Supporting the development of small and medium-sized enterprises

Programme description

Title: Developing Sri Lanka’s SME sector
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Sri Lanka
Lead executing agency: Ministry of Finance
Overall term: 2017 to 2018

Context

After almost 30 years of bloodshed, Sri Lanka’s civil war ended in 2009 when the Sri Lankan army overcame the separatist Liberation Tigers of Tamil Eelam (LTTE). Sri Lanka has since made efforts to overcome ethnic and religious tensions. Over the past decade, the island state has seen steady economic growth of nearly ten per cent a year. There are, however, wide variations in the economic activities and growth in different regions, with most of the economic development concentrated in the western part of the country.

The Sri Lankan Government views the promotion of small and medium-sized enterprises (SMEs) as a key pillar in the country’s socio-economic development. Up until now, SMEs have often been insufficiently integrated into national and international economic cycles, especially in the northern and eastern parts of the island. Support services are generally only available in Western Province. This has a negative impact on the competitiveness and environmental sustainability of the few businesses in the northern and eastern regions of the country. The number of start-ups is therefore low, and there is little stimulus for innovation.

Sri Lanka’s process of reconciliation will only succeed if all population groups, including disadvantaged groups, participate in economic growth.

Objective

Small and medium-sized enterprises in Sri Lanka’s northern and eastern regions as well as other secondary growth centres are making greater use of support services and a customised regulatory framework to become more competitive, engage disadvantaged population groups and ensure environmental sustainability.

Approach

The project team will focus on four fields of activity:

  1. Improving the regulatory framework. The focus of this field of activity is on restructuring the development support available nationally to SMEs to enable better coordination of actors and include approaches for strengthening social integration.
  2. Technology transfer. Improving technology transfer and market access for SMEs will enable them to increase their economic performance and improve their environmental sustainability.
  3. Access to financing. SMEs are to have easier and faster access to financing.
  4. Innovation and entrepreneurship. The national innovation system is to be strengthened. Members of the population will also be encouraged to set up their own businesses, which will have a positive impact on integration.

Results

The project is building on the successes achieved by its predecessor.

A new SME framework strategy has been adopted that paves the way for restructuring SME support at institutional level. The private sector has been heavily involved in formulating this strategy, which also factors in issues of social integration, regional balance and resource efficiency.

Public and private providers of financial services (authorities responsible for certification and standards, private auditors, etc.)have started to pay greater attention to the SME sector, and to offer services in the north and east of Sri Lanka as well as other, less affluent regions. This provision is growing under the three-language policy (Sinhalese, Tamil and English) and with the employment of Tamil-speaking staff. Financial service providers such as banks have opened additional branches in the north and east of the country, and trained their staff to offer greater support to small business owners.

SMEs have been given market access to business partners in Colombo, and small-scale farmers have been successfully integrated into the value chain. So far, over 2,000 entrepreneurs have received direct support in the form of training courses and advisory services. They now have a greater understanding of accountancy, and know how to access financial services. They are also better equipped to deal with technical challenges such as adhering to food standards and reducing their consumption of expensive electricity. As a result, household incomes of more than 2,000 milk producers in the north of Sri Lanka have now risen by 500 per cent.

Local universities had until recently rarely cooperated with small businesses. Now, with the support of the project team, they have started to offer more advice to entrepreneurs, for example by introducing them to market-oriented innovations that have resulted from applied research.