Ceylon Chamber of Commerce’s key recommendations on SME Development

Sri Lanka Economic Acceleration Framework 2020-25

The Ceylon Chamber of Commerce recently launched a working draft of ‘Sri Lanka Economic Acceleration Framework 2020-25’ towards building a $ 135 billion economy by 2025. Today we feature the 

SME Working Group proposals from the document

Lead:

Arjuna Herath - Senior Partner, E&Y

Members of the SME Working Group:

Samadanie Kiriwandeniya - Chairperson, SDB Bank

Hasitha Wijesundara - Senior Advisory, GIZ SME Sector Development Program

Sujeewa Rajapakse - Managing Partner, BDO Partners

Jude Fernando - Deputy General Manager, SME and Midmarket Hatton National Bank Plc

H.M.S. Lakshman Wijeyawardene - Director, NEDA

1 Streamline the SME development ecosystem and create an enabling environment.

a) Amalgamate NEDA, IDB and other related public sector institutions (such as the Small Enterprises Development Division) working on the SME sector to create an ‘SME Authority'. This will act as an umbrella organisation, responsible for SME policy, advocacy and coordinating proposed island-wide one-stop shops. The existing staff and resources should be utilised without additional burden to Government coffers.

• Formulate a SME Advisory Council under the relevant line ministry as the sole facilitator for the establishment of the SME Authority (under MOIC), which will consist of key representatives of the relevant Government ministries, institutes, agencies (including CBSL), commercial banks, chambers, universities and more.
• Formulate mandatory and statutory amendments to the National Enterprise Development Authority Act, No. 17 of 2006 and Industrial Development Act No. 36 of 1969. Enact a new Act to govern the SME Authority and grant it an exclusive mandate and power to serve the SME sector.
• Map out current services and develop a detailed plan for transforming the existing structures and strategies that the selected Government institutions practise and motivate these institutions to adhere to an island-wide SME Development Strategy.
• Pool in qualified resources from NEDA and IDB to work for the amalgamated entity and strengthen the capacity of the staff on policy analysis, performance monitoring, inter- and intra-institutional coordination, database management and dissemination of information.
• Facilitate the provision of information and guidance for SMEs regarding regulatory and institutional procedural requirements in carrying out their businesses through the website of the SME Authority.

b) Establish district level ‘one-stop shops’ as a focal point of assistance for SMEs to coordinate and facilitate service deliveries including, but not limited to, licensing, registration and business development services (using the existing resources).

•  The SME Authority is to coordinate the programs of multiple agencies serving and assisting SMEs at a regional level by pooling in resources from Government institutes (such as NEDA, IDB, SED and Vidhatha Centres), establishing a clear communication line and provisioning comprehensive training to select staff.
• Develop a consultative body with potential private agencies and organisations (including business consultants and banks) to be involved in service and information provision at the one-stop shops, especially to facilitate business development services.
• Technologically enable the one-stop shops by way of a dedicated portal to allow SMEs to direct their requirements online through an application, which will ultimately get directed to the respective agency in order for timely and quality service delivery.

c) Develop a centralised SME database.

• Carry out a census to collate the most recent information on SMEs which will then be used by the proposed authority in decision-making and the work of initiatives such as the one-stop shops.

d) Establish a common SME definition that is accepted by all institutions and policymakers. The SME Authority is to take the required steps to ensure that the national level definition is being followed island-wide by all parties. The authority will also take action to revisit the national SME definition once every three years based on economic and business development in the country (unless there is a major change in the economic structure).

2. Improve access to finance for SMEs.

• Establish a ‘Credit Guarantee Institution’ under the CBSL, as a channel for SMEs to access credit facilities from lending institutions (commercial banks) without collateral, at a reasonable rate.

Complete required regulatory amendments to support the establishment of the credit guarantee institution.

Use the mechanism of PPP, where CBSL will act as the funding and monitoring entity, while the lending institutions will provide SME funding accepting the guarantee provided.

• Establish a separate SME (unit) within the regional development department of CBSL for the regulation of SME loans.
• Set up a long-term SME Loan Fund, with donor community support (donations, gifts, grants), loans or any other source of funding, administered by the CBSL SME Unit.
• Create a link between banks and suggested one-stop shops as a platform for SMEs to connect with banks to resolve their access to finance issues.
• Uplift equity financing mechanisms for SMEs by incentivising the establishment of venture capital mechanisms at the district level (channel funds on concessionary terms to VC companies and tax concessions).
• Provide regulatory incentives to encourage banks to increase lending to SMEs (e.g. reduce the risk weightage of lending to SMEs).

3. Facilitate SME access to markets.

• Increase exports by SMEs by 20% over a period of three years.
• Formulate effective Government policies to create linkages and facilitate a market for the goods and services of SMEs.

Public sector retail shops to dedicate a certain amount of shelf space specifically for SMEs.

Enable large private corporates to create links with SMEs.

• Upgrade and popularise SME.lk as an effective portal for SME trade, which will also facilitate e-commerce.
• Enhance opportunities for SMEs to participate in foreign trade promotion exhibitions.
• Organise regular SME trade fairs through PPP.
• Support SMEs to gain e-marketing skills and promote e-marketing and ecommerce.

4. Scaling up SMEs.

• Upon establishing the SME database, look at targets to elevate a certain percentage of SMEs in each category (micro, small, medium) to the next category.
• Establishment of SME-specific industrial zones.
• Promote business incubation through the SME Authority and one-stop shops.
• Create or update a registry of all SME training and business development services providers.

5. Entrepreneurship and skills development with a focus on women’s entrepreneurship - scarcity of skilled workers at SMEs has been a major issue. The sector is struggling to attract trained workers and to retain skilled workers for efficient and high-quality production and service delivery.

To overcome these:

• Expand vocational training with the private sector’s support. 

Allocate more resources for vocational training institutes.

A timely update of the curricula of vocational training institutions to suit changing economic requirements.

•  PPP training arrangements with some tax incentives for private sector engagement.
•  Loan facilities at concessionary rates for training and development under strict supervision.
•  Encourage universities and other tertiary sector institutions to provide training support for SMEs.

Promote industry-specific technical training jointly with subsector specific institutions (e.g. Gem and Jewellery Institute).

• Presently, there is low female labour force participation in the workforce that is not utilised for the economic development of the country. A lack of social acceptance, technical know-how, finance facilities, access to networks, access to and influence by policymakers are some issues faced by female entrepreneurs. The aforementioned implementation initiatives should be implemented with focus given to women.