CMA Sri Lanka SME Development Committee Budget proposals for promotion and development of SME sector

The CMA Sri Lanka SME Development Committee comprises members from professional bodies, commercial banks, chambers of commerce and industry, and industry experts who have been meeting since April 2020 to find solutions and support the SME sector. They have organised conferences, workshops and UN MSME days annually since 2021. The Chief Guest at the last UN MSME Summit was ADB Country Director Takafumi Kadano.

The United Nations state: “Let’s not forget that MSME enterprises, which generally employ fewer than 250 persons, are the backbone of most economies worldwide and play a key role in developing countries.” 

In Sri Lanka, MSMEs comprise more than 75% of enterprises and account for 52% of GDP, 45% of employment, and a meagre 5% in exports. The UN General Assembly has declared 27 June Micro-, Small and Medium-sized Enterprises Day, to raise public awareness of their contribution to sustainable development and the global economy. CMA Sri Lanka SME Development Committee has been celebrating this event annually by organising conferences along with the banking sector and their SME customers which were very successful.

Some of the Budget proposals which the Committee wishes to make for the development of the SME sector are as follows:

1. Expedite the SME Credit Guarantee Institution to commence operations immediately to benefit entrepreneurs and start up projects:

One of the significant achievements of our committee was the recommendation made to the Ministry of Industries in 2020 to submit a Cabinet Paper to reactivate the SME Credit Guarantee Institution which had been initiated with a loan of $ 100 million from ADB funding and included in the Budget proposals in 2017 to provide guarantees to entrepreneurs and start-ups to obtain loans without providing collateral. This project which was put in cold storage was still listed in the pending loan portfolio of ADB. We found this out and made representations to the Minister of Industries and who submitted a cabinet paper was approved by cabinet On 27 April 2021 and handed over to the Finance Ministry External Resources Department, which we have been informed is now ready to be launched fulfilling a great need to support those who are unable to provide collateral or security to banks. This will benefit and promote start up young entrepreneurs and women led SMEs and many others who are unable to provide collateral to the banks and lending institutions.

We wish to suggest that action be taken to expedite the commencement of the Credit Guarantee Institution at an early date.

2. The setting up of Export Houses to promote and develop MSME exports

The committee also wishes to recommend the setting up of Export Houses to promote exports of MSMEs approved by the Export Development Board. They will market the products and services of MSMEs and SMEs in overseas markets and will mainly support local farming and fishery communities, local suppliers – producers – manufacturers, export villages, service providers such as IT and suppliers of technical skills with international buyers in the global market to increase the MSME contribution towards national exports from the present 5% to 15% within 3-5 years. The registration with the EDB will give official recognition to the Export Houses and it is requested that EDB supports them when organising International Exhibitions and will also assist them in obtaining bank facilities for undertaking exports.

3. Definition for MSMEs

(a) It is suggested to revise the present definitions to fall in line with the depreciation of the currency which has resulted in the price of most goods increasing substantially including capital goods, raw materials, wages etc. It is suggested to increase the upper limit of turnover of Medium sized enterprises to Rs. 1,000 million which is similar to the Central Bank classification.

4. Suggest that an MSME Development Act be enacted with the object of promotion and development and enhancing the competitiveness of Micro, Small and Medium Enterprises (“MSME”) similar to other countries to give necessary support to this most important sector.

The Act should be a single legal framework for the MSME’s registration, governing and providing protection to Small Industries and its employees throughout Sri Lanka. The National Board established under the Act shall have power to implement various schemes and policies for upliftment of the MSME Sector and as a result the MSME sector to be made a major contributor of Industrial Production and Exports. The Act should as a necessity make the MSME sector a vibrant and dynamic sector of the Sri Lankan economy and which will provide protection to the SME sector.

5. Support in accounting, financial and cost management, digitisation and e-commerce

 The maintenance of proper books, accounts and cost records is recommended as this will enable the business organisations to run profitably and to gradually advance to Small and Medium sized enterprises. Digitisation will support accounting while marketing aspects could be expanded using e-commerce. Maintenance of financial and cost records will also assist the banking sector when lending to the SME sector to provide loans with no additional security.

6. Building entrepreneurship

Turning unemployment into entrepreneurship was an address made at the 2024 CMA Sri Lanka UN MSME Summit in Colombo by the speaker from Grameen Trust of Bangladesh which we are now working on. 

He stated that to address this global problem and achieve zero unemployment through turning unemployment into entrepreneurship Professor Muhammad Yunus the Nobel Laureate launched the program ‘New Entrepreneurship Program’ which is commonly known as ‘Nobin Program’ on the ground in 4 September 2013.

The above reforms will enable the resurgence of the MSME sector to continue playing their crucial role in creating decent jobs and improving livelihoods, small businesses also depend more than ever on an enabling business environment, including support for access to finance, information, and markets.