Driver of the economy left in the cold-Ceylon Today

Ceylon FT: The banking sector continues to neglect the one sector that contributes more than 75% to the economy and generates jobs for 23% of the workforce, the small and medium enterprises sector (SME), the Ministry of Industry and Commerce said.

“Despite SME sector’s strong role in the economy, the country’s banking sector still looks the other way while our SMEs too suffered during the global recession,” Ministry of Industry and Commerce Rishad Bathiudeen told a recent forum.

“Not only exports, even our SMEs have suffered during the global recession before bouncing back. Our banking sector still looks the other way when it comes to our SMEs as they are worried about recovering credit from SMEs. Do not avoid this risk. It is in such risks that great rewards and profits are found, the minister said. According to data available with the National Enterprise Development Authority, Sri Lanka’s SMEs claim 70% of Lankan enterprises and 26% of national employment. Nearly 91% of industrial establishments are SMEs. Of the more than 4,500 exporters, nearly 70% are export oriented.

“It is important to note that despite the so called understanding about the greatness of our SMEs, they continue to suffer from lack of knowledge, capacity and innovation. SME access to finance too is not satisfactory. Our banks ignore this sector. This is despite our Central Bank’s efforts to keep lending rates at low levels,” Bathiudeen said.

Economists have pointed out that the SME sector contributes to over 75% to the gross domestic product each year. An analysis of Central Bank data shows that the government and affluent individuals have been the beneficiaries of a loose monetary policy stance followed since December 2012, with ordinary citizens and businesses not seeing lending rates reduce by much although interest rates on savings have come down significantly.

Interest rates on loans taken by the government and the affluent from the domestic banking sector on average fell between 382 basis points and 458 basis points, while ordinary citizens and businesses saw interest rates on their borrowings fall a mere 192 basis points with deposit rates falling between 264 basis points to 392 basis points, with senior citizens and savings of ordinary citizens taking a hit.

The Commercial Bank average weighted prime lending rate applicable to high net worth borrowers stood at 8.54% on 16 Friday, down 458 basis points from a year ago. Government Treasury bill 12-month yield fell 382 basis points to 7.02%.