Chandula Abeywickrema, Chairman of Lanka Impact Investing Network (LIIN) signs the agreement on behalf of Social Enterprise Fund and Haolianf Xu Assistant Secretary-General UN (Asia) witnessed by Thilak Marapana, Minister of Foreign Affairs for Sri Lanka and the Global Head of UNDP, Achim Steiner.
Sri Lanka has depended on various sectors to drive its economic model forward. But with various challenges, the country had to seek alternatives to generate income. With the emergence of technology and more opportunities, the Small and Medium Enterprise (SME) sector began contributing to the country’s economy. In an attempt to encourage existing entrepreneurs and young minds to take up the concept of entrepreneurship, the government launched the Enterprise Sri Lanka subsidized loan scheme in June this year. Its aim is to create 100,000 new entrepreneurs. Through this programme 15 tailor-made locally and donor-funded financial and non-financial loans schemes have been launched. These aim to support the SME sector which has been recognised as the driving force of economic development. Through this programme the Government believes that it will be able to achieve its medium-term targets such as achieving a per capita income of US$ 5,000, one million new jobs, doubling of exports and the continuous growth of the GDP above 5%. Hence the sheds light on its expected benefits, the three categories of loan schemes and why the government decided to initiate this programme.
Enterprise Sri Lanka will not only facilitate established private sector enterprises but also micro enterprises, self-employees, young entrepreneurs who will eventually be the driving forces of the existing economic model. Hence this programme is expected to bring in benefits for various sectors as follows:
- SME Development: SMEs are the main source of economic growth and employment generation in the country. However, they face many challenges, especially when seeking loans as banks consider SME loans to be riskier and expensive than others. As a result, the government has implemented two locally funded and donor funded loan schemes named ‘Jaya Isura’ in order to enhance the easy access to SMEs at an affordable rate. Here, the government bears the interest in the range of 50-100% on behalf of the end borrower and the end borrower can obtain a loan of 6- to 8% interest rate which is more convenient to do their business in a sustainable manner.
- Promoting green energy: Renewable energy generation is still at its infant stage and therefore the country depends on coal, oil and gas for fulfilling its energy requirement. Programmes such as the Soorya Bala Sangramaya have been launched to promote the usage of renewable energy. However, most people seem to be struggling to access concessionary finances to cover their investment costs. Therefore two loan schemes focusing on solar power generation have been introduced by this programme. These include the locally funded ‘Rivi Bala Savi’ loan scheme to support households that establish solar power units on their rooftop whereas the ‘Rooftop Solar Power Generation Line of Credit Project’ will be implemented with US$ 50 million funding support of the Asian Development Bank (ADB) to encourage both households and industrialists to transfer solar power.
- Empowering farmer community and poverty reduction: Several policy measures have been taken in various capacities to eliminate poverty and reduce the poverty ratio below five per cent. Hence two loan schemes named ‘Govi Navoda’ and ‘Ran Aswenna’ have been introduced to provide financial support to farmers, farmer organisations and commercial scale agro companies to mechanise their agricultural activities. In addition to that, the loan schemes are also introduced to transform subsistent agriculture initiatives to commercial ones while raising the income level of farmers and developing small-scale producers into big exporters.
- Empowering youth: As means of empowering the youth, the ‘Arabuma’ loan scheme has been introduced to encourage young graduates to enter into their economic development process by setting up innovative business ideas as a potential business by providing cash flow based loans at a zero interest rate with a full guarantee by the government.
- Empowering women: Although women form approximately 57% of the total population in Sri Lanka they still do not have as many opportunities to directly contribute to the economy. Therefore, priority has been given for women-led enterprises through the loan schemes and discussions have been initiated with the ADB to obtain a grant of US$ 10 million to provide for women-led enterprises under the Small and Medium Enterprise Line of Credit (SMELoC) project.
- Promoting exports and supply chain development: Under the theme ‘Blue-Green Economy’ the government expects to double exports by 2020. Therefore, the Enterprise Sri Lanka programme has given priority to encourage existing exporters and start-ups while strengthening the supply chain of export products. Under the ‘Jaya Isura’ loan scheme, the exporters are given two times higher loan amounts than other borrowers to encourage export-oriented industries.
- Promoting tourism sector: The tourism industry of Sri Lanka is already experiencing a boom and the government targets to achieve 4.5 million tourist arrivals with an income of US$ 7 billion by 2020. Hence the Home-stay programme has been encouraged to promote tourists to go to the countryside and enjoy traditional food and lifestyles. Hence the Programme aims to provide capital loans to upgrade such facilities.
Enterprise Sri Lanka subsidized loan scheme in June this year. Its aim is to create 100,000 new entrepreneurs
Financial and non-financial loan schemes
The loan schemes are categorized into interest subsidy loan scheme, donor-funded re-finance loan scheme and the financial plus non-financial support programme. A simplified operational model has been introduced to these schemes to avoid difficulties faced by end borrowers.
A. Interest Subsidy Loan Schemes
Step 1: The sub-borrower approaches the nearest branch of the Preferred Financial Institution (PFI – which include both government and private banks) and obtain a loan application and other necessary information.
Step 2: The sub-borrower applies for the sub-loan through the nearest branch of the PFI by submitting the loan application and other necessary documents.
Step 3: After evaluation, the PFI submits the loan application to the Department of Development Finance (DFD) for registration.
Step 4: DFD evaluates the proposal through a computerized system and issues registration letters to PFI to grant the loan within five working loans.
Step 5: PFI releases the loan for the respective sub-borrower at the concessionary interest rate.
B. Donor Funded Refinance Loan Scheme
Step 1 and 2 : (same as above)
Step 3: After the initial evaluation, PFI submits the application with relevant documents to seek reimbursement approval.
Step 4: DFD confirms the sub-project eligibility by reviewing the submitted documents and issues a no-objection note to PFI.
Step 5: After detail evaluation, the loan is granted to the sub-borrower by the PFI at their interest rate.
Step 6: PFI submits the reimbursement application to the Project Management United (PMU) and the PMU reimburse the eligible cost of the sub-project within three working days.
Step 7: The interest rate is then changed to the concessionary rate with effect from the date the reimbursed fund was received.
C. Other special loan schemes
Step 1: Appoint a sectoral evaluation committee and prepare necessary documents for calling and evaluating proposals.
Step 2: The Export Development Board (EDB) calls for proposals from the respective beneficiaries (eg: young graduate entrepreneurs for the Arabuma loan scheme) through advertisements.
Step 3: Proposals received from beneficiaries will be evaluated by the sectoral committee and viable projects will be selected.
Step 4: Selected projects are recommended to the PFIs for considering loan facilities.
Step 5: Selected beneficiaries will submit relevant documents to the PFI if necessary.
Step 6: PFIs evaluate the submitted proposals and select potential entrepreneurs.
Step 7: The government issues a guarantee for the selected loans and PFI grants the loan based on the government guarantee.
Entrepreneurship cannot be promoted culturally: Eran Wickramaratne
In his comments, State Minister of Finance and Mass Media Eran Wickramaratne said that there are 230,000 basic entrepreneurs and they are considered as outside the working population. “Out of them, 75% fall into the Small and Medium Enterprise (SME) category. In Sri Lanka, only 2.8% of the total working population falls into the category of entrepreneurs, whereas in Vietnam and Thailand the rates are as high as 19.6% and 27.5% respectively. In our culture, we give first place to professionals and then only we look at entrepreneurs. Traditionally we have been asked to be a professional when we grow up. Therefore entrepreneurship cannot be promoted culturally.”
The loan schemes are categorized into interest subsidy loan scheme, donor-funded re-finance loan scheme and the financial plus non-financial support programme
Speaking further he said that Enterprise Sri Lanka is about encouraging young minds where they are given an opportunity to thrive. “As per our cultural dimensions, we have a dependency culture. We get free education and then we go to university and then some also demand for government jobs as well. Eventually, we also expect a pension. So through the Enterprise Sri Lanka concept, we are providing opportunities for young minds to be independent and take a responsibility. But a loan scheme is just part of the answer.”
Explaining the programme, Wickramaratne said that banks are encouraged to evaluate based on the viability of the project. “The government comes in to encourage the entire scheme. Hence it provides the interest subsidy and gives it to the banks that lend. The contract is between the contractor and the lending institution. We have felt the need for equity financing. There are some funds for startups in the Information-Communication Technology (ICT) sector but it has been slow in other areas. We are trying to get entrepreneurs on to the scheme and therefore it is not a political agenda.”
Through the Enterprise Sri Lanka concept, we are providing opportunities for young minds to be independent and take a responsibility. But a loan scheme is just part of the answer
First US$ 25 million social impact funds for Sri Lanka
Lanka Impact Investing Network (Private) Ltd (LIIN) in partnership with Tempest PE Partners (Private) Ltd (TPE) - partly owned by Capital Alliance Holdings Ltd (CAL), pioneered the establishment of the country’s first indigenous social impact funds in collaboration with the United Nations Development Program (UNDP) to support social entrepreneurship and inclusive and sustainable businesses in the country utilizing a private equity platform. This pioneering initiative to create access to private equity to Social Entrepreneurs, Inclusive and Responsible businesses has created two new funds. The first is the Social Enterprise Fund (SEF) of US$ 5 million, catering mostly to micro, small and medium social entrepreneurs with investment ticket sizes ranging from US$ 5,000 to US$ 50,000. The second is the Social Impact Capital fund (SIC), of US$ 20 million, catering to inclusive and responsible businesses that integrate and promote social impact in the core of their business models. The investment tickets size in the SIC is larger, ranging from US$ 100,000 to US$ 250,000.