The government has recognized Micro and Small and Medium Enterprise (SME) sectors as significant contributors for promoting growth and social development of Sri Lanka. These sectors represent a diverse range of industries, services and geographical locations while acting as an important avenue of employment provider for the low income rural and urban households.

The annual report of the Development Finance presented to the parliament recently highlighted that the SME account for 70 percent of employment in the manufacturing sector and 20 percent value addition. Further, the surplus labour from agriculture is also successfully absorbed into this sector providing additional income. These sectors have been recognized as major source of income generation, poverty alleviation and regional development. They also form the incubators for the development of larger enterprises.

The Sri Lankan financial market in terms of Microfinance, outreach is fairly extensive with 82.5 percent of household having access to financial institutions for their savings and credit needs. State Banks are generally more popular for savings with over 75 percent of household’s saving.

Over 60 percent of households that have utilized financial services, have accessed institutions such as Samurdhi, Regional Development Banks, Cooperative Rural Banks, SANASA, NGO, and Community Based Organizations underlining the important role played by Micro Finance Institutions (MFI) in the financial sector, in the case of credit in Sri Lanka. -There is an active market for informal credit in the country with nearly 20 percent of households having accessed informal sources of finance, the report noted.

Nevertheless, finance related constraints have been identified as the foremost factor affecting the growth of the above sectors. This situation has led to use of out dated technology, poor production facilities, absence of quality control, lack of market orientation and finally end up with relatively low profitability. In this context, the Government plays an important role in the delivery of necessary finance and related services targeted at Micro and SME thereby creating an ‘enabling business environment’for these sectors.