By: Staff Writer
Colombo (LNW): National Credit Guarantee Institution (NCGI) is ready to begin its operation with the signing of the Shareholder Agreement (SHA) Finance ministry announced recently.
The National Credit Guarantee Institution (NCGI) has been established as a public limited company under No. P B 00271461, and initial Board of Directors (BoD) members have been appointed to represent the Government of Sri Lanka.
Consequently, the signing ceremony of the Shareholder Agreement (SHA) was held on July 5, 2023 at the Randora Auditorium of the Ministry of Finance allowing the chosen 13 Participatory Financial Institutions to be the founding members of the NCGI and proceed the share issuance. R M P Rathnayake, Deputy Secretary to the Treasury is the signatory for the Government’s side.
The approval of the Cabinet of Ministers has been obtained to establish NCGI with the intention of supporting the Small and Medium Enterprise (SME) sector in the country by assisting SMEs in overcoming obstacles faced by an inability to adapt to rapidly changing market demands, changing technology, and limitations in capacity due to a low level of financial inclusion, limited access to finance and especially a lack of acceptable collateral.
In a bid to support the country’s small and medium-sized enterprises’ (SMEs) access to commercial loans, the government is moving towards operationalizing the Asian Development Bank (ADB)-backed National Credit Guarantee Institution (NCGI) initiative as a public-private partnership (PPP), with an initial capital infusion of around US $ 110 million.
As the next step, the government and participating financial institutions are set to infuse US $ 100 million and US $ 10 million in capital, to commence the operations of the NCGI, according to Finance Ministry Development Finance Department Additional Director General P.M.K. Hettiarachchi.
Hettiarachchi noted that the government expects to fund the required US $ 100 million through the ADB, to operationalise the NCGI. Ten banks and three non-banking financial institutions (NBFIs) have joined the initiative by committing to capital infusion requirements.
As the banks and NBFIs consider SMEs to be of high credit risks and lending continues to be largely based on collateral, rather than cash flows, the SMEs remain crowded out from the financial sector by larger corporates.
According to the IFC estimates, Sri Lanka has the highest share of SMEs that are either fully or partially credit constrained.
The NCGI is expected to build the financial institutions’ capacity for cash flow-based credit appraisals, which will lead to more cash flow-based lending over the time.
Hettiarachchi noted that the government is now in formal discussions with the ADB to secure the funds.
The SMEs account for 52 percent of the country’s gross domestic product (GDP) while employing 45 percent of the workforce.
