New Entrepreneurship Bank to help SMEs and start-ups
A National Entrepreneurship Development Bank is to be established in the country soon to facilitate SMEs and start- ups and discussions are underway in the Central Bank of Sri Lanka in this regard.
Meanwhile a plan to introduce a permanent Credit Guarantee Institution is also being discussed to boost domestic growth of industries, said Central Bank Governor Prof. W.D. Lakshman delivering the 70th anniversary oration of the Central Bank in Colombo last week.
Referring to credit flows, he said market forces do not necessarily channel credit flows towards sectors that have the potential to generate employment and add value in the domestic economy. The Central Bank has occasionally acted directly to intervene in this respect of credit allocation patterns. “At present a mandatory lending requirement of 10 per cent of total credit is granted in favour of agricultural credit. The hesitancy on the part of banks to lend to agriculture were the factors that made for a direct credit allocation intervention. The credit schemes operated by the Central Bank have looked into the reluctance of banks to lend to the small and medium scale enterprises (SMEs), he said.
The issue affecting the health of the financial sector that includes non- bank financial institutions with varied financial strengths requires careful and firm handling. The failure of one or few such companies does not create a systematic impact but such a failure causes a significant impact on society. Taking care of depositors of these companies is part of the social responsibility of the Central Bank. The intervention and guidance of the Central Bank is sought by stakeholders in various unregistered and unregulated small financial units among which there are micro finance providers and small money changers.
The governor further said that in terms of the existing legal framework, the Central Bank has no responsibility in respect of lending agencies which do take deposits from the public. Extensive indebtedness among people at low income levels is causing serious harm on the welfare of people. Their lack of bargaining power in the face of unfair practices of lending institutions that require the intervention of the Central Bank to safeguard the right of borrowers. “This would be part of its responsibility in its development role. The presence of a large informal sector in the economy makes the development role of the Central Bank difficult and complicated,” he added.
The Central Bank in line with other agencies of the government has provided the flow of required funds into the economy to meet the needs of the people under lockdown conditions. The COVID-19 experience has also provided the country’s policy makers a valuable learning ground in their search for an alternative policy framework to lift the people onto a higher platform of social and economic achievements.
“Direct or indirect financing of fiscal deficits has been viewed with caution in Sri Lanka, but on several occasions in the past the Central Bank has stepped in to assist the Government in most difficult times like in the early 1980’s at the beginning of the open economy regime and recently during the COVID-19 pandemic,” he said. Deputy Governor of the Central Bank K.M. Mahinda Siriwardana delivered the welcome address.