting
• Larger enterprises could be given incentives for incorporating
domestic SMEs more in their supply chains
•Direct: tax concessions based on some formula of the value of
inputs procured from SMEs
•Indirect: national recognition scheme (awards) for large
enterprises that demonstrate the best supply chain linkages with
SMEs
Thank You
Web - www.ips.lk
Blog ‘Talking Economics’ - www.ipslk.blogspot.com
Twitter - @TalkEconomicsSL