Washington, September 8, 2010 - The World Bank yesterday approved a US$ 57.4 million credit for the Small and Medium Enterprise Development Facility Project for strengthening access to finance for Sri Lankan Small and Medium Enterprises (SMEs). The Project supports the Sri Lanka Government’s efforts to improve access to finance for SMEs affected by the Global Financial Crisis.
While the Sri Lankan banking sector has proven resilient to the effects of the global credit crisis, SMEs - which represent 91% of firms – have been more impacted. “The World Bank is uniquely positioned to help Sri Lankan banks to gain better access to medium and long term funds, for on-lending to SMEs,” says Daniel J. Boyce, World Bank Acting Country Director for Sri Lanka and the Maldives. “We hope the development of SMEs will lead to higher incomes and increasing employment opportunities for a larger segment of the population in the country.”
Funded under the Pilot Crisis Response Facility, the project consists of two components. The first is the Financing and Risk Sharing Facility component. It includes a Line of credit to participating state and private commercial banks to refinance SME loans and a risk sharing facility providing partial credit guarantees to reduce the banks’ risk of lending to SME borrowers.
The project’s second component focuses on policy and capacity enhancement for SME banking. Technical assistance to support banks in developing their SME banking capabilities will be provided. The project will also provide complementary technical assistance at the SME level to help SMEs strengthen their operations and improve their access to finance. Finally, the project includes support to identify measures to create a more enabling environment for SME banking.
“The project aims to incentivize banks to provide credit to SMEs while building their SME lending capability over time,” says Cecile Niang, Economist, World Bank and Task Team leader of the project. “The banks can independently access the line of credit or risk sharing facility, but the success of the facilities will depend on the application of modern SME lending technologies and risk management procedures.”