{"id":121939,"date":"2022-01-08T17:10:05","date_gmt":"2022-01-09T00:10:05","guid":{"rendered":"http:\/\/www.lankaweb.com\/news\/items\/?p=121939"},"modified":"2022-01-08T17:10:05","modified_gmt":"2022-01-09T00:10:05","slug":"a-case-for-feasibility-studies-and-venture-capital","status":"publish","type":"post","link":"https:\/\/www.lankaweb.com\/news\/items\/2022\/01\/08\/a-case-for-feasibility-studies-and-venture-capital\/","title":{"rendered":"A Case for Feasibility Studies and Venture Capital"},"content":{"rendered":"

Sugath Kulatunga<\/em><\/span><\/h2>\n\n\n

Micro, Small and Medium sized Enterprises (MSMEs) play a major role in the development of the economy due to their potential to promote inclusive growth by reducing inequalities of economic performance, and their capacity to develop into large organizations later on, thereby providing employment to a substantial proportion of the population and contributing to the economic growth of the country over their lifespan.<\/p>\n\n\n\n

It is estimated that about 99 per cent of\nnon-agricultural establishments in Sri Lanka are\nMSMEs, and that about 45 per cent of employment in the country is\nin the MSME sector. This is a sector which was\nseverely affected by the Corvid pandemic. The Government, in collaboration\nwith the central Bank, introduced a number of relief packages to support the affected enterprises. The\nCentral Bank reports that the\ntotal government subsidy payments for the \u2018Enterprise Sri Lanka\u2019 loan programme\namounted to Rs. 6.0 billion in 2020 and the Saubagya\n(Prosperity) Loan Scheme has allocated Rs.150\nBillion <\/p>\n\n\n\n

In addition, with the objective of supporting a production economy,\nseveral other government authorities
\nhave conducted programs to enhance market access and to\nmodernise their enterprises. There has also\nbeen a focus on training.<\/p>\n\n\n\n


\nIt is regretted that there has been less attention in\nthe creation of new enterprises. Even when new enterprises are received for\nfunding they are rejected as they have not been properly formulated. Due to\nthis many projects also fail in a short time.<\/p>\n\n\n\n

It is not the first time that massive incentives were\noffered to the SMEs to\npromote high value agricultural and processing activities. In the Budget 2007, the KRUSHI\nNAVODAYA\u201d was introduced to promote high value agricultural and\nprocessing activities, and proposed a comprehensive package of incentives such\nas credit and tax rebate for machinery, equipment and extension services. It was to be extended at Rs. 2 billion for\neach year over the next 3 years.<\/p>\n\n\n\n

Similarly\nthe Budget 2007 proposed an attractive package of incentives such as assistance\nfor research, extensions and quality assurances for value added products and\nalso support the acquisition of advanced machinery and equipment: exclusively\nused for the manufacturing and processing of high value products from tea,\nrubber and coconut, and for animal husbandry, pharmaceutical and giftware\nproduction by the removal of import duty on such machinery and providing\nadditional credit facilities.<\/p>\n\n\n\n

It\nwas expected that 1 million jobs would be created. through new industries and\nthe expansion of existing industries in the SME sector. A new bank i.e.\nLankaputhra Bank, was established to finance and supervise these new programs<\/p>\n\n\n\n

 Despite the availability of substantial funds and the\noffer of a number of attractive incentives on new investments, it has been\nnoted that there is a serious dearth of bankable projects coming up for loans\nin the SME sector. While there is a scarcity of viable projects there is also\nthe problem of the widespread failure of projects financed by the banks. This\nis seen in the high percentage of non- performing loans in the SME sector.<\/p>\n\n\n\n

In\nthis background it is proposed that the\ngovernment should\nadopt a more proactive approach with regard to new projects. It is proposed\nthat rather than wait for bankable projects to be presented\nby investors the government must involves itself\nactively in the identification of projects and developing project profiles and\nfeasibility studies to be made available to\nprospective investors. <\/p>\n\n\n\n

This\nis the policy followed by established development banks in India,\nthe National Bank for Agriculture and Rural Development. (NABARD). The\nparticipation of a State agency in project\nidentification and formulation would also result\nin channeling scarce resources into priority sectors of development and would\ncontribute to the reduction of project failure. While this strategy would\ngenerate projects for bank financing, at least part of the cost of such a\nscheme could be recovered from projects accepted for funding by the Bank. A list of NABARD projects in 20-21 is given here; https:\/\/www.agriexam.com\/nabard-bankable-project<\/a><\/p>\n\n\n\n

(Small\nand Medium Enterprises Development Authority – SMEDA, of Pakistan performs a similar function like NABARD of India.The main objective\nof the pre-feasibility studies prepared by SMEDA is to provide information\nabout investment opportunities to the small & medium enterprises. Their website on projects is  https:\/\/smeda.org\/index.php?option=com_phocadownload&view=category&id=122&Itemid=308<\/a><\/p>\n\n\n\n

What is necessary is for some State institution to\nlaunch a facility to build up a data bank of feasibility studies and make the\ninformation widely available to the public. The proposed institute should\ndevelop inhouse expertise on project sectors and have a strong external team of\nexperts. It should also work closely with the IDB for technological assistance\nand the EDB for marketing knowledge. In due course they should also develop the\ncapacity to advise the clients on machinery and equipment and technology. It\nmay be useful to invite an expert from NABARDA to assist in the preliminary\nwork.I believe the Samurdhi Bank would be a good choice for this function. It\ncan train its staff on identification of project ideas and also follow up on\nthe implementation. The Bank should also act as a Venture (Risk) Capital\nprovider. The risk aversion of the local banks makes it difficult for SMEs to\nsecure funds from them. A contribution of risk capital by another agency makes\nbanks more liberal in granting loans. This was the experience of the EDB in the\n1980s when the EDB provided Risk capital to several pioneering projects which\nwould not have invested without the EDB participation in preference shares as a\nminority shareholder. It is unfortunate that this function which is provided\nfor in the EDB Act was not only ignored the very Division with trained staff\nwas disbanded. I also tried to support a Bank and a government Department to\nestablish a facility for project feasibility studies without much success. <\/p>\n\n\n\n

A sound justification for a Venture capital facility\nfor SMEs in Sri Lanka is proposed in a recent ADB study at  website:\n -sme-venture-capital-sri-lanka.pdf.  <\/p>\n","protected":false},"excerpt":{"rendered":"

Sugath Kulatunga Micro, Small and Medium sized Enterprises (MSMEs) play a major role in the development of the economy due to their potential to promote inclusive growth by reducing inequalities of economic performance, and their capacity to develop into large organizations later on, thereby providing employment to a substantial proportion of the population and contributing […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":["post-121939","post","type-post","status-publish","format-standard","hentry","category-politics"],"_links":{"self":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/121939","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/comments?post=121939"}],"version-history":[{"count":0,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/posts\/121939\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/media?parent=121939"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/categories?post=121939"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lankaweb.com\/news\/items\/wp-json\/wp\/v2\/tags?post=121939"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}