World Bank approves US$ 57.4 million to support small and medium business development

The World Bank announced Wednesday that it has approved a US$ 57.4 million credit to strengthen access to finance for the Small and Medium Enterprises (SMEs) in Sri Lanka.

The Small and Medium Enterprise Development Facility Project supports the Sri Lankan government's efforts to improve access to finance for SMEs affected by the Global Financial Crisis.

Announcing the credit, the monetary institute said although 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," a communiqu� issued by the World Bank quoting Daniel J. Boyce, World Bank Acting Country Director for Sri Lanka and the Maldives said.

Boyce was hopeful that the development of SMEs will lead to higher incomes and increasing employment opportunities for a larger segment of the population in the country.

The project, funded under the Pilot Crisis Response Facility, consists of two components.

According to the World bank, the first component, Financing and Risk Sharing Facility, 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 second component focuses on policy and capacity enhancement for SME banking providing technical assistance to support banks in developing their SME banking capabilities.

The project will also provide complementary technical assistance at the SME level to help SMEs strengthen their operations and improve their access to finance, the lender said.

According to economist Cecile Niang, World Bank and Task Team leader of the project says the project aims to give banks the incentive to provide credit to SMEs while building their SME lending capability over time.

"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," Niang added.