SMEs Saddled With 15-18% Interest Cost

  • MR’s Promised 8-12% Rate, Non Starter

Aloy Jayawardene and Anil Amarasuriya

One of the pressing problems facing the SME sector is the high cost of finance. Sri Lanka Chamber of Small & Medium Industries (SLCSMI) President Aloy Jayawardene speaking to reporters on Wednesday alleged that though President Mahinda Rajapaksa and Central Bank of Sri Lanka (CBSL) Governor  Ajith Nivard Cabraal had promised remedial action, nothing has had taken place.
Jayawardena said that bank interest cost to their members ranged from between 15-18%.
Rajapaksa had allegedly promised to bring down those rates to between 8-12% but nothing had happened. Though Cabraal also took up this matter in 2011, nothing came off from that intervention as well.
SLCMI Vice President Mohideen Cader in his speech said that SMEs comprise 70% of the economy. Additionally it provides employment to many. Meanwhile Union Bank director/CEO Anil Amarasuriya said that after the Government reduced the VAT on Financial Services from 20% to 12% in Budget 2011, banks were expected to make use of the savings thus accrued to finance the SME sector, charging them an interest rate equivalent to that of the one year Treasury (T) Bill rate plus a premium of 2% or thereabouts, failing which those savings having had to be surrendered to the Consolidated Fund.
Currently the one year (364 day) T Bill yield is 11.25%. He said that his bank lends to the SME sector through the aforesaid tax savings thus accrued.
The bank has a total loan portfolio of Rs. 25 billion, which is expected to grow by 30% this year.
Last year due to a balance of payments crisis, CBSL imposed an 18% credit growth ceiling on banks.
Amarasuriya said that they had met this 18% ceiling last year. In the previous year (2011) when there was no such ceiling, credit to the private sector grew by 50% on a year on year basis as far as his bank was concerned.
Union Bank’s non performing loan portfolio was on par with the industry average of 4%.
The bank which has a 36 strong islandwide branch network, also has two dedicated SME service centres in Gampaha and Marawila. “After we set this trend, the larger banks followed suit,” he said.
Meanwhile SLCSMI which has a 296 strong membership is trying to rope in new members from the newly opened up North and East. The organization is seeking U.S., Norwegian and German aid in this regard, said Jayawardene.
SLCSMI which celebrates its 50th anniversary this year has got Union Bank as its principal sponsor.

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