Cash strapped SMEs get concessions to keep heads above water
The new government will be providing immediate relief to small and medium scale entrepreneurs who face difficulties in repaying their loans taken from banks and financial institutions. State Minister for Development Banks and Loan Schemes Shehan Semasinghe said.
Necessary concessions including the writing off the loans taken by cash strapped SMEs will also be considered by the Finance Ministry without burdening the commercial banks, he revealed.
The initial discussion was held under the patronage of Prime Minister Mahinda Rajapaksa with the state and private banks to find solutions to the problems of SMEs.
These problems have been aggravated to the level of losing land or property mortgaged by small and medium entrepreneurs as collateral when obtaining bank loans.
The Minister pointed out that concessions will be given soon when relevant reports are received from the respective banks.
He noted that banks have been requested for a report on what they can do to assist small and medium scale entrepreneurs relating to their loan repayment obligations.
Some businessmen have been blacklisted by the Credit Information Bureau (CRIB). Businessmen are at risk of losing their property.
Sri Lankan banks provided loans to over 1,750 micro, small and medium enterprises at retail market interest rates in 2018, with over a quarter of this capital being channeled towards women-led SMEs.
These entrepreneurs face many impediments in access to finance and as a result they had to resort to borrowings at very high cost, especially through the informal sector, specialist consultant in SME sector, chairman of the National Institute of Exporters Dr. Jagath Peiris told the Business Times.
He noted that the government should consider the plight of small and medium businessmen struggling to raise fresh capital to resurrect their SMEs and assist them by issuing a directive to banks to grant loans without surety.
The Treasury can give a guarantee for such loan facilities for SMEs by considering their appeals case by case, he pointed out.
The government should float a state owned venture capital firm to lend a helping hand to cash strapped SMEs he added.
Equity capital is still a restraint on SMEs. The venture capital industry is in a primary stage, with only 0.1 per cent of total assets in the financial system of Sri Lanka, Dr. Peiris disclosed.
He noted that the government can intervene in setting up the venture capital firm with foreign donor agency assistance.
Encouraging active participation of venture capital companies and leasing companies to provide credit support for SMEs, amend the Loan Recoveries Act and provide opportunities for sick industries to reconstruct and instill financial discipline in SMEs were among the suggestions made to the government by Dr. Peiris.
Kulathunga Rajapaksa, Managing Director, DSI Samson Group (Pvt) Ltd said he has suggested to the president to exempt SMEs from all taxes imposing a threshold on their turnover.
He added that it is essential to abolish the present system of granting tax exemption for exporters in accordance with their volume of exports.
The country needs to have a consistent policy for SMEs, he said adding that it’s important that smaller companies are given the proper support to function smoothly.
“Nowadays, this is not the case as the laws have been adjusted in such a way to discourage the SME sector,” he pointed out.
The SME sector needs a clear cut set of policies, assistance from development banks, state recognition, room to develop, and an easier taxation structure, he emphasised.