National study reveals MSMEs underserved by banking and insurance industry

• MSMEs have less confidence on banks and financial institutions
• Find manner in which debt moratorium implemented questionable
• Estimated average working capital requirement for an MSME to be around Rs.9mn

By Shabiya Ali Ahlam 
The local micro, small and medium enterprises (MSMEs) continue to be underserved by the country’s banking and insurance industry, a national study revealed and the failure of an intervention along with the absence of the necessary stimulus during the ongoing crisis will result in a sizable proportion of these businesses to diminish. 

A draft report released by the Small and Medium Business and Enterprise Development Ministry yesterday revealed that following the global pandemic that led to an eight-week-long islandwide lockdown, the MSMEs have been gravely impacted and are struggling to stay afloat with no stimulus package extended their way.

“The finding of the survey confirms that the Sri Lankan banking system is not fully catering to micro and small entrepreneurs. Sri Lanka does not have a proper insurance and other protection schemes for micro and small business owners and their business,” the study revealed.

It highlighted that when applying for COVID-19 economic relief through banks and financial institutions, MSME respondents have faced a number of challenges and difficulties to produce suitable collateral, EPF documentation and CRIB clearance, thus being turned away from receiving any such support. According to the national study, the MSMEs have less confidence in banks and financial institutions and also find questionable the extent to which the Central Bank’s debt moratorium is being implemented by the banks and financial institutions. It was also revealed that the majority of the MSMEs are unaware of the government’s COVID-19 debt moratorium relief package.

The study found that the minimum average working capital requirement estimated for an MSME is around Rs.9 million. It pointed out there remains a “high demand” for immediate business survival matching grants as financial relief similar to the economic stimulus packages prescribed by many other countries.

Furthermore, the report stated that the local MSME sector is insufficiently connected with forward and backward value chain links within the MSME ecosystem.

“This survey is a witness that indicates an MSME in Sri Lanka has a great potential to improve its business models using online technologies, as only 10 percent of MSMEs from rural areas do not have access to online facilities or they do not have the IT literacy at all,” the report stated.

Despite the access to the relevant platforms, it is observed that a large proportion of MSMEs are incapable of engaging with online and virtual systems, which stresses the need for efforts in capacity building and technology transfer.

Listing out a 15-point recommendation plan, the national study urges the immediate implementation of the same within a period of 60 days.

The study stressed that the Small and Medium Business and Enterprise Development Ministry must find ways and means to accelerate planning and implementation of the listed recommendations to ensure the sector receives the required emphasis.

15-point recommendation list to uplift MSME sector

1. Appoint an ombudsman for MSMEs to collect data on MSME issues with special reference to track and trace how MSMEs are receiving relief from banks and financial institutions. 

2. Set up and establish a district-wise MSME Support and Core Desk, with the existing staff of NEDA. 

3. Establish the MSME national database using a digital and online system. 

4. Define and implement economic stimulus packages for MSMEs. 

5. Appoint a national MSME Advisory and Steering Committee (ASC) in the Small and Medium Business and Enterprise Development Ministry to facilitate, follow up, implement, monitor, evaluate and report the progress of the MSME strategic plan of the government. 

6. A special national-level programme to be developed with the engagement of the relevant government, private and NGO partners to offer a sustainable solution for those who become unemployed as a result of the COVID-19 impact. 

7. Design, develop, pre-test and commercialise a demand-driven MSME Virtual Platform and Virtual Forum for reporting problems, facilitate solutions and to provide online training and other resource access for MSMEs. 

8. National MSME raw material production, usage policy and plan to be formulated with the required feasibility study. 

9.  Provide strategic support to facilitate women economic empowerment and to promote gender equality in MSME development policies and plans. 

10.  Sustainable agriculture and food security national policy and strategies to be formulated together with other related stakeholders. 

11. New and innovative MSME owners and the business protection scheme to be introduced. 

12. Select and announce suitable approved online, cloud and remote services and solution providers with a promotion. 

13. The Small and Medium Business and Enterprise Development Ministry must initiate a discussion with the CBSL, Labour Department and other related employer and employee chambers and unions to review and suggest suitable terms and conditions for the players in the gig economy. 

14. Prepare a long-term MSME economic development plan, with a clear and accurate forecast to generate MSME income for the coming three to five years, in order to achieve the targeted percentage contribution for GDP. 

15. Facilitate district-level consultative meetings and produce a three-year rehabilitation and development plan for MSMEs in Sri Lanka.