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Sri Lanka-BOC the pioneers in SME project lending

The Bank of Ceylon (BOC), being the number one state bank in Sri Lanka, is the pioneer institution in assisting the enterprises involved in diversified fields of economic activities. Keeping in line with the above context the BOC has established a special Small and Medium Enterprise (SME) Unit under its Product & Development Banking Division at the Head Office.

 This unit is entrusted with the task of identifying potential enterprises and to assist them to enhance their business activities, by providing financial support and related advisory services.

The SMEs are treated as the backbone of any economy whether large or small. They contribute immensely for the economic growth of every nation around the globe. The Sunday Times spoke to Ms. B.C.D. Wijeyakulasuriya, Assistant General Manager – Product and Developments Banking and Mr. M.F.M. Nilam, Chief Manager SME Unit on the benefits the bank offers to the SME sector. Ms. Manjula Herath, Relationship Officer of the SME Unit of BOC was also present for the interview.

“In Sri Lanka the SME sector constitutes an average of 80% to 90% of related establishments and 20% of industrial value added. As Sri Lanka’s literacy rate is over 90% their ability to adapt to the ever-changing business patterns is possible. Therefore in future the promising SMEs should be more competent, equipped with latest technology and familiar with global economic scenario. Based on these aspects BOC has developed a SME policy guideline. In our policy guideline special emphasis is shown to address the constraints faced by this sector. Some of them are identified as lack of competitive advantages over large corporates, insufficient information and advice, lack of financial discipline, Non-availability of formal business plan, marketing constraint, lack of knowledge in advanced technology, inability to retain skilled human resources etc.

There is no uniform or standard definition for SMEs globally. It varies across the countries and also within different establishments. For example in Japan it is based on the number of employees and capital, in UK it is the number of employees, in Thailand the number of employees and amount of fixed assets. The BOC has categorized the SMEs based on three main tools i.e. the value of project assets, annual turnover, and number of full-time employees”, says Mr. Nilam.

BOC has a total of 304 branches and 130 extension offices located island-wide, handling the marketing and operations of the bank. The main branches are functioning as SME credit processing and disbursing points. Over 80% of the local industries are located in the Colombo and Gampaha districts. Therefore in a bid to transform the “Gama” into a vital center of economic activity, by generating employment, infrastructure development and improved quality of life, BOC has introduced a special loan scheme named “Gamata Naya”, parallel to the “300 Industries Programme” of “Gamata Karmantha” proposed in the 2006 National Budget.

This was the first time in Sri Lanka where a commercial bank has introduced a credit scheme under the ‘Gamata Karamantha’ programme. The government has provided certain concessions to the industrialists under this programme in order to encourage them to establish enterprises in the rural areas. The government has also provided tax concession to the lending institutions that provide financial assistance to these projects. However, the BOC has passed on this tax benefit to the entrepreneurs by reducing the interest rates.

“Up to date we have granted 15 facilities under the ‘Gamata Naya” Loan Scheme amounting to approximately Rs. 2.2 billion, generating about 5,000 direct employment and nearly 15,000 indirect employment. We are the pioneer bank that provides such facilities under this concessionary rate of interest. The facilities have been extended to diversified industries such as manufacturing of electrical accessories, glass wear, PVC pipes and fittings, biscuits manufacturing, garment and knitting, yogurt and ice cream cups manufacturing, printing of exercise and text books, metal crusher and quarry, cosmetics, wall and roof panel manufacturing, tea factory and paddy milling. These projects are located in distant rural areas such as Beliatta, Deniyaya, Baddegama, Waskaduwa, Dankotuwa, Thulhiriya, Anuradhapura, Polonnaruwa and Horana.

Apart from this we have also provided nearly 700 facilities, amounting to approximately Rs. 1.8 billion for small scale enterprises under SMILE-III Loan Scheme at a concessionary interest rate of 9% p.a. The borrowers are engaged in diversified fields of economic activities such as agro industry, aquarium, beauty culture, hotels & bakeries, commercial construction, commercial transport, communication, fisheries, furniture, garment, handloom products, health services, printing, rice mills, saw mills, service stations etc.,” further stated Mr. Nilam.

Monitoring and regular follow ups on the SME project loans provided is carried out by the bank on a regular basis. The recovery period of these loans is maximum of 10 years and the bank so far has been able to maintain a successful recovery rate of more than 95%. BOC has introduced a special appraisal format which is available at branch level for SME applicants; this covers all aspects of the project context.

“Where the industrial lending is concerned, we are not extremely conscious with regard to asset security, but focus more on the financial viability, technical feasibility and market potential of the project. In addition to the financial support we also provide assistance to the SMEs to overcome their constraint related to accounting, marketing, technology etc. We also assist and guide entrepreneurs to continue the project without interruption, by identifying their difficulties in time. Most often we assist them by adopting measures such as re-scheduling monthly rentals, providing other forms of adjustable repayment schemes, re-structuring and concessionary settlement offers. Our main intention is to provide industrialists some form of relief to come out of their problems.

However in case of a willful default we always take appropriate recovery action”, said Ms. Wijeyakulasuriya. There have been many occasions where industrialists have taken SME loans from BOC and later progressed to become some of its most valued corporate clients. The bank has a well trained team of branch officers and managers providing their services through the bank’s branch network to the SME sector. In addition to this the bank also provides numerous training programmes to SME appraising officers with regard to project lending. The BOC presently stands in the forefront of SME project lending and through its services has been able to provide numerous avenues for improvement of the enterprises while contributing in a positive manner towards the economic development of the country.

*source-Sunday Times,Sri Lanka