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National Policy Framework

For

Small and Medium Enterprises (SMEs) Development

ACTION PLAN

Ministry of Industry and Commerce

May 2016

P.O. Box 570,

73/1, Galle Road,

Colombo 03,

Sri Lanka

Web :www.industry.gov.lk

Tel.:+94 11 2392149 -50 / +94 11 2431670

Consultant -Mr. D.P.Gunawardana

http://www.industry.gov.lk/

i

Message from Hon. Rishad Bathiudeen

Minister of Industry and Commerce

It is with great pleasure that I send this message on presenting the Action Plan for the SME

Policy Framework for implementation. The economic policy of the government has assigned

high priority to the development and strengthening of SME sector to be efficient and

competitive for its’ products and services to penetrate into global market. In order to achieve

this goal, policy framework, road map, action plan and assigning responsibilities are

prerequisites. I am especially happy that my Ministry has been able to provide those essentials

with the support of all stakeholders of MSMEs sector within a short period of time.

This action plan has been prepared based on six policy intervention strategies articulated in the

policy framework. Each strategy has been defined in well balanced and practical approach with

achievable targets. Proposed implementing mechanism consists of a high powered Advisory

Council, Inter-ministerial Coordination body, SME Authority and a Monitoring and Evaluation

Committee providing all elements of planning, implementation and path correction for the

sector. Most important aspect is the involvement of all stakeholders in all parts of the country

at all stages and public consultation.

I wish to thank Secretary of the Ministry, Mr.T.M.K.B.Tennekoon for his guidance in

preparation of this action plan. I also wish to thank all stakeholders and other Ministries that

contributed to successful completion of this plan. Last but not least my special thanks go to

Mr. M.A. Thajudeen, Additional Secretary of this Ministry whose untiring efforts and capacity

to get the cooperation of all stakeholders and leading the team to complete the task fulfilling

all the requirements in time with the assistance of his able staff.

I invite all stakeholders to extend fullest cooperation to make the implementation of this plan

a success story.

Rishad Bathiudeen (M.P.)

Minister of Industry and Commerce

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Foreword

Striving towards the growth of the Small and Medium Enterprises has become imperative in

the present context of the march towards a higher economic growth. The fact that the SMEs

represent over 90% of the establishments in the country with an engagement of around three

million peopleshows the importance of this sector. The SMEs play a major role in the economy

and employment in any country. In the move towards an accelerated economic growth,the

SMEs need to be strengthened to beglobally competitive.

A Policy Frame Work for the development of SMEs is quite opportune at this moment creating

an SME friendly business environment, facilitating acquisition of modern and appropriate

technology and inculcating an entrepreneurial culture. The Ministry of Industry with the

cooperation of other stake holders has prepared the National Policy Framework for the Small

and Medium Enterprises with clearly spelt out intervention strategies. A long felt need of a

proper definition of the SMEs also has been addressed in this document.

The action plan prepared for the implementation of the Policy Frame Work to achieve the

defined objectives was also done using a participative approach involving all the stake holders.

The views and opinions of the Chambers, Trade Associations and individual SMEs have been

taken in to consideration in preparation of the document. A policy dissemination process to

grass root levels also has been implemented through the central and provincial administration

channels and trade associations. It is now the duty of the responsible entities to ensure that the

activities of the plan are implemented effectively and efficiently within the time frames defined

in the interest of the country.

I wish to commend the efforts taken by the Additional Secretary Mr.M.A.Thajudeen, who took

the challenge of preparing the Action Plan within a short period of around four months. This

plan would not have been successful without the unstinted support extended by the

Hon.Minister Rishad Bathiudeen.

T.M.K.B.Tennekoon

Secretary

Ministry of Industry and Commerce

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Acknowledgement

Ministry of Industry & Commerce wishes to acknowledge the valuable contribution and the

guidance given by the Ministry of Finance and the cooperation extended in preparation of this

action plan by the Ministry of Science, Technology& Research, Ministry of Skills

Development and Vocational Training, Central Bank of Sri Lanka, National Chamber of

Commerce, Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) and

Regional Chambers. The assistance and the active role played by the Deutsche Geschellshaft

fur InternationaleZumsamanarbeit (GIZ) in bringing this plan to surface should be mentioned

with special appreciation.

The Ministry also wishes to extend its gratitude to the District Secretaries for taking a lead role

and facilitating regional workshops and attending to the sessions. It is with great pleasure to

mention the support extended by the National Enterprise Development Authority, Industrial

Development Board, and the institutions coming under the Ministry of Science & Technology,

Department of Census & Statistics and Registrar of Companies. We also wish to thank the

State and Commercial Banks, for participating in discussions and regional workshops for their

valuable input.

The Ministry also wishes to thank the World Bank representatives who attended the meetings

and for the cooperation extended in this regard.

The contributions, comments and suggestions made by other stake holders, associations,

individual entrepreneurs who helped to improve the plan, are also greatly valued. In addition,

the immense support extended by the staff attached to the Ministry who helped in organizing

meetings and workshops, is highly appreciated. We also wish to mention the efforts taken by

Mr. D.P. Gunawardana, Consultant in preparation of this report.

The advice given by the Hon. Minister of Industry and Commerce, Mr. Rishad Bathiudeen, the

Secretary, Mr. T.M.K.B.Tennnekoon and the guidance and the keen interest shown by the

Senior Advisor to the Prime Minister Mr. Charitha Ratwatte in preparation of this action plan

are highly appreciated.

M.A. Thajudeen

Additional Secretary (SME & Textile Development)

Ministry of Industry & Commerce

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National Policy Framework for Small & Medium Enterprise (SME)

Development- Action Plan

Table of Contents

Acronyms ................................................................................................................................ vi

Executive summary .................................................................................................................. 1

Chapter 1 - Background & Overview of the SME Sector in Sri Lanka .................................... 4

1.1 Introduction .................................................................................................................... 4

1.2 An Overall view of the Economic activities .................................................................... 6

Chapter 2 - Some Historical Developments in the SME Policy Formulation in Sri Lanka ... 10

2.1 White Paper on National Strategy for SME Sector Development ................................. 10

2.2 Comments & Observations of the Asian Development Bank (ADB) ............................. 14

Chapter 3 - SME National Policy Framework ....................................................................... 16

3.1 Policy Framework ........................................................................................................... 16

Chapter 4 -Action Plan for SME Policy Framework .............................................................. 22

4.1 Methodology - Action Plan Preparation ....................................................................... 22

4.2 Policy Dissemination & Planning Implementation Process .......................................... 23

4.3 Inputs for the Action Plan ............................................................................................. 24

4.4 Validation....................................................................................................................... 24

4.5 Policy Implementation Structure ................................................................................. 24

4.6 Action Plan Goals ........................................................................................................... 25

Chapter 5 – Implementation Plan......................................................................................... 26

5.1 Institutional Arrangements ............................................................................................ 26

5.2 Implementation Strategies & Activities ........................................................................ 27

Summery and Conclusion ..................................................................................................... 70

Tables

Table 1: Number of Establishments and percentage distribution economic sector wise ..... 6

Table 2: Number of persons and percentage distribution economic sector wise ................. 6

Table 3: Distribution of establishments by Sector by scale ................................................... 7

Table 4: Distribution of MSM and the persons engaged ........................................................ 7

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Table 5: Definition of the SMEs ............................................................................................ 18

Figures

Figure 1: Policy Intervention Strategies .............................................................................. 18

Figure 2: Key Stakeholders – The Driving Force behind the SME Development ................ 21

Figure 3: Action Plan Preparation Process ......................................................................... 22

Figure 4: Policy Dissemination Process ............................................................................... 23

Figure 5: Policy Implementation Structure ......................................................................... 24

Figure 6: SME policy goal achievement process ................................................................. 25

Annexes

I. Advisory Team

II. Working Group Members

III. Comparison SME Classification Policy Frame work and DCS

vi

Acronyms

ADB Asian Development Bank

BDS Business Development Service

CBSL Central Bank of Sri Lanka

CEA Central Environmental Authority

COSTI Coordinating Secretariat for Science Technology and Innovation

CP Cleaner Production

DTET Department of Technical Education

EDB Export Development Board

FCCISL Federation of Chambers of Commerce & Industry Sri Lanka

GDP Gross Domestic Product

GIZ Deutsche Geschellshaft fur Internationale Zumsamanarbeit

IDB Industrial Development Board of Ceylon

ITI Industrial Technology Institute

MIC Ministry of Industry & Commerce

MSM Micro, Small and Medium

MSDVT Ministry of Skills Development and Vocational Training

NAITA National Apprenticeship & Industrial Training Authority

NIBM National Institute of Business Management

NIPO National Intellectual Property office

NCPC National Cleaner Production Centre

NEDA National Enterprise Development Authority

NGO Non-Governmental Organization

PMEC Policy Monitoring and Evaluation Committee

SLGTI Sri Lanka German Training Institute

SLITA Sri Lanka Institute of Textile & Apparel

SLSI Sri Lanka Standards Institute

WTO World Trade Organization

SEPI Self-Employment Initiative Loan Scheme

SME Small & Medium Enterprises

SMEA Small & Medium Enterprises Authority

TTDF Technology Transfer Development Fund

VTA Vocational Training Authority

1

Executive Summary

The SME sector has been identified as a vital sector in the economy of the country, as more

than 90% of the establishments fall under the SME category. It is estimated that this sector

provides 45% of the employment in the country. The SME sector includes Micro, Small and

Medium scale industries and consists of around one million establishments providing

employment to around 2.25 million people in the country. Considering the above facts, a

National Policy Framework for SME development formulated by the Ministry of Industry and

Commerce taking a lead role and the policy framework has been approved by the Cabinet Sub-

committee on Economic Affairs.

This report is the action plan for implementing the Policies prepared in collaboration with all

stake holders. A working committee was formed consisting of nominated representatives from

Key stake holder Ministries, Central Bank of Sri Lanka and other service delivery Institutions,

Government Departments and National and Regional Level Chambers. The Deutsche

Geshellshaft Fur InternationaleZusamanarbit (GIZ)played a significant role in this regard

The action plan was prepared based on six policy intervention strategies spelt out in the Policy

Framework. The overall process of the preparation of the action plan was laid down by the

working committee and meetings for each intervention strategy was organized by the relevant

ministries, while the access to finance section was handled by the Central Bank of Sri Lanka.

The action plan was prepared using the inputs received at the meetings and workshops held

with the subcommittees appointed for each intervention strategy and data gathered in the public

hearing process. Workshops in the regions were held in collaboration with the Government

Agent and Regional Chambers with the objective of dissemination of the policy initiatives to

the grass root level and obtaining suggestions and views on the policy frame work and the

activities for implementation.

The implementation structure of the policy consists of a high powered SME Advisory Council,

Inter Ministerial Coordinating Body and a SME Authority which will be responsible for

implementation of the policy. A SME cluster committee, Policy Monitoring and Evaluation

Committee and all stake holders are included in the implementation process.

The main activities in creation of an Enabling Environment involve recommendations to amend

the present laws relating to SMEs, addressing the problems faced presently and creation of

more SME friendly set of laws. Providing SME windows in relevant Ministries and Institutions,

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reforming tax laws, simplification of business registration, import and export procedures etc.,

are some activities planned.

Under the strategy of Modern Appropriate Technology Establishment of a Technology

Development Fund, developing technology transfer mechanisms, exposing SMEs to modern

technology in other countries through exposure visits, establishment of SME assisting

cells/incubators in training institutes and universities, are proposed.

The Entrepreneurial Culture and Skills Development strategy are mainly focused on

developing an entrepreneurial culture, creating recognition and guiding talented persons from

school level to entrepreneurship. Other main strategies include improving the performance of

the Training institutes, capacity building and outreach services of the institutes and offering

special programmes for women entrepreneurs. Special programmes to assist sick industries by

the vocational training institutes are also addressed under this strategy.

The activities for the strategy to access to finance were mainly formulated by the Central Bank.

It covers the establishment of a SME desk or a dedicated officer in Banks at branch level and

also establishment of similar facilities to be promoted in other financial and leasing institutes.

Educating the SMEs on the financing facilities, expanding the SME re-financing schemes,

possibility of providing non collateral loans, scale up concessionary bank loans to women

entrepreneurs, are also planned under this intervention. In addition, educating the entrepreneurs

on financial management, proper book keeping and imparting financial discipline is another

strategy in this plan.

The strategies and activities identified under market facilitation covers developing business

linkages, locally and internationally, supporting participation in local and international fairs,

guiding and improving quality, presentation etc. Moreover, establishment of a SME website,

provide access to market information, providing sales outlets for SMEs in suitable places are

also activities addressed under this section.

The Research and Development (R&D) focus mainly on innovation, promoting innovative

SMEs and assisting them. Develop linkages with the research and academic institutions and

joint research are some other activities to improve the productivity and competitiveness of the

SMEs. Another strategy under this section is to recognize and reward the innovative SMEs.

A general recommendation in this action plan is to promote networking among all BDS

providers, to optimize resources and to develop very close linkages among the service

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providers, which would enable the SMEs to reap the maximum benefit. Strengthening the

regional chambers and forming a network is also a strategy in this action plan. The final

objective is to create a sustainable SME sector which would contribute to the social well- being

of the people, especially in the rural areas and uplift the economy of the country.

CHAPTER 1

4

BACKGROUND AND OVERVIEW OF THE SME SECTOR IN

SRI LANKA

1.1 INTRODUCTION

The Small & Medium Enterprises (SME) plays a vital role in the socio economic aspects of a

country and is considered as the backbone ofan economy. In Sri Lanka it is estimated that the

SMEs accounts for over 90% of the total enterprises, 45% of the total employment and make a

significant contribution to the Gross Domestic Product (GDP). The Government has identified

this sector as a thrust area that should be developed to provide employment to uplift the living

standards of the people. As per the Department of Census and Statistics (DCS) Economic

Census 2013/14, the number of establishments in the SME sector is 1.017 million providing

livelihood to nearly 2.25million persons.

The national policy frame work was prepared by the Ministry of Industry & Commerce in

collaboration with the Ministry of Rural Economic Affairs with inputs from Ministry of

Finance, Ministry of Science, Technology & Research, Ministry of Environment, Central Bank

of Sri Lanka and other stake holders from public and private organizations which included

National and Regional Chambers. The Deutsche Geschellshaft fur

InternationaleZumsamanarbeit (GIZ) has also played a major role in lifting the policy

framework off the ground.

Considering the current globalization trend, the Government of Sri Lanka stresses the

importance of developing and strengthening the SME sector to effectively face the

competitiveness at national and international levels. The SME sector is viewed as a driving

force for growth and development of the economy. Hence Government intervention is required

to support and strengthen this sector. The 2016 budget proposal has given a prominent place to

SME development and it has been clearly spelt out as a national policy to create a conducive

investment climate to empower industrialists/entrepreneurs to deliver globally competitive

products and services to the international market.

The Policy Framework has identified six major intervention strategies; Enabling Environment,

Modern Appropriate Technology, Entrepreneurial Culture and Skills development, Access to

Finance, Market facilitation, Research and Development. In addition to the above the document

has also covered the aspects of Resource Efficiency and Regional Balance. The policy frame

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work also fosters SMEs with high potential to improve their business and to realize the full

potential in today’s globalized economy.

The Ministries handling the subject area of each intervention strategy took a leading role in

starting a dialogue in the relevant areasand subcommittees were appointed for each area.

Meetings were also held with other stake holders, Chamber Representatives to gather data in

preparation of the action plan. Public hearing workshops with participation of Government

service providing agencies, SMEs representing Chambers, trade associations and individuals

were held in the regions with the objective of disseminating the policy frame work and to obtain

their views and suggestions on the implementation plan.

1.2 AN OVERALL VIEW OF THE ECONOMIC ACTIVITIES

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The country’s economy comprises of 1.017 million establishments of the SME Sector as per

the Economic Census (listing Stage) of 2013 conducted by the Department of Census and

Statistics. The persons engaged in this sector are around 2.25 million. The detail analysis of

distribution of establishments and the number of persons estimated as per the Census &

Statistics Department (Refer Annex 1) is given below.

Table 1: Number of Establishments and percentage distribution economic sector wise

Scale of the Est. Total No Est. Industry % Trade % Service %

Total 1,019,681 100% 25.6 41.0 33.4

Micro 935,736 91.8 25.3 42 32.7

Small 71,126 7.0 28.8 31.3 39.9

Medium 10,405 1.0 32.0 19.6 48.4

Large 2,414 0.2 31.6 36.9 31.5

Source: Report on listing stage Economic Census 2013/14 page 27

The table 1 shows that the predominant sector is trade representing around 41% of the total

establishments with 33% in service while the industry represents only 26%. Scale wise Micro

enterprises constitute 935,736 (91.8%) of the total while micro, small and medium added

together represent 99.8% and the large sector is only 0.2%.

Table 2: Number of persons and percentage distribution economic sector wise

Scale of the Est. Persons Engaged Sector wise distribution, Percentages

No. % Industry Trade Service

Total 3,003,119 100 100 100 100

Micro 1,338,675 44.6 29.7 68.1 44.6

Small 529,751 17.6 14.0 16.8 22.6

Medium 386,756 12.9 16.7 5.5 13.9

Large 747,937 24.9 39.6 9.5 18.9

Source: Report on listing stage Economic Census 2013/14

The same comparative analysis is shown in the table2 in regard to the persons engaged and the

sector wise percentage distribution shows a pattern similar to Table 1. The total number

employed in the micro scale is 1.3 million which is 45% of the total, although micro

scalerepresented almost 92% of the establishments (Table 1). The large sector represents

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almost 25% of the employment despite the fact they account for only 0.2% of the

establishments as the number employed per establishment is high.

Table 3: Distribution of establishments by Sector by scale

Sector Total country Urban Rural Estate

No. % No. % No. % No. %

Total 1,019,681 100 250,828 24.6 753,655 73.9 15,198 1.5

Micro 935,736 91.8 216,204 23.1 705,074 75.3 14,458 1.5

Small 71,126 7.0 27,999 39.4 42,683 60.0 444 0.6

Medium 10,405 1.0 5,164 49.6 4,989 47.9 252 2.4

Large 2,414 0.2 1,461 60.5 909 37.7 44 1.8


The table 3 shows that of the total establishments 73.9% are in the rural sector compared to

24.6% in the urban sector and 1.5% in the Estate sector. When micro and small are considered

75.3% and 60% respectively are in the rural sector. This analysis indicates the importance of

focusing all development programmes to the rural sector.

Micro, Small and Medium sectors

Table 4: Distribution of the Micro, Small and Medium sector and the persons engaged

Sector No. of Establishments Persons Engaged

Number % Number %

Micro 935,736 91.99 1,338,675 59.37

Small 71,126 6.99 529,751 23.49

Medium 10,405 1.02 386,756 17.14

Total 1,017,267 100 2,255,182 100


The SME sector includes Micro, Small and Medium (MSM) and it is important to concentrate

on this sector as the total number of establishments in the country is 1,017,267and the number

employed is 2,255,182 of which almost 99% of establishments belong to Micro and Small

providing employment opportunities to 83% of the total in this sector.

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The providers of institutional support and service to all establishments, including the SMEs in

the country consist of Ministries, Departments, Semi Government Organizations, Private sector

BDS providers, Non-Governmental sector(NGOs), Multilateral and Bilateral Organizations. In

addition to being involved in policy formulation and providing regulatory services, the

ministries and government departments, provincial and local government authorities play a key

role in facilitating the establishment and in operational processes of SMEs.There are large

number of organizations involved in providing various types of skills development and transfer

of technology. Hence the total network is of a very complicated nature and there are many

over-laps, gaps and underutilized resources. Due to the complicated nature optimization of

resources is difficult to achieve. Among the main institutes which provide services at present

are IDB, NEDA. ITI, EDB and SLSI.

The National Human Resources and Employment Policy published by the Secretariat of Senior

Ministers in 2012 has highlighted the following constraints for the SME sector development.

Quote;

“The growth and expansion of SMEs are constrained by problems emanating from product and

factor markets and the regulatory system they operate in. These problems fall into broad areas

of access to finance, physical infrastructure, level of technology, regulatory framework, access

to information and advice, access to markets, business development services, industrial

relations and labour legislation, intellectual property rights, technical and managerial skills,

linkage formation and environmental issues. High interest rates and the emphasis on collateral

by lending institutions are the most frequently cited constraints affecting SME development.

The inadequacy of skills in product development, packaging, distribution and sales promotion

are further areas of weakness. Difficulties in accessing information and markets are also

highlighted. Compounding these difficulties, the prevailing business and regulatory

environment raises costs and creates unnecessary hurdles. It has been argued that existing

labour laws prevent micro enterprises from graduating up to the level of small scale enterprises

and from small scale to medium scale enterprises. The negative effects of these laws on work

ethic and productivity are also noted.” Unquote.

These problems are well known and highlighted in every study and successive governments

have made many attempts to rectify them. However, no significant change is seen. The White

Paper published in 2001/2002 has also addressed all these issues and suggested an

implementation plan which has not proceeded further.

9

The present government has taken a firm commitment to implement the policies to

address the above mentioned issues and provide a conducive environment for the growth

of the SME sector.

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CHAPTER 2

SOME HISTORICAL DEVELOPMENTS IN SME POLICY FORMULATION

IN SRI LANKA

2.1 WHITE PAPER ON NATIONAL STRATEGY FOR SME SECTOR

DEVELOPMENT

A task force comprising of Government officials, business people and members of Chambers

and Industry was set up in 2002 by the Ministry of Enterprise Development, Industrial Policy

and Investment Promotion in order to develop a policy framework for the SME sector

development . The vision of the task force was to develop SMEs to be globally competitive

through an entrepreneurial culture committed to sustainable growth. The white paper has

recommended four main strategic elements;

a) Establishing a SME Authority (SMEA),

b) Reform existing institutions,

c) Inter-institutional coordination and

d) Developing staff and institutional capacity.

The white paper recommends the SMEA to be the focal point for institutional support and

which would be mainly responsible for implementation of short term, medium term and long

term strategies for SME development. SMEA should be an independent body and should

function as a one-stop shop which coordinate and facilitate licensing, registration and

information delivery to SMEs.

A definition for the classifying of SMEswas also recommended in the White Paper based on

the asset value.

The paper focuses on ten major areas of business support;

i) Finance ii) Technology

iii) Access to information and markets iv) Business development services

v) Linkage formation vi) Infrastructure

vii) Legal & Regulatory framework viii) Industrial relations and labour

ix) Entrepreneurship skills x) Environmental issues.

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i) Access to finance

The foremost affecting problems identified are;

a) Availability of funds and other credit instruments

b) Access to equity and loan capital

c) Management of finance.

The high interest rates on lending by commercial banks and collateral issues have been

cited as main problems faced by the SMEs. The Task Force also has recommended

providing land and buildings on lease or rental basis from the government, encouraging

private industrialists to use industrial estates which are provided with common services

by the state. Review the Loan Recoveries Act and to bring a mechanism friendlier to the

SMEs in financial difficulties is also recommended.

ii) Access to appropriate technology

The technology used by most SMEs is lagging behind the current world trends and the

lack of access to technology has been highlighted in the paper. The deficiencies cited in

the report include the lack of convenientaccess to better technology, inefficiencies of

diffusion of technology by support agencies, high financial cost and lack of motivation.

The Task Force recommends an establishment of a Technology Development Fund and

the establishment of technical service centers at district level providing R&D services.

iii) Access to information and markets

The report says that Small firms have virtually no sources of information on other markets

or opportunities outside their immediate surroundings. Existing arrangements to supply

such information to SME are grossly inadequate and they do not have proper access to

information on foreign markets. Further they lack knowledge on promotion

methodologies, as well as the packaging and presentation of their products. Considering

these factors, the Task Force has recommended the creation of a SME website, to provide

opportunities to participate in trade promotion exhibitions, to provide access to foreign

markets through e-commerce facilities, Identification of export oriented products and

Initiate a business report on SMEs on an annual basis.

iv) Business Development Services

Sri Lanka has a wide range of government, non-government, private sector, donor agency

supported project Business Development Service Providers (BDS). However their

services are found to be mostly confined to Colombo and other metropolitan areas and

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are supply driven. Their outreach is very limited particularly in the regions. It is

recommended that the government to shift from direct delivery to a facilitator role and

focus on market orientation of public sector BDS. It is also recommended to promote

business incubator programme with joint participation of public private, NGO and donor

community.

v) Linkage formation: clustering and subcontracting

The task force has recommended the strategies of clustering and subcontracting the SMEs

to enhance their competitiveness, to upgrade the technology, transfer skills and to access

wider markets. Through subcontracting, business links between large scale buyers in Sri

Lanka and abroad as well as industry clusters on subsector basis could be established.

vi) Infrastructure

Lack of adequate infrastructure, power, water, telecommunication and road access has

been identified as some constraints faced by the SMEs. These issues are particularly

prevalent in districts outside Colombo, which are still affected by an inadequate supply

of electricity and water. In order to solve this issue, it is recommended that Industrial

parks for SMEs to be set up in rural areas and to improve the existing infrastructure

facilities in existing industrial parks.

vii) Enabling legal and regulatory framework.

The task force has highlighted that the rigid administrative procedure imposed by public

sector institutes as one reason for discouraging dynamism, Some major recommendations

are to amend the Companies Act with the view to facilitate SMEs, introduce simplified

tax system for the SMEs, release SMEs from labour and tax obligations for the first three

years of the business operations. Effective implementation of anti-dumping laws,

obtaining WTO concessions for SMEs, and introducing remedial measures to duty

anomalies are the main recommendations made in the white paper under this heading.

viii) Industrial relations and labour environment

The paper recommends implementing the proposed amendments to the Industrial

Disputes Act and the Termination of Employment Act with a safety net, improvinglabour

management cooperation through dialogues at all levels for stable and healthy industrial

relations and Continuous development of human capital industry.

ix) Entrepreneurship skills, retraining and management

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The paper states that most of the SME owners have not been trained in business

management and as such, they lack a proper book keeping system to facilitate vital

financial decisions. The white paper has recommended to Conduct skills development

programmes with a subsector focus. Encouraging Universities and other tertiary

education institutions to develop curricula on entrepreneurial and management skills

training and encouraging more private sector participation in skills development is also

recommended. Introduction of a voucher system to encourage training are also

recommended.

x) Cleaner Production and Environmental Issues

The white paper emphasizes on the adaptation of cleaner production techniques by small

businesses and their workers. It is recommended to enhance the capability of government

and private BDSs to assist SMEs in cleaner production and environmental management,

facilitate environmental impact Assessment (EIA) requirements of SMEs by providing

technical advice and testing services especially at regional level. Further, it has been

proposed to develop an alternative guarantee scheme for SMEs which are interested in

investing in low cost abatement technologies. In addition, an awareness programme on

CP has been recommended, focusing on the impact of CP on cost savings and efficiency

benefits, while the environment related business activities such as eco-tourism and geo

tourism would be encouraged.

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2.2 COMMENTS AND OBSERVATIONS OF THE ASIAN DEVELOPMENT BANK

(ADB) ON THE NATIONAL STRATEGY FOR SME DEVELOPMENT (WHITE

PAPER)

The white paper prepared by the task force has been submitted to the Asian Development Bank

(enabling SME growth) for their review and comments. The review has been carried out by

consultants, Enterplan Ltd. in association with and iris. Asian Development Bank has carried

out this task under the ADB financed Technical Assistance TA No 3822-Sri Lanka Enabling

SME Growth. The report states that;Quote “The views expressed in this report are those of

consultants are not necessarily those of ADB” unquote.

The Key observations and comments are given below in a summarized form

1) The consultants do not support the task force recommendation of establishing an SME

authority. In their opinion establishing an SME authority would impede the prevailing

linkages and coordination that exists between MDIP and other ministries and levels of

government. p2

2) A NationalAdvisory Council on SME Development, chaired by the Ministry is

recommended in place of the SME authority.pP2

3) A SME Policy Unit as a permanent fixture of the Ministry is recommended.p 2

4) A SME information website that will facilitate the growth of SMEs, which could be

developed with the ADB support intended by the ministryP10

5) A national policy and programme working group assigned with developing a ten and

twenty-year plan for infrastructure development in Sri Lanka is recommended.

6) Industrial relations and labour environment needs to be strengthened. An Inter-

ministerial working group is to be deal with the issue. p13

7) Ministry to form an inter-ministerial/private sector working group to tackle the broad

range of issues concerning access to finance. Alternatively, theworking group to be

established as a subcommittee which is chaired by the Central Bank. p11

8) The government to finance fully or partially, the advisory services to support SME in

startup, transition and winding up operations etc.

9) Concerted efforts by encouragement of tax incentives or business incentives to upgrade

the skills of individuals.

10) Matters related to Cleaner Production should be addressed by the inter-ministerialgroup

to implement good environmental policies along with the private sector.p15

15

The main features of the consultant’s report are to appoint an Advisory Council under the

Ministry which handlesthe subject of industries and to establish a SME policy division in the

ministry as a permanent feature. The Advisory Council will ensure that the policies are

implemented. The implementation is to be carried out by the inter-ministerial committees.

P1, P2 etc refers to the relevant page of the consultant’s report

16

CHAPTER 3

NATIONAL POLICY FRAMEWORK FOR SMALL & MEDIUM

ENTERPRISEs (SMEs) DEVELOPMENT

3.1 POLICY FRAMEWORK

The present national policy has been prepared by the Ministry of Industry and Commerce in

collaboration with the Ministry of Rural Economic Affairs,Ministryof Finance, Ministry of

Science, Technology and Research, Ministry of Environment, National

EnterpriseDevelopment Authority, Central Bank of Sri Lanka, Department of Census &

Statistics, Sri Lanka Standards Institute, Research Institutions, State and Private Sector

Commercial Banks, National and Regional Chambers and the Deutsche Gesellshaft fur

International ZuzamanArbeit (GIZ) have contributed immensely inthe preparation of this

document.

3.1.1Vision, Mission and Objectives of the SME Policy Framework

Policy Vision:

The vision of the National SME Policy Framework is to create asignificant number of

globallycompetitive, dynamic, innovative, technologically driven, eco-friendly and sustainable

SMEsthat contribute greatly to the national economic development.

Policy Mission:

The mission of the National SME Policy Framework isto stimulate growth of SMEs to produce

world class products and services that can compete locally and internationally with

supportiveenvironmentand interventions of technology transfer, entrepreneur culture,

skillsdevelopment, access to finance, market facilitation and research and development.

Policy Objectives:

The SME Policy Framework will support start-up SME enterprises, strengthen the

existingenterprises and extend nursing programmes for potentially viable sick SMEs. TheSME

policy willfocus on the following aspects.

Promote high potential, viable and promising sectors.

Focus on cluster approach for SME Development. Under the cluster approach, theentire

value chain from input supply to processing and export will be supported andpromoted.

17

Promote enterprises with high value addition and encourage enterprises that uselocal

raw materials as they offer strong comparative advantages due to factorendowments.

Motivate and encourage export oriented or import substitution enterprises

andindustries.

Encourage and promote flagship SME sectors with high potential spillover effects

tofacilitate job creation or employment generation.

Promote and relocate industries in the backward regions to reduce urban-

ruralimbalances.

Transform the landscape of the SMEs away from mere trade and commerce to wards

production and industry based with special focus on high value addition,

innovationandusage of modern appropriate technology.

Strengthen the SME sector in order to enhance inclusive economic development

andthus provide opportunities for better employment and higher income.

Achieve a balanced regional growth across Sri Lanka.

Promote resource efficiency at all levels including the use of Green Technology.

The SME Policy Framework will also give special attention to maintain nature’s capital, green

growth, entrepreneurship development, women entrepreneurship, craft sector development,

innovation and encouraging industrial clusters by strengthening enterprise villages, handicraft

villages, Industrial production villages and SME industrial estates / zones.

3.1.2 Definition of SMEs

In order to implement the policy, one basic need is a standard definition of SMEs in the country.

Therefore, a definition has been formulated in consultation with the stake holders approved by

the cabinet subcommittee for Economic Affairs.

The term SME in this context include micro, small and medium enterprises. Different

countriesuse different definitions for SMEs based on their level of development. The

commonly usedyardsticks are thetotal number of employees, annual turnover and total

investment. In the SriLankan context, the SME policy framework defines SMEs based on the

number of employeesand annual turnover. The definition of the SMEs depends on the

economic level of the country hence this is expected to be reviewed after a period of three

years.

18

Table 5: Definition of the SMEs

Size/Sector Criteria Medium Small Micro

Manufacturing

Annual

Turnover Rs.Mn. 251-750 Rs.Mn. 16-250

Rs. Mn. 15 or less

than Rs. Mn. 15

Number of

Employees 51-300 11-50 10 or less than 10

Service Sector

Annual

Turnover Rs. Mn. 251-750 Rs. Mn. 16-250

Rs. Mn. 15 or less

than Rs. Mn. 15

Number of

Employees 51-200 11-50 10 or less than 10

3.1.3 The policy Intervention Strategies for a sustainable SME in Sri Lanka

The policy intervention consists of six strategies as shown in the figure 1; the strategies and

activities are described below.

Figure 1: PolicyIntervention Strategies

The policy intervention strategies involve six elements as shown in the figure 1;

i. Enabling Environment

ii. Access to Technology

iii. Entrepreneurial culture& Skills development

iv. Access to Finance

v. Market Facilitation

vi. Research & Development

Re

gio

na

l B

ala

nce

Re

sou

rce E

fficien

cy

19

Another important aspect in this intervention is to ensure regional balance and resource

efficiency in all six policy intervention strategies. In other words, the development process

should be more focused on SMEs outside Colombo, and Gampaha districts with special

emphasis given to economically backward areas such as Uva, North and Eastern province.

In addition, the following organizations will be established to carry out the different activities

identified in the policy framework.

3.1.4 CoordinationMechanism for the implementation of the Policy

a) Inter- ministerial Coordinating Committee

An Inter-Ministerial high level policy making and coordinating body convened by the

Ministry of Industry and Commerce with other cluster Ministries including the Ministry

of Finance, Institutions, Chamber representatives and Stakeholders will be entrusted with

the responsibility of coordination, facilitation and overseeing the implementation of the

SME Policy.

However, restructuring of the existing institutions to facilitate the policy intervention will

be given priority instead of establishing new institutions.

b) SME Advisory Council

The Government will set up an Advisory Council - a “Think Tank” at the National Level

for strategizing the promotion and development of SMEs. The Advisory Council may

also look into the following matters;

Execution of the SME Policy Framework with an appropriate action plan.

Establishment of broad policies and strategies for the development of SMEs.

Reviewing of the current policies, strategies and plans and advice on innovative

strategies and interventions.

Re-structuring the institutional landscape to focus on strategic priorities and cost

effective service deliveries for SMEs.

Review the relevance, efficiency and effectiveness of the strategies including

projects and programs to enhance outcomes.

Advising on emerging issues of SMEs and recommending corrective measures.

20

c) SME Cluster Committees

The Government will set up strategically important SME cluster committees to discuss

the problems of the clusters, areas where assistance is needed, discuss the progress of

sectors and assist in formulating of strategies and implementation programs. These

cluster committees or panels will comprise of representatives of ministries and

departments, statutory bodies, private sector, chambers, industrial associations, academia

and representatives of the relevant sector of the industrialists. The cluster committees will

initially focus on sectors with high potential identified in the policy paper. A redress

mechanism will be established to address grievances of the SMEs on an urgent basis.

The cluster committees will discuss the issues in the clusters such as technology, raw

material, marketing, financing and design and formulate suitable strategies and

interventions to place the sector in a more level playing field to compete with other

products in the industry. The cluster committees should recommend investment

strategies, public private partnership modalities, fiscal incentives, tariff measures,

financing modalities including credit, forward and backward linkages, supply chain

related interventions and other key aspects which may be vital or complementary to

achieve strategic outcomes and results in the sector.

d) Monitoring and Evaluation

The proposed Inter-Ministerial Coordination Body will function as the SME Policy

Monitoring and Evaluation Committee (PMEC) and will conduct quarterly progress

meetings to assess the policy implementation progress and its outcomes. The Ministry of

Industry & Commerce will function as the Secretariat of SME policy monitoring and

evaluation committee. Further, on a periodic basis, SME survey should be launched to

track the progress of SMEs, their challenges, issues and constraints. Such data will help

the Government to design more effective policies and programs.

Figure 2: Key Stakeholders - The Driving Force behind the SME Development

21

CHAPTER 4

Ministries

(Industry & Commerce,

Finance,

Science,Technology & Research,

Skills Development & Vocational Training,

Rural Economic Affairs..)

& Central Bank

& GIZ , Chamber/Trade

Associations,

Service Providers

NEDA, IDB, SLSI, COSTI, EDB, ITI, VTA, NAITA, DTET, SLITA,

CGTI ,NIPO

SMEs

22

ACTION PLAN FOR SME POLICY FRAMEWORK

4.1 METHODOLOGY-ACTION PLAN PREPARATION

Figure 3: Action Plan Preparation Process

4.2 POLICY DISSEMINATION AND PLANNING IMPLEMENTATION PROCESS

Planning intervention strategies

Policy dissemination & planning implementation

Key Stake Holders

Ministry-Industry & Commerce

Enabling Environment

Technology & Innovation

Entrepreneurial Culture and Skills Development

Access to Finance

Market Facilitation

Research & Development

Ministry-Science, Technology&Research

Ministry-Skills Dev. & Vocational Training

Ministry- Finance,Central Bank

Ministries- Industry & Commerce, Dev. Strategies &

International Trade

Ministries- Science, Technology & Research, Higher Education &

Highways, Universities

Ministries,

Entities

playing

lead role

Identify, define activities & milestones

Sub-committees

SME Action plan Ministry Industry & Commerce

Public Hearing

23

The dissemination process at Macro level was conducted through several meetings chaired by

the Secretary Ministry of Industry and Commerce, Senior Advisor to the Prime Minister

representing the Prime Minister’s Office with the participation of representatives from relevant

Ministries, GIZ,Chambers, Central bank, Heads of BDSPand Research institutions,

Universities and other stake holder Private and Government agencies.The strategies for policy

implementation were also discussed in detail during these sessions and the Ministries and

agencies which should play lead roles in the six strategic interventions spelt out in the Policy

Framework Document were identified. It was also decided to appoint subcommittees to work

out the detailed action plan pertaining to each strategic intervention.

4.2.1 Policy Dissemination Process

Awareness creation on the policy framework is extremely important and it is envisaged to

disseminate the information to the grass root level through the process depicted below. The

process involves both public and private sector stake holders.

Figure 4: Policy Dissemination Process

4.3 INPUTS FOR THE ACTION PLAN SMEs

24

Participative approach was used in preparation of the action plan. Workshops were held with

the subcommittees appointed by the Ministries covering each section to get the inputs on

strategies and the activities. Organizational heads, Experts from various sectors were

represented in these sub committees.Priority areas were also identified during these

sessions.The views and suggestions that came up at the public hearing meetings, written

submissions received from Chambers, Associations and institutions were also taken into

account in preparation of this Action Plan.

4.4 VALIDATION

The draft report was submitted to the relevant stakeholders’ ministries, Sub committees and

chambers for validation.

4.5 POLICY IMPLEMENTATION STRUCTURE

Figure 5-Policy Implementation Structure

Coo

rdin

atio

n &

Mon

itor

ing

fun

ctio

n

Imp

lem

enta

tion

Su

pp

ort

SME Advisory Council

MIC, stakeholder

Ministries,

Chambers

BDS Providers

Inter-ministerial

Coordinating

body

SMEs

Sustainable development

SME Authority

25

The above chart shows the policy implementation structure with the apex body as the Advisory

Council. Monitoring and Evaluation will be done by the Inter-ministerial Coordinating body.

4.6 ACTION PLAN GOALS

Figure 6: SME Policy Goal Achievement Process

*D.B-Doing Business Rank Index

The chart given above shows the goals planned to be achieved over a period of three years

commencing from the date of implementation. The SMEs using modern technology at present

could be determined from the activities listed under policy intervention strategy Modern &

Appropriate Technology and Research and Development.

Change in DB

Rank* positively

by 5pts every

year

10% increase in

exports from

SMEs

Increase the

number of SMEs

using modern,

innovative

technology by

10%

Increased

number of

skilled youth

entrepreneurs.

Productivity

improved in

SMEs

20% increase in

SME loan

disbursement

Enabling

Environment

Modern

Technology

and

R & D

Entrepreneurial

culture, Skills

development

Access to

Finance

Market

Facilitation

A vibrant and a sustainable SMEsectorcontributing to the

economy of the country

Creation of a globally competitive, dynamic, innovative, technology driven, and eco-

friendly SME Sector in the Country

SME Policy Framework

Goals- over

3 yr. period

Intervention

Strategies

26

CHAPTER 5

IMPLEMENTATION PLAN

5.1 INSTITUTIONAL ARRANGEMENTS

Activity Completion target Responsibility

1 Establishment of the

Advisory Council 3 Months1

Prime Minister’s office

Ministry of Industry &

Commerce

2 Formation of the Inter-

ministerial Coordinating

Committee/ PMEC

3 Months1 Ministry of Industry &

Commerce

3 Establishment of the SME

Authority

One Year2

Ministry of Industry &

Commerce

1 From the date of approval of the Action Plan

2 Until such time the SME Authority is established the functions will be carried out by the Ministry of

Industry and Commerce with the assistance of the organizations functioning under the ministry.

27

5.2 IMPLEMENTATION STRATEGIES AND ACTIVITIES LISTED ACCORDING TO THE PRIORITY

The Target completion given in the schedule, Q1, Q2.. etc. will be effective from thedate of approval of the Action Plan

5.2.1 POLICY INTERVENTION STRATEGY ENABLING ENVIRONMENT

Goal Change in DB Rank* positively by 5pts every yearover the period of threeyears

Objective Improve legislative, regulatory and institutional framework including proper coordination, simplification and rationalization of procedures to create a conducive environment for SMEs

Strategy1 Improve the quality and outreach of service delivery of SMEs related Ministries, Departments, Statutory Boards, and other public and private sector institutions.

Activities Target completion Output KPI Responsibility

I. List the entities involved in SME related outreach of service delivery

Q1

List of entities segregated into sectors, areas, services offered.

List of entities MIC/ SME Authority/

NEDA

II. Identify the issues and potentials of the entities through a SWOT analysis

Q1

Strengths & weaknesses of each entity identified.

SWOT analysis of each identified entity.

MIC/SME Authority/ NEDA

III. Synergy development among the service delivery entities

Q1, continuous process

Networking established No. of forums held No. of networks built


IV. Provide services to SMEs through one stop shops a) Central level in relevant

ministries and central level organizations.

b) Regional level-In DS offices, Regional offices of service providers

Q1, continuous process

Establish one stop shops Successful resolution of SME

related issues at SME windows Provide services to SMEs

No. of SME window/desks established

No. of requests for services complied with

No. of SME issues solved in each window

Relevant Ministries, District Secretaries, NEDA,IDB

V. Promote a joint Forum representing SMEs Continuous

One platform created for addressing the issues of SMEs

Formation of a Joint Forum MIC, Chambers

28

Strategy 2

Support and improve infrastructure facilities including common service centers, industrial estates, incubation facilities and geographical location based clustering and SME enterprise village development mainly focus on less developed regions.


I. Identify the existing infrastructure facilities for SMEs and the requirements in the current context

Q1

The needs for infrastructure facilities identified

List of existingand required infrastructure MIC/SME Authority/

NEDA

II. Conduct a demand survey to identify the new services required and identify gaps between the existing and required services Q 2

The services provided by different institutions and the needs for new services identified

The Gaps that need to be filled, overlapping’s, duplication, and obsolete services identified.

Report on the services, demand and gaps

MIC/SME Authority/NEDA

III. Prioritize and identify the nationally important clusters

Q 3 Decision on the priority areas List of priories MIC/SME Authority/

NEDA

IV. Clustering of SMEs based on resources, marketing and services and economic efficiency

Q 4

An analysis and recommendations on the best clustering process.

Report suggesting the clustering for economic efficiency


V. Establishment of Apparel based cottage industry Q4

Improved job opportunities, empowerment of women

No of cottage industries established MIC/IDB

VI. Development of Handicraft Villages Northern, Eastern and other selected provinces

Q4

Improved job opportunities, empowerment of women

No of handicraft, handloom villages established MIC/IDB

VII. Development of projects covering blacksmith, Jewelry making on sector basis

Q 4

Development of domestic level industry, improved economic condition

No of projects completed MIC/IDB

29

Strategy 3 Strengthen public-private dialogue and partnership arrangements and development of industrial associations for more effective empowerment and involvement


I. Strengthen the Regional Chambers

Q1

Strong network of regional Chambers

No of inactiveregional chambers revived.

Improved performance of the existing chambers

MIC, NEDA, District Secretariats

II. Establish effective coordination and collaboration among, district chambers

Q 2 continuous process

Coordination & networking established.

No. of meetings, forums held MIC/SME Authority/

NEDA/ IDB

III. Strengthen the District, Regional Enterprise Forums and have more meaningful dialogue

Q 2

Availability of one forum to sort out issues relating to SMEs.

New structure, mechanism to address common issues of SMEs

Number of common issues sorted out.

MIC/ SME Authority/ NEDA

IV. Promote Corporate players-promoting backward and forward linkages involving SMEs

Q1-contineous process

Improved market for SMEs in products & services.

No of linkages established. No of subcontracts.

MIC/ SME Authority/ NEDA/ IDB

30

Strategy 4 Support women led SME and new women entrepreneurs through various measures such as women entrepreneurship development and strengthen women chambers and rewarding women entrepreneurs


I. Strengthening women chambers

Q 1

Active women chambers No. of meetings. forums held, networking established

MiC/Chambers/ SME Authority/ NEDA

II. Organize regional & national level events to reward best women entrepreneur

Continuous

Motivated women entrepreneurs No of regional & national events held

Chambers

31

Strategy 5 Create awareness to SMEs on green growth opportunities and promote environmental friendly cleaner production technologies and practices


I. Awareness creation among the SMEs on the needs and benefits of Cleaner production

Q 1

Continuous process

Improvement of the efficiency and effectiveness of the SMEs which shifted to CP technology

No. of programmes/ seminars held

Better understanding of the benefits of cleaner production by SMEs.

No. of SMEs which adopted CP technology

Ministry of

Environment, NCPC, MIC

II. A model, eco-friendly industrial park to be set up after a feasibility study, on an existing industrial park

Q 3

Improved productivity in individual units in the park.

One model park established

The level of productivity improvement in individual units in the park

MIC/CPC

III. Gradually convert the other parks to eco-friendly level based on successful projects..

Year 2, Year 3,Q1- Q 4

Improved productivity in individual units in the park. Reduced carbon foot print, clean environment

No. of units, parks converted per year

MIC/NCPC

IV. Encourage all new industries to be eco-friendly and provide incentives

Continuous process

Improved productivity in individual units. Reduced carbon foot print, clean environment

No. of units established with eco-friendly methods per year

MIC/NCPC

V. Cleaner production and energy efficiency demonstration & ISO EMS system implementation for the food industry

Continuous process

Productivity, quality improvement, increased exports

No. units obtained ISO certification

Export growth of energy efficient industries

MIC/NCPC

32

Strategy 6 Design and enforce SME friendly laws and regulations and strengthen the legal environment for SMEs


I. Identify existing laws & regulations and Identify the gaps which need to be addressed relevant to the SME sector

End Q 4

Document with proposed changes, amendments to Acts.

Gaps and outdated regulations identified

MIC

II. Design & finalize the laws and regulations in line with the best international practices.

Year 2

Draft proposal for amendment of relevant Acts.

Proposed new laws and regulations, amendments

MIC, and other relevant

ministries

III.

Enactment &enforcement

Year 3

Relevant Acts amended

SME friendly, ease of doing business, set of laws & regulations established

MIC

33

Strategy 7 Simplification of business and industry commencement and dispute settlement procedures including simplification of accounting standards


I. Implementing a web based system for business registration

Q 3

Business registration can be done online

Availability ofon line system Company Registrar

II. Amending Companies act to be more SME friendly

Year 2 Q2

SME friendly Companies Act. Amended Act. Company Registrar

III. Promote and facilitate the SME registration at Provincial level

Continuous

Increased number of formal SMEs No. of SMEs registered per year

Ministry of Provincial Councils and Local

Government

IV. Implementing web based tax filing and payment system

Year 2 Q2

Online system available Timely revenue collection and convenience for Companies.

Ministry of Finance

V. Tax reforms to reduce the number of points and general tax reforms

Q 4

New tax system Reduced different types of tax to be paid by SMEs.

Ministry of Finance

VI. Reducing number of documents required for exports and imports

Q 2

Simplified documentation process Ease of handling export and imports.

Ministry of Finance/Customs

VII. Popularizing mediation / arbitration as means of resolving disputes outside the courts

Continuous

process

Reduced disputes Improved industrial relations

Department of Labour

34

5.2.2 POLICY INTERVENTION

STRATEGY MODERN APPROPRIATE TECHNOLOGY

Goal To create a knowledge based technology intensive SME sector in the country

Objective SMEs using modern appropriate technology are increased by 10% over the period of 3 Yrs.

Strategy 1 Establish a strong network, between SMEs and technology providers. Strengthen the technology transfer programs & outreach of technology

Activities Target

completion Output KPI Responsibility

I. Identify institutions providing technology for SMEs

Q1

The Sri Lanka Innovation Dashboard developed by COSTI already contains these information http://dashboard.costi.gov.lk/home

Increased awareness of the availability and use of this information.

MIC/NEDA, COSTI

II. Identify suitable institutions to coordinate linkage between SMEs & technology provider

Q2

Suitable institutes to develop linkages with SMEs identified

No of institutes selected

MIC/NEDA,COSTI,IDB (branch network)

III. Establish a strong network based on regional, district & national level

Q 2-contineous process

Network of technology training institutes at regional &national level established

No of networks (IDB branch network)

MIC/ NEDA, IDB

IV. Showcasing and dissemination of identified technologies to targeted SMEs

Continuous

process

Technology transfer No of events held, no of places benefited

SME Authority/ NEDA, Ministry of Science, Technology &Research, COSTI,IDB, Respective Research/ Technical Institutes

V. Develop private-public partnerships with service providers

Q 2

Sharing of resources, industry oriented training

No. of partnerships established MIC/ NEDA,IDB, Respective Research/ Technical Institutes

VI. Establish linkages between local & foreign institutions which are supporting to provide modern technology

Q2

Knowledge transfer, acquisition of appropriate technology.

No of linkages established SME Authority/ NEDA, Ministry of Science, Technology & Research

http://dashboard.costi.gov.lk/home

35

Strategy 2 Establishment of a Technology Transfer and Development Fund (TTDF) with appropriate incentives to support the acquisition and adoption of modern, clean technology for SMEs

Activities Target


I. Preparation of the draft proposal for setting up of a TTDF

Q 1 Draft proposal Proposal submitted for approval to

relevant authorities.

MIC/ NEDA

II. Enact and establishment of the fund

Q 3 Legally established fund available for technology development

TTDF legally established MIC, SME Authority/ NEDA, Ministry of Finance

III. Preparation & finalizing the detailed guidelines for TTDF & Develop management & monitoring procedures

Q3

Procedures established for operation of the fund and modern technology transfer in place

Guidelines for usage of funds

MIC, SME Authority/ NEDA, Ministry of Finance

IV. Establishment of an incentive scheme for acquisition of clean, modern technology

Q 3

Emergence of SMEs with new, clean technology

Guideline for implementing the incentive scheme

MIC, SME Authority/ NEDA, Ministry of Finance, Central Bank

V. Reviewing & revising activities of the fund based on the performance

Continuous monitoring

process

Fully functioning TTDF The fund operates in line with each objective

MIC, Ministry of Science, Technology &Research, Ministry of Finance

36

Strategy 3 Promote and conduct special technology transfer programs through the establishment of a technology bank and capacity building in training institutes

Activities Target completion KPI/ Output Outcome Responsibility

I. Identifying existing/ potential local technology sectors where market competition can be enhanced

Q 1

List of existing/potential technology sectors that can be developed

Potential technology sectors that can be developed to improve competitiveness identified

Ministry of Science, Technology & Research

II. Study viability of new technology in-terms of market competitiveness

Q 2 Report on viable technology areas

Viable areas identified


III. Identifying a mechanism to acquisition of new and appropriate technology

Q 2 Mechanism established New and appropriate technology

identified.


IV. Facilitation SMEs to implementation & improving quality to sustain the industry

Q 1 Continuation process

Facilities in place Improved quality product & services of SMEs


V. Develop a database to disseminate information on new technology, access to such technology

Q 2

Data base set up SMEs will have access to information on new technology, innovation.

Ministry of Science, Technology &Research/ SME Authority/ NEDA

VI. Establish technology cells in universities and R&D institutions and network into a central place

Q 3

No of technology cells established

University & SMEs linked together to develop technology, research and innovation

Ministry of Higher Education & Highways, UGC

VII. System established to purchase, transfer appropriate technology from technology providers in other countries

Q 2

No of technology transfers

New appropriate technology adopted by the SMEs to be competitive in international and local market.

Ministry of Science, Technology & Research, ITI, MIC

37

Strategy 4 Recognize and reward innovative and technology leading SMEs and assist them to participate in foreign trade fairs, exhibitions and technology demonstration platforms

Activities Target/ Completion Output KPI Responsibility I. Establish a process to identify

innovative & technology leading SMEs

Q 1 A system available to identify innovative leading SMEs

Procedure developed Ministry of Science, Technology & Research,NIPO, IDB

II. Conduct awareness programmes, surveys to identify innovative SMEs

Q1 continuous process

SMEs are motivated for innovation

No. of SMEs applied Ministry of Science, Technology & Research, IDB

III. Develop a data base for innovative and technology leading SMEs

Q 1

Information on innovative and technology leading SMEs available

Data base is set up Ministry of Science, Technology & Research, MIC

IV. Design a reward system (District, Provincial & National)

Q 2

SMEs are motivated for innovation

Procedure manual Ministry of Science, Technology & Research, MIC

V. Encourage IT SMEs for patents and publications

Continuous process

SMEs are motivated for inventions and to get patent rights

No of SMEs aiming for patent rights. Ministry of Science, Technology & Research,NIPO,SME Authority/ NEDA

38

Strategy 5 Foster University – Business linkages and curriculum development of Universities and Technical and Vocational Education Training (TVET) institutions by following a consultative process with SMEs to meet the needs of the industry

Activities Target


I. Conduct a need analysis and Identify the required knowledge & skills gaps

Q 3

Needs, gaps in skills identified. Need Analysis Report Ministry of Higher Education & Highways, Ministry of Science, Technology & Research, Vice Chancellors of Universities, Heads of Research Institutes, NEDA, IDB, NIPO

II. Assess current status of the university business linkages

Q 1 Awareness on the status of UBL Report on the status of

UBL

- do -

III. Establish a separate unit/cell in national universities to work with the SMEs

Year 2 Q1

Linkages University & Business established.

No. of cells established Ministry of Higher Education & Highways, VCs of respective Universities

IV. Establish invention and innovation club in each University

Year 1 Q1 New inventions, innovations available to be adopted by SMEs.

No of clubs established

Ministry of Higher Education , VCs of respective Universities

V. Link research and in plant training with the industries

Continuous process

No. of students trained per year

Ministry of Higher Education & Highways, VCs of respective Universities, MIC

VI. Conduct entrepreneur day & industry dialogue in Universities

Continuous process

Closer link established between University and Business/industry and the SMEs are benefited

No. of participants Ministry of Higher education & Highways, VCs of respective Universities

VII. Commence Diploma, Certificate programmes on entrepreneurship and encourage entrepreneurs to follow these courses

Year 2 Q1

A knowledgeable set of entrepreneurs created

No. of programmes established

No. of entrepreneurs who obtained academic qualifications

Ministry of Higher Education & Highways/ UGC

39

VIII. Productivity improvement programmes to be implemented by Training Institutes

Continuous activity

Improved productivity in SMEs No of programmes conducted

MSDVT, MIC

IX. Quality improvement of goods produced by SMEs, especially for the export market

Continuous activity

Improved quality of products manufactures by SMEs

No. of quality certifications issues to SMEs per year

SLSI, SME Authority/ NEDA

40

5.2.3 POLICY INTERVENTION STRATEGY ENTREPRENEURIAL CULTURE AND SKILLS DEVELOPMENT

Goal Increased numberof skilled youth entrepreneurs. Overall performance improved in the SME sector

Objective To develop skills of the entrepreneurs keeping abreast with the changing needs of the country, while creating an entrepreneurial spirit and a culture in the country

Strategy 1 Strengthen demand driven technology transfer, training and skills development programs in skills development

sector

Activities Target


I. Conduct Need analysis of skills development

National Skills Report already available

Identification of the skills requirements of the country

The skills available, required and gaps

TVEC /UNIVOTEC

II. Update the Curricula of vocational training to suit the current requirements of the economy

Is being done at present

Dissemination of improved and updated knowledge on Entrepreneurship development to students

Improved curricula TVEC

III. Capacity development of the staff to conduct the improved programmes

Q 3

Teachers are capable of creating entrepreneurship thinking among students

No. of Trained staff

Relevant Institutions under the MSDVT

IV. Infrastructure development of the institutes to conduct the new programmes

Year 2 Q 2

Training institutes have the capacity to conduct industry demand training programmes

Training facilities improved


V. Establish innovation units in selected Vocational Training Institutes

Q 3

Industry benefitted by the innovations No of innovation units


VI. Conduct entrepreneurial skills development programmes forhigh potential areas such as SME apparel and handloom sectors

Q 2

continuous affair

Improved performance in the selected SMEs

No of programmes conducted

MIC/SLITA/ DTI

VII. Implement skills development projects for thrust areas such as leather and footwear, rubber & plastics and wood industry

Q 2

continuous affair

Improved performance in the selected SMEs


MIC/SLITA/ IDB

41

Strategy 2 Strengthen tailor made SME entrepreneurship programs for start-ups existing enterprises and nursing programme for sick industries

Activities Target


I. Introduce SEPI training module associated with a loan scheme

Already in practice

Spin offs, emerging new entrepreneurs based on their skills

No of students obtained the loans VTA.NAITA,DTET,NYSC

II. Provide a website access to information relevant to SME

Q 2 Availability of a website for SMEs to access information

Availability of information VTA, NAITA, DTET, NYSC,SME Authority/ NEDA

III. Establish units in vocational training Institutions to assist sick industries through nursing programmes

Q 3

Resuscitation of some industries

No of units established in TVET institutions

MSDVT, Relevant Institutions under the MSDVT

IV. Improve linkages among institutions Q 2 Optimum use of resources in institutions

No of collaborations MSDVT

42

Strategy 3

Strengthen the entrepreneurship values, thinking and attitude in the curriculum of primary. Secondary, tertiary educational institutions and technical and vocational programmes to produce job creators rather than employment seekers

Activities Target

completion

Output KPI Responsibility

I. Inculcate entrepreneurial culture starting at school level

Continuous activity

Children are aware of basics of business enterprises

Changes done in school education sytem

Ministry of Education, MSDVT

II. Entrepreneurship to be included as a subject in schools

Year 2 Q3 Children acquire knowledge on basics of business enterprises

No of curricula changes

Ministry of Education

III. Media publicity, video, dramas to promote skills acquiring and promoting entrepreneurship

Continuous activity

Awareness creation Already in action Relevant Institutions under the MSDVT and Skills Sector Development Program (SSDP)

IV. Identify potential skill of those unable to pursue higher studies in education stream at school level and direct them for skills development

continuous

Youth find a pathway to suit their abilities

No of students opted to skills acquiring

Relevant Institutions under the Ministry of Education

V. Technical and general education to be made complementary

Continuous activity

A harmonized education system

No of steps taken Ministry of Education, MSDVT

VI. Create entrepreneurial culture/thinking for those following NVQ level 1-4

Q 1

Awareness, positive attitudes No of Self-employment, entrepreneurs emerging

Relevant Institutions under the MSDVT and other Vocational Training Centres

43

Strategy 4 Special programs to develop Women and Youth entrepreneurship development and strengthen the institutional capacity of training institutions

Activities Target


I. Offer flexible training programmes facilitating house wives to attend

Q 2 Home based women enterprises.

No. of training programmes conducted

VTA,NAITA,DTET

II. Promote women to do jobs presently confined to men only

Q 1Contineous

activity

Increase of the ratio of women engaged in vocations.

No. women who followed the training programmes


44

Strategy 5 Officially recognize, reward and motivate successful enterprises and SME heroes to create a culture conducive for entrepreneurial development

Activities Target

completion


I. Identify exceptionally performing SMEs

Q2 Highly motivated exceptional group of SMEs.

No. of SMEs identified

MIC, NEDA, Chambers

II. Arrange Annual event to reward SME heroes

Q4 Exceptional performers are rewarded, a boost up for SMEs

No. of events organized

MIC, NEDA, Chambers

45

Strategy 6 Disseminate success stories, best practices and strategies adopted to the wider community through media and other outreach

Activities Target

completion


I. Disseminate success stories through newspapers, TV channels and other mass media

Continuous activity

Availability of motivated youth and other enterprising people starting business

No. of articles appeared, No. TV programmes

MIC, SME Authority/ NEDA

46

Strategy 7 Strengthen and support industry related institutions, associations, chambers and bodies that support entrepreneurship and promote incubators in educational institutions of repute

Activities Target

completion


I. Identify the training institutes suitable for establishing linkages

Q 1 Institutes that can develop linkages identified

List of institutions

MSDVT,SME Authority/ NEDA

II. Form institute –business linkage mechanism with the involvement of chambers trade associations etc.

Q 2

Strengthened Linkages Business linkage mechanism established

MSDVT, MIC,SME Authority/ NEDA

III. Establish incubator in identified institutes

Q 3 Business linkages established

No of incubators

MSDVT, MIC, SME Authority/ NEDA, IDB

47

Strategy 8

Strengthen extension services to cover important services such as preparation of project reports and feasibility reports for credit facilitation, provision of technical information, advisory services and quality assurance services. Support and revive viable sick industries through resuscitation fund at districts

Activities Target


I. Capacity building of staff to prepare project/feasibility reports

Q 3 Availability of competent staff.

No.of programmes conducted, no. of staff trained


II. Establish Industry Service Units in institutions

Q 3 Availability of Technical Services of SMEs.

No. of service units


III. Conduct trainingprogrammes on preparation of project reports etc. for SMEs

Continuous SMEs equipped with the knowledge on project reports etc.

No. of programmes conducted No. of persons trained

MSDVT, MIC

48

5.2..4 POLICY INTERVENTION

STRATEGY ACCESS TO FINANCE

Goal 20% increase in SME loan disbursement in the country

Objective Strengthen the mechanisms for easy and affordable access to finance. Creating a business friendly financial environment

Strategy 1 Banks, financial institutions and leasing companies to scale-up special lending window and have special SME desks to facilitate access to credit

Activities Target


I. Licensed banks to establish SME unit/desk at branch level

Continuous Already in progress

SMEs benefited through the dedicated unit

No. of banks Units/desks established

CBSL

II. Select suitable Finance and Leasing companies and instruct to establish SME units/desks/divisions

Q 1

SMEs benefited through the dedicated unit

All major RF have established SME units

CBSL

III. Convene a bankers/RFC/Leasing Co, CEOs meetings to discuss the strategies for SME financing

Q 1

Availability of SME friendly financing strategy.

Identified strategies for SME financing

CBSL

IV. Conduct awareness programmes to educate the entrepreneurs regarding the services available at the SME units

continuous

An increased awareness of the services at SME units amongst entrepreneurs.

No. of programmes completed (175 programmes to be conducted)

CBSL

V. Collect data on SME lending by banks and other financial institutions quarterly and monitor the progress

Continuous

CBSL is aware on the loans granted to SMEs by the banks.

Compiled data

CBSL

49

Strategy 2 Expand the SME Re-financing schemes, banking clinics, Treasury Guarantee and non- collateral based access to credit. Viability based lending be promoted and encouraged

Activities Target


I. Study the possibility of expanding the categories of existing loan schemes under which SME financing is possible, set targets

Q1

Improved financial facilities for the SMEs

Targets achieved by major financing institutions

CBSL

II. Amend operating instructions where necessary to provide loans to SME borrow under present schemes

Q2


Amended guidelines and amendments to the operating instructions CBSL

III. Conduct banking clinics for SMEs with the assistance of the Regional Offices of the CBSL

continuous

Increased awareness of the schemes available by the SMEs.

Conduct at least 6 clinics per year

CBSL

IV. Assign district wise credit targets for SMEs by Banks and RFCs

Q 1

Increased access to finance for SMEs.

Target achievement

CBSL/Banks/RFCs

V. Arrange supplier and buyer meetings, Conduct at least one meeting in the provinces per year

Q 3

Improved supply chain links No. of meetings conducted

No. of links created CBSL

VI. Explore the possibility of introducing a Treasury Guarantee Scheme for loans granted to innovative SMEs

Q 2


Proposal submitted to the treasury

CBSL

VII. Banks to allocate a percentage from their profit to build their own CG fund

Q 2 Improved financial facilities for the SMEs

No .of banks established CG funds Banks and RFCs

50

VIII. Introduce very low level or no collateral credit for startups

Continuous Loans granted with less collateral or personal guarantees

No. of loans granted CBSL/Banks, RFCs

IX. Coordinate with Banks to setup community based multi stake holders organization to address the collateral issues. At least 20 groups organizations set up

Continuous


No of borrowers groups/organizations formed

Banks, RFCs

X. Introduce risk rating modules by assigning additional weightage for viability of the project and the experience of the borrower

Continuous

Risk trading modules introduced by assigning additional weightage by viability.

No of loans granted based on the scheme

CBSL/Banks,RFCs

Xi. Educate the entrepreneurs on record keeping and good business practices etc. that will help the bankers to assess the projects more accurately. At least 20 entrepreneurship programmes conducted

Continuous

Improved financial management of SMEs


CBSL

Xii. Conduct meetings to educate the bank staff on techniques of project evaluation. At least 10 programmes to be conducted

Continuous

Capacity building in Banks for project evaluation

No. of programmes conducted CBSL

Xiii. Present awards to commend well performing projects financed without collateral, at an annual ceremony

Q 4

Motivation of SMEs One Ceremony conducted/year CBSL/Banks

51

Strategy 3 Angel funds and venture capital arrangements be promoted to inject equity participation in viable SMEs

Activities Target


I. Conduct a series of awareness programmes to educate the entrepreneurs about alternative financial arrangements

Q1 through

Q4

Increased awareness of alternate financial arrangements amongst SMEs

No. of programmes conducted CBSL

52

Strategy 4 Scale-up concessionary bank loan schemes for Women and Youth entrepreneurship development

Activities Target


I. Make it mandatory for banks to allocate provide certain percentage of loan schemes operated by CBSL and prepare the necessary guidelines

Continuous

Increased no. of women entrepreneurs who were granted the loans

Guidelines issued and percentage of loans granted for Women and Youth entrepreneurship development

CBSL

II. Encourage self Employment Initiative Loan Scheme (SEPI) to grant loans to youth passing out of technical institutions to commence business activities

continuous

More spin-offs from Technical institutions.

No. of loans granted

CBSL

53

Strategy 5 Strengthening the capacity and skills of the officials of the banks and financial institutions with SME focused bank lending and appraisal methods.

Activities Target


I. Organize district wise workshops to strengthen the capacity and skills of the officials of the Banks and Financial Institutions with SME focus lending and appraisal methods. At least 4 programmes conducted /year

Continuous

Capacity building in Banks and financial institutes on SME lending and appraisal methods.

No of progammes

CBSL

54

Strategy 6 Strengthen the capacities of SMEs on financing topics such as business plan, accounting book keeping and use of IT based accounting packages

Activities Target


I. Organize dedicated training programmes and workshops in districts or DSD wise. At least one programme per qtr.

Q2 & Q3

Improved financial and project management by SMEs.

No of programmes conducted per year. No. of SMEs educated per year.

CBSL

II. Conduct meetings with relevant institutions to find ways to develop the required support structure on CRIB, BDS Providers, Chambers and CBSL

Q3

SME friendly financial support scheme.

No of meetings conducted, systems developed

CBSL

55


STRATEGY

MARKET FACILITATION

Goal 10% increase in exports from SMEs over the period of 3 yrs.

Objective Develop SMEs to be internationally competitive. To facilitate access to foreign and local markets through improved product quality, packaging and branding

Strategy 1

Promoting business linkages between large enterprises and SMEs and facilitate buyer-seller meetings and buy-back and sub-contracting arrangements to ensure an assured market for SMEs

Activities Target


I. Promote and intervene in establishing linkages between SME and large enterprises

Continuous activity

SMEs find an access to market their products

No of linkages SME Authority/ NEDA

II. Arrange regular meetings between foreign buyers and SMEs, to promote their products

Continuous activity

Access to export market facilitated

No of meets EDB. Department of Commerce

III Support, guide SME to improve quality of products and services and keeping to delivery schedules etc.

Continues activity

Overall performance improvement of SMEs.

No of programmes, SMEs supported

EDB, SLSI

56

Strategy 2

Support SMEs to penetrate local and international markets through trade fairs and exhibitions

Activities Target


I. Support, guide SME to improve quality, keeping to delivery schedules etc.

Continuous

activity

Marketing avenues created for SMEs.

No of fairs held SME Authority/ NEDA

II. Provide assistance for selected SMEs to participate in international fairs

Continuous activity

SMEs are exposed to foreign markets

No of SMEs received assistance

No. of business linkages created

EDB

III. Organize market promotion programmes for potential export areas ,such as Boat Building, rubber products

Continuous activity

Improved market for boat building

No of promotional events/programmes held

EDB, MIC

IV. Special international promotional programmes to be launched for Handlooms and Handicraft items

Continuous activity

Increased exports from the sectors

No of promotional events/programmes held

MIC/EDB

57

Strategy 3 Overseas market information will be made available to SMEs to access international market. Technical support will be extended for exporters through subsidization of their participation in the overseas exhibitions and trade fairs

Activities Target


I. Establish an easy accessible web site for market information

Q 2

SMEs have access to information on global trade

The Market Access Map developed by the International Trade Centre www.macmap.org

Department of Commerce (DoC),EDB

http://www.macmap.org/

58

Strategy 4 Road side marketing outlets will be expanded specially in tourist and heavy public visiting locations to help SMEs to market their products

Activities Target completion


I. Identify potential market places and Carry out a feasibility study

Q 3

Places to establish market outlets identified

Feasibility report NEDA/ SME Authority

II. Provision of trade stalls/shops in tourist areas for craft & traditional items

Year 2 Q 4

Improved market access-local market

No of trade stalls/shops established MIC/SME Authority/ NEDA, NCC, Tourist

Board, Sri Lanka Handicrafts Board

III Provide sales centers in large cities such as Colombo, Kandy, Kurunegala targeting local market

Year 3

Improved market access-local market

No of sales centers established NEDA/ SME Authority,

CWE, MIC

59

Strategy 5 Procurement Preference Policy will be implemented to assist SMEs to increase the market share in Government procurements

Activities Target


I. Adhere the Government procurement policy which already provide provisions for preferential treatment

Continuous

activity

Availability of an assured market for some SMEs.

Increased procurements from / contracts or orders given to SMEs

No. of SMEs which are awarded government tenders

All state institutions

60

Strategy 6 Establish SME website and e-commerce arrangements to enable the SMEs to link with exporters and buyers and strengthen their marketing network

Activities Target


I. Establish SME website and e-commerce arrangements

Year 1 Q 4 Improved access to international market.Established

E commerce facility

EDB, SLSI, Any other Institutions

61

Strategy 7

Support product development, quality improvement, ethical practices, packaging, branding and market networking of SMEs to compete locally and internationally

Activities Target


I. Support product development, quality improvement, ethical practices, packaging, branding and market networking

Continuous

activity

Improved access to international market.

No of programmes launched EDB, MIC, ITI

62


STRATEGY RESEARCH & DEVELOPMENT

Goal Increase SMEs engaged in R &D and innovation by 10% over the period of 3 yrs.

Objective To create a strong partnership among Industries, R&D institutes, academic Institutions for developing cost effective affordable new technologies and innovations and create competitive advantages

Strategy 1 Establish closer linkage between industry and research institutions and promote industry relevant applied research and adoption of research for commercial enhancement of the SMEs


I. Identify the research institutes that need to develop linkages on sector basis as well as priority basis

Q 1 Data base available on R&D institutes that can support SME sector.

List of R&D institutions SME Authority/ NEDA, Ministry of Science, Technology& Research

II. Arrange forums/discussions involving R&D institutes and chambers and trade associations to establish closer linkages involving

Q 2 Joint research No of discussions and forums SME Authority/ NEDA, Ministry of Science, Technology& Research, Chambers and Trade Associations

III. Officially recognize and Institutionalize the R&D –business linkage by relevant ministries

Q 3 Joint R&D work. Improved technology, processes

Business linkages institutionalized SME Authority/ NEDA, Ministry of Science, Technology & Research, MIC

63

Strategy 2

Establishment of Special Fund to support SME focused R&D.


I. Provide provisions from

the TTDF

Continuous activity Availability of funding for R&D

Ministry of Finance, CBSL, SME Authority/

NEDA

II. Create awareness among SMEs on the scheme and the eligibility criteria

Q 1-continue

Awareness of SMEs on financial support for R&D.

No. of programmes conducted. CBSL, SME Authority/

NEEDA, MIC

III. Grant special low interest loans for research & development work

Continuous

New technology adaptation, innovation.

No of loans granted. CBSL, SME Authority/

NEDA, MIC

64

Strategy 3

Provision of laboratory and testing facilities for quality assurance and to access international market


I. Carry out a study on the testing facilities required in the regions

Q 2

Testing facilities required identified

Report identifying the need SME Authority/ NEDA, ITI, SLITA

II. Provision of sample collecting and sending to a central laboratory

Q 2

SMEs can get their testing reports from the region it self

Systems established MIC/ Vidatha Centers, ITI

III. Establish testing facilities in public institutes on need base in regions

Year 1 Q 4

SMEs can get their testing reports from the region it self

Testing facilities established SLSI, ITI

65

Strategy 4

Promote research to find alternative substitute raw materials to address the raw material scarcity problems


I Encourage sector specific institutes to conduct research

Continuous activity

Inventions and innovations that can be adopted by the SMEs

Institutes conducting research Ministry of Science, Technology& Research, ITI, NERD, MIC

II Encourage universities for a thesis award

Continuous activity Commercialization of thesis Universities implemented the process UGC, Ministry of Higher Education & Highways

66

Strategy 5

Increase the investment in research and development both from public and private sector through appropriate fiscal incentives


I. Increase the government allocation

Improved R&D, Innovations Ministry of Finance, Ministry of Science,

Technology & Research

67

Strategy 6 Focus research on product quality improvement, preservation techniques to extend the shelf life of products. Institutionalize quality assurance and standard certification system for SMEs


I. Encourage research by R&D institutes on product quality improvement, focusing on the export market

Continuous

Product development and quality improvement Improved access to export market

Quality certification obtained Increase of exports

SME Authority/ NEDA, Ministry of Science, Technology & Research, IDB

II. Identify the products which need to extend the shelf life and carry out research

Continuous activity

Improved market access. Techniques developed SME Authority/ NEDA, Ministry of Science, Technology& Research

III. Conduct joint research by R&D institutes and the producers

Continuous activity

Research out come Innovations Ministry of Science, Technology & Research, Ministr6y of Higher Education & Highways

IV. Draw up a scheme for quality assessment certification, and provide advisory services

Q 2

Scheme established Improved market access. SME Authority/ NEDA, Ministry of Science,Technology& Research, MIC , SLSI

68

Strategy 7

Recognize and reward public and private enterprises in applied research and assist researchers and SMEs to obtain international patents and commercialize them


I. Create awareness on Patent rights &commercializing

Continuous activity SMEs commercializing their inventions.

No. of workshops held

No. of participants

NIPO

II. Organize award ceremonies in order to encourage research, including schools up to university level

Continuous activity SMEs are motivated towards research

No of events organized

No. of awardees

SME Authority/ NEDA, Ministry of Science,

Technology& Research

69

Strategy 8

Capacity building of public institutions involved in standards, accreditation, metrology, quality management and norms


I. Identify the needs for infrastructure development, testing instruments etc.

Q 3 Needs identified Report on needs SLSI, Ministry of Science, Technology & Research

II. Establish units of SLSI at regional level to provide assistance to acquire SLSI certification & international accreditation

Year 3 Q 1 Improved certification facilities available in all parts of Sri Lanka

No of units established at regional level

SLSI, Accreditation Board

70

SUMMERY AND CONCLUSION

The SME policy would be implemented through six major intervention strategies, i.e.,

Enabling Environment, Modern Appropriate Technology, Entrepreneurial Culture& Skills

development, Access to Finance , Market facilitation and Research and Development. In

addition to the above, Regional Balance and Resource Efficiency are also two other factors

addressed in the Policy document. The first step in the process was to disseminate the policy

framework among all stake holders such as line Ministries, Government Departments and

Institutions, Universities, Research Institutes and BDS providers. The Industry and Trade

Chambers at national and regional level were also involved in the process. Regional workshops

were held in different provinces to disseminate the policy to grass root levels and also as a

public hearing process. The inputs from all the stake holders were taken into consideration in

preparation of this action plan.

A long felt need of a standard definition for SMEs was also addressed in this policy document

and the implementation processes shall be in line with the definition. A high level inter-

ministerial committee will be appointed to guide and monitor the implementation process while

an authority functioning under the Ministry of Industry and Commerce will be responsible for

the implementation process. The ministries responsible to ensure the implementing process

are as follows;

i) Enabling Environment- Ministry of Industry & Commerce,

ii) Modern Appropriate Technology and Research and Development- Ministry of Science,

Technology and Research

iii) Entrepreneurial Culture and Skills development-Ministry of Skills development and

Vocational Training.

iv) Access to finance - The Central Bank of Sri Lanka

v) Market Facilitation - Ministry of Industry and Commerce, Chambers, EDB and

Department of Commerce

The action plan was prepared considering the priorities and there are short term and long term

strategies. However this plan is prepared for a period of three years and should be reviewed

from time to time.

The main issues revealed at the discussions and meetings were based on the need to create an

SME friendly business environment with simplification of approval procedures and provision

of infrastructure facilities. Simplification of Taxation was another main issue raised by the

71

entrepreneurs. Access to finance was also identified as a main problem and the inability of

SMEs to provide collateral andthe procedures adopted by commercial banks in granting loans

were highlighted at the public hearing workshops. To address these issues, a SME friendly

banking system and dedicated sections/windows in Commercial Banks and financing institutes

have been are included in the action plan. It was the consensus among all that a proper

entrepreneurial culture should be developed from school level and also to create due

recognition for SMEs in the society. Lack of required skills and negative attitudes are

obstacles faced by the SMEs. Developing business linkage units in vocational training institutes

and Universities is also recommended in the action plan. The SMEs should be developed to be

globally competitive and in this respect research and development, innovation and the use of

more productive and modern technology are essential. In this context, the quality, packaging

and product presentation become crucial. The obstacles to obtain quality certification,

international accreditation, and provision of testing facilities, particularly in regions away from

the Western Province are also considered in this action plan.

The action plan is prepared with defined targets and the responsibilities required for effective

implementation. Hence the concerted effort of all stake holders is essential for the successful

implementation of the SME policy action plan.

However, some strategies like enabling environment which is of complex nature require in

depth study.

Annexure

Annex I

Advisory Team

Name Designation Ministry/ Department/Institute

1 Mr. T.M.K.B. Tennekoon Secretary Ministry of Industry & Commerce

2

Mr Charitha Ratwatte

Senior Advisor to the Prime

Minister Prime Minister’s Office

3 Mr M.A. Thajudeen Additional Secretary (SME

& Textile Development) Ministry of Industry & Commerce

4 Ms. Nilanthi Sugathadasa Additional Secretary Ministry of Skills Development and

Vocational Training

5 Mr. S.J.A. Handagama Director Central Bank (Regional

Development Department)

6 Dr. German Mueller Senior Advisor GIZ

7 Mr. HasithaWejesundara Adviser (SME

Development) GIZ

8 Mrs. Shriyani Hulugalla Senior Economist - Trade

& Competitiveness World Bank

9 Mr. M. Widanagamachige Director Federation of Chambers of

Commerce & Industry of Sri Lanka

10 Dr. SuniJayantha

Nawarathne Chairman

National Enterprise Development

Authority

11 Mr. Lohitha Karunasekara Private Sector Development

Specialist World Bank

12 Mr. Lakshman Perera Managing Director Sri Lanka Handicraft Board

13 Mr. G.P. Saputhantri Senior Assistant Secretary Ministry of Skills Development and

Vocational Training

14 Mr. Abeeth Dangalla Sri Lanka Handicraft Board

15 Mr. Mahinada Jinesena Chairman Industrial Development Board of

Ceylon

16 Mr. Chandrathne Vithanage Senior Assistant Secretary

General The Ceylon Chamber of Commerce

17 Mr.M.P.T.Cooray Secretary General Joint Apparel Association Forum

18 Mr. D.M.N. Bandara Senior Statistician Department of Census and Statistics

19 Mrs. Chandramali Liyanage Director National crafts Council

20 Mr. M.A.S.S.K Chandrasiri Director National Design Centre

21 Mr. H.M.S.L. Lakshman

Wijewardana Director

National Enterprise Development

Authority

22 Mrs. Jayasamara Gunarathne Asst. Director Ministry of Science, Technology &

Research

23 Mr. D.P. Gunawardana Consultant - SME action

plan preparation Ministry of Industry & Commerce.

24 Mr. K.M.S.G. Bandara Director (Regional

Development)

Industrial Development Board of

Ceylon

25 Mr. J.R.C. Jayathilake Director (Sector 1) Ministry of Industry & Commerce

26 Mr. Harsha Wijewardana Director (Sector 11) Ministry of Industry & Commerce

27 Ms. K.A.I De Alwis Assistant Director (Policy

Development) Ministry Of Industry & Commerce

Annex II

Working Group appointed for Preparation of the SME Action Plan

Name Designation Ministry/ Department/Institute

1 Mr. M.A. Thajudeen

Additional Secretary

(SME & Textile

Development)

Ministry of Industry & Commerce

2 Mr. Hasitha Wejesundara Adviser (SME

Development) GIZ

3 Mr. M. Widanagamachige Director

Federation of Chambers of

Commerce & Industry of Sri

Lanka

4 Mr. Lakshman Wijewardana Director National Enterprise Development

Authority

5 Mr. S.J.A. Handagama Director Central Bank (Regional

Development Department)

6 Mr. G.P. Saputhantri Senior Assistant

Secretary

Ministry of Skills Development

and Vocational Training

7 Mr. ChandrathneVithanage Senior Assistant

Secretary General

The Ceylon Chamber of

Commerce

8 Mr. D.M.N. Bandara Senior Statistician Department of Census and

Statistics

Annex III

Table 1 - Comparison of the Establishments – Definitions of the SME Policy Framework

and the DCS

Scale of the Establishments

Percentage of Est.

as - SME Policy

definition

Percentage of Est. as

per DCS definition.

Micro 98% 92.60%

Small 1.60% 6.2%

Medium 0.30% 0.90%

Large 0.10% 0.20%

The table given above shows a comparison of the scale of establishments in the country based on

the definitions of this policy framework and that of the Department of Census and Statistics. It

should be noted that the definition of the SMEs given by the DCS is based on establishments

whereas the definition of the SME policy is based on enterprises. An enterprise can have several

establishments therefore it would be appropriate that a common definition could be arrived at

national level.

This comparison gives only an overall picture and one could observe that the difference between

the two methods is around 5.4% and 4.6% in Micro and Small sector respectively. In the medium

and large, the difference is comparatively more, and it may be due to the reason that medium and

large scale enterprise can have more than one establishment. Considering all these aspects the

number of establishments given in the DCS survey could be used as a guide line for the

implementation process of the Policy framework as the differences are not very significant.

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