Financing SME
Financing SMEs –Key Challenges and issues for Bankers
Wickrama Narayana
Chief Manager-SME Development
People’s Bank
The definition of Small & Medium scale Enterprises (SMEs) varies from country to country. The classification can be based on the firm’s assets, number of employees, or annual turnover along with the loan amount. Central Bank of Sri Lanka defines SMEs as enterprises with less than Rs. 600 million turnover per annum and with a maximum exposure of Rs. 200 million mainly to be classified as a SME for Basel II Capital adequacy calculation and utilization of funds accumulated in the Investment Fund Account in Banks.
Whatever the definition, and regardless of the size of the economy, the growth of SMEs throughout the region is crucial to growth of respective economies. Because, SMEs play a critical and important role in providing job opportunities, enhancing the quality of human resources, maximizing the use of local resources, saving foreign exchange, nurturing a culture of entrepreneurship, fostering creativity and opening up new business opportunities etc. Most corporate organizations in Sri Lanka or elsewhere are the establishments started as SMEs in its early stages. Classic examples from our own country may be Nawaloka Group, Access International, Softlogic Group of companies.
In most literature, it is mentioned that access to financing has been recognized as a major impediment for many SMEs and its growth, whereas corporate business entities have the advantage over the SMEs in doing so primarily as a result of their formalization.
However, according to Juliet Mckee and Kimball Dietrich (2003), most common problems for SMEs are the lack of access to market information and technology, the low quality of human resources and the lack of access to capital. Despite efforts by financial institutions and public-sector bodies to close funding gaps, SMEs continue to experience difficulty in obtaining risk capital. These funding gaps relate
Wickrama Narayana
Chief Manager-SME Development
People’s Bank
The definition of Small & Medium scale Enterprises (SMEs) varies from country to country. The classification can be based on the firm’s assets, number of employees, or annual turnover along with the loan amount. Central Bank of Sri Lanka defines SMEs as enterprises with less than Rs. 600 million turnover per annum and with a maximum exposure of Rs. 200 million mainly to be classified as a SME for Basel II Capital adequacy calculation and utilization of funds accumulated in the Investment Fund Account in Banks.
Whatever the definition, and regardless of the size of the economy, the growth of SMEs throughout the region is crucial to growth of respective economies. Because, SMEs play a critical and important role in providing job opportunities, enhancing the quality of human resources, maximizing the use of local resources, saving foreign exchange, nurturing a culture of entrepreneurship, fostering creativity and opening up new business opportunities etc. Most corporate organizations in Sri Lanka or elsewhere are the establishments started as SMEs in its early stages. Classic examples from our own country may be Nawaloka Group, Access International, Softlogic Group of companies.
In most literature, it is mentioned that access to financing has been recognized as a major impediment for many SMEs and its growth, whereas corporate business entities have the advantage over the SMEs in doing so primarily as a result of their formalization.
However, according to Juliet Mckee and Kimball Dietrich (2003), most common problems for SMEs are the lack of access to market information and technology, the low quality of human resources and the lack of access to capital. Despite efforts by financial institutions and public-sector bodies to close funding gaps, SMEs continue to experience difficulty in obtaining risk capital. These funding gaps relate
References: Torre A, Peria M S M, Schmukler S L. 2008. Bank Involvement with SMEs: Beyond Relationship Lending MaKee J, Dietrich K 2003. Financing SMEs: Issues and Options, 2nd Annual Conference of the PECC Finance Forum held in Hua Hin, Thailand. S. Scott MacDonald/ Timothy W. Koch 2006, Management of Banking, 6th Ed McRobert A 2012, 4th Annual SME Banking Excellence 2013, Thailand. Wikipedia & Newspaper Articles