- High demand for SMILE III and E-Friends II loan schemes
- Ministry faces challenges as budget constraints limit funds
- Collaborates with 11 credit institutions
The demand among small and medium-scale entrepreneurs for the low fixed interest rate loan schemes offered by the Ministry of Industries has skyrocketed amidst the current economic crisis, far exceeding its capacity to cater in terms of budgetary allocations.
Speaking to The Sunday Morning Business, Ministry of Industries Project Management Unit Deputy Project Director K.M. Rizvi revealed that since the inception of the current economic crisis, the demand for the two low fixed interest rate loan schemes offered by the ministry had skyrocketed amidst the high market interest rates following the policy rate hike introduced by the Central Bank of Sri Lanka (CBSL) to combat high inflation.
The two loan schemes in question are the Small and Micro Industries Leader and Entrepreneur Promotion Project III (Revolving Fund) (SMILE III) and the Environmentally Friendly Solution Fund II (Revolving Fund) (E-Friends II).
Rizvi stated that the funds allocated for the ministry’s loan schemes were insufficient to meet the increased demand: “As a Government institution, we cannot just obtain funds from the CBSL at will. We have to secure funds through the Treasury, but the Treasury cannot increase the allocated funds due to budgetary constraints. It provides around Rs. 1-2 billion per year, which does not meet the demand. Although we have made several requests from the Treasury to increase the allocation, it has been unable to do so due to budgetary constraints.”
Elaborating further, he stated that the Ministry of Industries had signed Memoranda of Understanding (MoUs) with 11 credit institutions and that when an applicant approached the respective credit institutions, the application would be forwarded to the ministry.
If the application meets the criteria set by the ministry, it will be forwarded to the relevant credit institution for further evaluation. Once the bank is satisfied about the repayment ability of the applicant, the ministry will grant approval and the relevant funds will be released by the CBSL.
The interest collected from the applicant is divided equally between the ministry and the credit institution.
The number of applications for these two loan schemes has increased to 1,428 in 2023 from a mere 271 applications in 2022. Accordingly, the amount granted under SMILE III has surged to Rs. 1,837 million for 188 projects in 2023, from Rs. 533 million for 82 projects in 2022.
The Project Management Unit offers the SMILE III and E Friends II loan schemes to small and medium-scale entrepreneurs together with 11 participating credit institutions.
SMILE III consists of a general loan scheme offering a fixed interest rate of 8% with a 10-year repayment period (including a two-year grace period) to small and medium-scale manufacturing industries to meet their machinery and working capital requirements.
SMILE III also offers a technical transfer assistance loan scheme with a fixed interest rate of 5% and a seven-year repayment period (including a two-year grace period) for technical transfer activities in the manufacturing industries.
E-Friends II involves a general loan scheme offering a fixed interest rate of 6.5% and a 10-year repayment period (including a two-year grace period) for machinery and treatment plant construction.
It also includes a technical transfer assistance loan scheme with a fixed interest rate of 2% and a five-year repayment period (including a two-year grace period) for consultancy services to implement the E-Friends project.