Small and Medium Enterprise Sector (Smes) in Sri Lanka:Significance, Opportunities and Challenges

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Small and Medium Enterprise Sector (SMEs) in Sri

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CERTIFIED MANAGEMENT ACCOUNTANT
CERTIFIED MANAGEMENT
ACCOUNTANT
QD/65/NEWS/2018
DEVOLUME
C 2 5-N
01 O 4
8
RAMYA
WEERAKOON
Finance and Cost
is the major tool
Management
in my business
Chairperson - Ramya Holdings
www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 1
www.cma-srilanka.org
Page 2 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

contents
Journal
Committee
Chairman
Mr. Adrian Perera
Secretary
7 By Ramya Weerakoon Ms. Sumudu Pagoda
Editorial consultant
Ms. Darshini Watawala
11 By Ajith D Perera
“SME’s are the

backbone of the
economy”
17 By Ravi Bamunusinghe
LEADING INNOVATION
AND CHANGE 21
By Ayesha Imalika Gamage
Ramachanrdra Sarmaa Mahalingam

There is no substitute to Hard Work....
25
29 By B.Nishantha
Small and Medium Enterprise
39 Sector (SMEs) in Sri Lanka:
By Adrian Perera Significance,
Development of the
Opportunities and
SME Sector in a Challenges
Sustainable Manner
47 By M.M.M. Rizley
The Practice of Integrated
ASSESSMENT OF BUSINESS INNOVATION Reporting in the Public
CAPABILITY: A CASE OF MICRO, SMALL AND Municipality Sector
MEDIUM-SIZE ENTERPRISES IN SRI LANKA
53
61
By Ruchira Perera
By Janaka Heenkenda
Jayani Hapugoda SME
Asanka Senevirathne Sector Financing
Chanaka Weerasekara

A Word from the

President
Prof. Lakshman R Watawala
President CMA
FCMA, FCA, FCMA(UK), CGMA, FCPM
Greetings!
I have pleasure in sending
a message to the “Certified
Management Accountant” journal
published by the CMA Sri Lanka.
The theme of the December 2018
Journal is on the SME Sector and
Entrepreneurship which is very
timely and would emphasise the
importance of this sector. My
heartfelt gratitude is extended
to all authors for their fruitful
contributions adding to the high
quality of the CMA journal. I am
confident that our members
together with the University, Higher
Education and Corporate Partners
will be motivated to contribute
articles for publication in the
journal.
SMEs play a key role in national I am confident that the CMA

economies around the world, Journal will produce rich articles
generating employment and value which will add to our readers
addition and play a major role in whilst recognizing the important
the domestic and export markets. role played by management
The funding of small and medium- accountants.
sized enterprises represents a
major function of the banking I wish the 5th volume of CMA
and financial sector for the supply Journal all success and trust that
of fixed and recurrent capital. it would assist in the creation of a
Costing and pricing of products and knowledge economy.
services are also important areas
where management accountants Whilst wishing you a very bright
can play a major role contributing and prosperous 2019, I look
to the success of the SME sector. forward to working with you to
It is widely-accepted that the role take CMA Sri Lanka to greater
played by SMEs towards economic heights.
development of any country is of
paramount importance leading to With warm regards
sustainable and inclusive growth.
I am grateful to the Chairman and

Members of the Journal Committee
and the Secretary for their great
effort in bringing out this edition. Prof.Lakshman R Watawala

Message from the

Chairman
Journal Committee
Adrian Perera
FCMA, MBA9PIM-USJ), FCMA(UK), CGMA, BSc(Acc)
My Dear Members
Institute of Certified Management plan for the sector. This has not
Accountants of Sri Lanka as the only burdened the sector but
National Management Accounting also burdened financial sector
body has been at the forefront significantly, creating massive
in developing the management losses.
accounting professionals in
Sri Lanka. CMA Sri Lanka has taken the lead
in providing the management
Small and Medium Enterprise accounting expertise to the
sector is backbone of the Sri SME sector by developing
Lankan economy; however Management Accountants
the sector has been given with relevant expertise.Being a
step motherly treatment from National body it is our vision to
successive governments. Despite develop the sector to become
many obstacles the industry is a significant contributor to the
facing, some of which are due to GDP of Sri Lanka.In this backdrop
their model of operation and some CMA Sri Lanka decided to
are due to the industry and political devote this journal to SME sector
dynamics, the SME sector has been development.
contributing to the Sri Lankan
economy in a significant way. I wish to take this opportunity
thank the staff of CMA Sri
Although successive governments Lanka,without which non of this
have been discussing assisting the would not be possible and our
sector, almost all the assistance founder President Prof Lakshman
programs have been with a political R Watawela who has contributed
motive rather than a concrete, way immensely to the profession and
forward sustainable development for his support and guidance.


Mrs. Ramya Weerakoon,

Chairperson - Ramya Holdings
Finance and Cost Management is the

major tool in my business
Mrs. Ramya Weerakoon, to be a good source of income The company continued with
Chairperson of Ramya Holdings, at that time and in 1976, she more factories located in Delgoda,
the parent company of Trendywear ventured into the export market Adhikarigama and Wellawa. Today,
(Pvt.) Ltd., Ramya Horticulture (Pvt.) with a work force of 52 workers. it has a workforce of over 5000
Ltd, Ecorich Pvt. Ltd, Aditi Infinity and an equal number of indirect
(Pvt.) Ltd and Amari Class Garden In 1988, she expanded her employees as sub-contractors and
Solutions, entered the business business into the garment suppliers. Trendywear owns five
world after the tragic death of her industry incorporated as Ramya garment factories in a healthy and
husband, Major Noel Weerakoon, Apparels with 35 machines sustainable rural environment
during the insurgency of 1971. As and 54 employees. In 1989, her away from Colombo.
a widow and mother of two infant business grew with 100 machines.
daughters, she was determined In 1994, she established her first Mrs. Weerakoon received
to rise by herself and in 1973 set outstation factory in Katupotha. many awards both locally and
up a small batik workshop at her In 2003, the business was internationally and plays an active
parents’ residence in Kurunegala incorporated as Trendywear (Pvt.) role in several trade chambers in
with four employees. It proved Ltd. Sri Lanka.

1. Tell me about yourself?

What kind of a person
are you?
I would say that I am well-
balanced person both physically
and emotionally. I am methodical,
determined and always tend to
support others. I do not criticize
people for their desires. But I advise
and share my experiences with
them for the betterment of their
lives. I want others to be happy.
2. Where did you get

you entrepreneurial
spirit? Are your
parents’entrepreneurs?
Where did the idea of
your business emerge?
After the death of my husband, I
wanted to have a better future for
my two children. Also, the negative
attitude towards me from society
as a widow motivated me to do
something on my own for a secure
future for my family.
My father was a public servant and

my mother was a housewife.
Initially, my hobby of batik

making drove me to become an
entrepreneur.
5. How many hours a afternoon. I relax in the evening,
day do you work on reading the newspapers. My day
average? Can you ends with pirith and meditation. I
3. What was the key driving outline a typical day for go to bed by 10.30.
force that made you an you?

entrepreneur? At the beginning I worked 16 6. How has being an
hours. With the commencement entrepreneur affected
To face the challenges in society
of the apparel Industry in 1988, it your family life?
and to do something while being
was10 hours on average. At the I balanced my work and time with
with my family.
moment my time for business both -without neglecting either.
is very limited. I spend most of
4. How did you come up my time on social and charitable
with a name for your 7. What is your opinion on
activities. the following theme: “Are
company?
At present, my day starts at 5.15 entrepreneurs originally
My own name. It rhymes and a.m. with rituals, exercises and born as such or are they
is easy to remember – which is meditation. I will be in my office raised to be successful?”
very important for an emerging from 9.30 till 1.30 p.m. and attend
They are raised to be successful.
entrepreneur. to any work at home in the

8. Who is the one 9. What personality traits planned to manage myself without
entrepreneur who is your have helped you most in running out of cash. I followed the
greatest example and becoming a successful Buddhist philosophy of managing
inspiration? entrepreneur? finance - ethical earning, wise
spending and suitable saving for
I have no examples as such. Certain officials in the trade who
the future.
I discovered the true energy assisted me to get the correct
within me. But I personally path in expansion, approval,
11. What has been your
admire Margret Thatcher, once financial management, etc.
biggest failure as an
the most powerful woman in the
entrepreneur and what
world. I follow one of her quotes: 10. How far have Finance did you learn from it?
“Disciplining yourself to do what & Cost Management
you know is right and important, helped you in your At one stage, I wanted to expand
although difficult, is the highroad business career? my business but my savings were
to pride, self-esteem, and personal not sufficient. But I went ahead
Finance and Cost Management
satisfaction.” without a proper financial plan
are the major tools in my
thinking that all things will fall into
business. Even in the early days I
place - which was a failure.

Never to repeat. understand customer needs and

add value to the product.
12. What has been your
16. What kind of culture
biggest success as an
exists in your
entrepreneur?
organization, and how
I have been successful in all my did you establish it?
business ventures. But our biggest
At Ramya Holdings, there is no
success was achieved via apparel
difference between employer
manufacturing. My daughter and
and employee. We treat them
son-in-low joined the business and
as members of our family where
they strove with me to take the
even a minor staff employee could
business to the pinnacle.
approach the management easily
to solve a problem they face. This
13. How do you evaluate the
mutual understanding enables us
human resource factor
to build up a good rapport among
as an inseparable aspect
our employees and they have
of your company’s
immense trust in us.
success?
Human capital plays a major role
in the industry. They have to be
looked after, motivated and guided
to remain.
14. How do you build a

successful customer
base?
Being honest, reliable, maintaining
good quality, best practices and an
ethical work environment.
15. How do you market your

business, and which
tactics have been most
successful?
Be simple and humble. Always

Ajith D Perera started his career way back

in 1982 as a banker. His early period, as a
banker which spans over 20 years had an
extensive training and exposure in the
fields of branch operations, retail credit
marketing and business development.
Later he gained exposure in multinational

and multi-cultural business environments
in UK, UAE, INDIA and BANGLADESH.
In 2014 He joined Federation of Chambers
of Commerce and Industry of Sri Lanka –
the apex body of the chamber movement
in Sri Lanka as secretary general / CEO
and serve to date.
He has widely traveled within the

Asia pacific region attending many
international trade fairs and workshops
organized by UNESCAP and United
Nations Environment Program in
Bangkok.He contributed immensely to
the development of APTA –Chamber
of commerce and Industry under the
patronage of UNESCAP in Bangkok and
Ajith D Perera the
General Secretary/CEO
Federation Chamber of Commerce and Industry
of Sri Lanka Ajith D Perera has been awarded a
MBA and Post Graduate Diploma in
Administration by London college
“SME’s are the of Management and Information

Technology and Warnborough university
backbone of the
in Ireland , Executive Diploma in Business
Administration by University of Colombo
and Diploma in Credit Management by
economy” Sri Lanka Institute of Credit Management.

(1) What is the role played registered, an estimated 52 per

by SMEs in the Sri cent of GDP comes from this
Lankan Economy? sector. Further. Sri Lanka has a
little over 3,000 SMEs (firms with
SME’s are the backbone of the
a turnover of less than Rs.150
economy. According to recent
million) registered as exporters.
research, SMEs provide 45 per
They collectively contribute to
cent of employment and 75 per
less than 5 percent of Sri Lanka’s
cent of the total enterprises in the
exports. China, for instance, has
economy. Sri Lanka has more than
over 40 percent contribution by
500,000 SMEs, each employing
SMEs and the average in Asia is
three to five persons on average.
around 30 percent.
Taken together with other micro
enterprises and SMEs that are not

SME share of exports in the Region
Sri Lanka
Indonesia
South Korea
Thailand
Asia
EU
China
0% 10% 20% 30% 40% 50%
Source: Annual Report 2014. Central Bank of Sri Lanka, Export
Performance Indicators 2004-2013. Asia SME Finance Monitor 2013, ADB
The above diagram shows Sri

Lanka’s SME export performance
against other countries in the
region. In fact, the countries have
different definitions of SMEs so it
makes the comparisons a little bit
complicated but the conclusion
remains valid: the export The export
contribution of Sri Lankan SMEs is
unusually low.
contribution of
The low export participation of
Sri Lankan SME’s
SMEs in Sri Lanka means that Sri is unusually low
Lankan exports are overdependent
on the performance of a few large
firms. Eighty-one percent of export
revenue is generated by around
240 firms, each with an export
turnover exceeding a billion LKR.
A significant difference between
SMEs and large firms is their access
to affordable financing to offer
credit to buyers – which is critical
for success in exports.

(2) What is the Government strategy and steps to introduce

policy framework for a national single window to In India, the Small Industries
SME? help imports and exports and to Development Bank (SIDBI) has
reduce the transaction would add a credit guarantee scheme that
The overall objectives of
significant value to Sri Lankan provides financial and deferred
government policies to support
businesses in the future. payment guarantees to its MSME
SME development are: (a) create
customers. SIDBI, together with
jobs and generate income; (b)
India’s Ministry of MSMEs, has
improve SME performance (4) How do you see the
created the Credit Guarantee
and competitiveness; and (c) access to finance as a
Fund Trust for Micro and Small
increase their participation in common and persistent
Enterprises (CGTMSE). This fund
and contribution to the national issue for SMEs?
encourages lending institutions
economy.
There are two types of finances to consider the firm’s project
The Policy Framework focuses on viability and extend credit based
available for SME’s in Sri Lanka. The
six key policy intervention strategies on primary assets rather than
first is finances through various
for creating a more conducive secondary collateral.
government ambitious programs
environment for the SMEs as well
such as ‘Enterprise Sri Lanka.”
as focus towards creating regional
However, most of the funding (5) Factors affecting the
balance and resource efficiency in
comes through state banks with growth of small and
doing business.
rural development banks and medium enterprises in
private banks contributing a little Sri Lanka
(a) Enabling Environment
to SME financing. A salient feature There are a number of obstacles
(b) Technology and Innovation
is that private money lenders to overcome in order to achieve
(c) Research and Development
too play a key a role in SME these objectives. The following
(d) Entrepreneurial Culture and financing though the finances constraints on SME development
Skills Development available at exorbitant rates of have been identified by
(e) Market Facilitation (Customs / interest. Sri Lanka needs a couple researchers:
Trade Agreements of development banks and venture 1. Weak business environment
f) Access to Finance capital funding mechanisms to (e.g. cash flow issues, high
help SME’s. taxation and inconsistent
(Assessment of the institutional
government policies,
and regulatory framework relating
In Thailand, the Small Business 2. Inadequate infrastructure
to SME sector in Sri Lanka (DRAFT
Credit Guarantee Corporation (e.g., transportation facilities, no
REPORT) by Ministry of Industry of
(SBCG) is responsible for the Small access to industrial estates and
Commerce, August 2018)
Industry Credit Guarantee Fund telecommunications)
that provides credit guarantees for 3. Inadequate access to finance
(3) What are the recent (e.g., high interest rates for loans,
unsecured parts of a loan. Three
policy changes related rigid analysis by financiers for
guarantee schemes function: a
to SMEs? obtaining loans, insisting on
normal scheme which guarantees
The Sri Lankan government has unsecured loans between collateral and non-acceptance
taken a number of initiatives to 10 and 40 million baht, a risk of third-party guarantees by
increase trade competitiveness diversification scheme where financiers.
in Sri Lanka with a focus on financial institutions and SBCG 4. Low technological capacities
SMEs funded by EU. Under this share the risk of loans provided, (e.g., use of ERP (enterprise
program improving the regulatory and a loan guarantee scheme resource planning at SME
environment, introduction which guarantees up to 10 million level is poor. Application of ICT
of a trade information portal, baht and payment of up to 10 (Information communication
formulation of a national export million baht for a term of 7 years. technology) is still moderate.

5. Lack of a mechanism for encourage increased competition, important to be realistic about

protection and nursing of SME’s: and create opportunities for the capacity of SMEs in the
A threat is posed through trade broader economic growth. To enjoy relevant market to participate in
and investment liberalization, lower such benefits, involving small and more complex projects.
import duties, and cuts in subsidies medium enterprises (SMEs) in PPPs
for local industrialists.). is key. Further, even with pro-SME
6. Lack of recognition and lack of laws and policies in place, in
drive for innovation: In Sri Lanka However, PPPs are often very large practice, the actual beneficiaries
SMEs status wise have a poor or complex and it may be hard for of such policies may not be
public reception and they are at a SMEs to compete in the market, the intended recipients. Well-
disadvantage at every level and in particularly in a country like Sri designed policies and their
all negotiations with stake holders. Lanka. SMEs may find it costly, implementation procedures are
Unlike in other countries neither time-consuming, or otherwise thus crucial, and many different
rewards for innovations by SME’s challenging to respond to complex approaches can be combined.
nor special privileges are accorded prequalification criteria or bidding For example, bidders can present
to them. documents a small business subcontracting
program which has targets
Governments can provide a but not necessarily upfront
(6) What is the private
number of incentives for SMEs commitments. The government
public partnership
to flourish such as through could combine these policies with
(PPP) and its benefits to
procurement incentives or capacity information services for bigger
SMEs?
building. At the same time, investors about available SMEs,
Among the many benefits that governments must balance the and capacity building support
PPPs can bring, PPPs can build desire to build and use domestic for SMEs to help them be more
local capacity and expertise capacity with the interests of good effective in performing public
(resulting in more cost efficiencies), quality service delivery. It is also contracts. It is also useful to be

aware of the diverse policies of the far behind in comparison with

large international contractors, and other countries in the region.
make use of them. In countries PPP would also be a platform
like South Korea, and Japan, SMEs for the exchange of information
have entered to the Global Value and technological advancement
Chain (GVC) through international among countries.
bidding However, Sri Lanka is still
(7) What is the role of SMEs in

employment creation in Sri Lanka?
Country Contribution Contribution to No of Enterprices GDP per capital

to GDP Employment as % of the total Dec. 2017 in US $
Sri Lanka 52% 45% 75% 4065
India 32% 40% 95% *1751
Malaysia 36% 67% 97% 9817
Singapore Over 50% 70% 99% 57722
*March 2017
and a sizable participation was

from the SME sector. The findings
Almost 50 % of the employment
were published as the Colombo
opportunities are provided by the
Declaration, which was taken up
SME sector? It is worth mentioning
at the ICE Dialogue (Indo –Ceylon
that in Sri Lanka most of the SMEs
Economic Dialogue) with the
are labour intensive and use less –on-the- job training for 1200
Federation of Indian Chambers
technology. employees in the tourism sector.
of Commerce and Industry
(FICCI). Our efforts, together with
(8) What is the role play FCCISL is also rewards SME
lobbying from other chambers
by FCCISL in SME entrepreneurs all over the country
in Sri Lanka, paved the way for
development in with Sri Lankan Entrepreneur
broader consultation between
Sri Lanka? of the Year awards annually,
two governments (Indian and
In the recent past FCCISL signed which are undoubtedly a rare
Sri Lankan) and discussions
a MOU with IBA Aman Center for recognition received by SME based
are under way now to solve
Entrepreneurial Development entrepreneurs in the country.
the issue of non-recognition of
– Karachi to transfer technical quality certificates issued by
knowhow and expertise to FCCISL Sri Lankan quality institutions. (9) What are the challenges
to enhance the entrepreneurial FCCISL also provided training faced by FCCISL in SME
skills of youth in Sri Lanka. Under for youth entrepreneurs in the development in
this program FCCISL conducted North East and Puttalam district Sri Lanka?
a series of seminars on improving funded by the Colombo Plan. We are constrained by funds, poor
family entrepreneurial skills At present, FCCISL is engaged infrastructure, lack of an SME data
among business families in Sri in Sri Lankan skills for inclusive base, monitoring mechanism
Lanka. Again, FCCISL as the focal growth programmes funded by and lack of a well-integrated SME
point of SAARC, the Chamber the Australian government to authority (one-stop shop) set up
of Commerce and Industry of enhance the skills of the tourism by the government to take up all
Sri Lanka conducted a series of sector in the North and East. issues on behalf of the SME sector
stakeholder sessions to identify This programme is designed to by FCCISL. We are also constrained
SAARC NTM’s (non-tariff measures) provide basic skill development by insufficient capacity at regional
chamber level to engage in policy
advocacy and the lobbying process.

Ravi Bamunusinghe is a Management Consultant attached to

Post Graduate Institute of Management, University of
Sri Jayewardenepura. He had been a business researcher for over
three decades working with SMEs, National and International
Corporates in Sri Lanka. He was instrumental in setting up
business related professional bodies which is contributing
towards development of professionals and standards of
performance. His interests are enabling SMEs for greater
productivity and sustainability.
Ravi Bamunusinghe
Management Consultant
LEADING INNOVATION Post Graduate Institute of

Management (PIM)
University of Sri Jayawardhanapura
AND CHANGE –
A Perspective
Abstract on innovation and change expressions, products, services
The evidence reviews of the beyond non-human capital. The and processes, which results from
novel subject ‘leading innovation review thus proposes new areas creativity, as well as intentional
and change’ is bringing of research. and unintentional discovery.
groundbreaking thoughts to the Key words: Leading Innovation DeGraff & Quinn further believe
field of management. Scholarly and Change, Readiness to that innovation can be discovered
articles at present focus on either Change, Change Management, when there is a need to improve
leadership, innovation and change, Sustenance of Change, Risk in the current status quo (Google),
or leading innovation and/or Change Management. need to eliminate or destroy what is
leading change. This article is an been currently used (Linux), when
attempt to look at both leading 1.0 Introduction going back to past product or
innovation and leading change, Will Rogers (in Aaker and service propositions (Tattoos) and
in anticipation of gestalt effect. McLoughlin, 2010) said that ‘Even over time when things can become
Accordingly, theories and ideas if you are on the right track you opposite (Post It). Organisational
were reviewed to bring out the will get run over if you just sit sustainability will not depend on
relationship between innovation there’. The implication here is maintaining the status quo, but on
and change, at different levels a need for innovation. What is effective leadership for innovation
in an organisation. The review innovation? The term innovation and change, while being relevant
was focused on identifying is used interchangeably. and competitive in the market
inadequacies in an organisation Therefore, understanding place (Aaker and McLaughlin,
by selecting discerning and the terms creativity, change 2010). Therefore, to lead and drive
innovative inadequacies for and innovation clearly will be change through invention and
change. In this regard the work of necessary. DeGraff and Quinn is innovation will be the focus of this
DeGraff and Quinn (2007) is core of the view that creativity is a set review. Once ‘what is innovation’ is
to the inquiry and complements of activities that initiate products, identified, it is essential to analyse
the understanding of proposed services, processes or ideas the implication of a leadership that
changes in a company. Further, that are improved and novel. will ensure sustainable change.
the review attempts to identify Change is the reformed state Again, one could pose a question
dominant ideas in the field. It also produced by both purposeful and ‘who should lead innovation and
questions the association of Lewin unintentional transformational how could it be done?’ This opens
in many articles which focus on forces. Innovation is the a discussion on leading innovation
groups, but with a lower emphasis deliberate improvement of which will be discussed next.

2.0 Leading Innovation Accordingly, innovation can be can play a role as either a leader
Leading innovation is a sensitive internal or external, flexible or or follower (Baker, 2007), or as
area as mere innovation can focused, or a mix. sharer of the leadership (Worley &
be a trap. As discussed above, Lawler, 2006). Further, the change
innovation is an intentional 3.0 Leading Change leader could be an executive,
development through intentional Leading change is also manager or from the top who has
or unintentional discovery. Kanter challenging compared to leading a vision and initiation (Cladwell,
(2006) is of the view that there innovation as it requires tacit 2003). Hence, there is a need to
is a tension between protecting skills in leadership. Leadership encapsulate leading change and
existing revenue streams that are is the role of knowing oneself, change management. DeGraff &
key to current performance while having a vision that could Quinn (2007) draw attention to the
embracing new ideas that could communicate efficiently, 7S framework that discusses the
be critical for the future. Hence, constructing trust among synthesis of ideas in a diagnostic
effective leadership of innovation associates, and taking action manner, develops strategies
is subjected to identification of to comprehend the leadership based on creation of a new vision,
discerning innovations. Innovation, prospective (Bennis, 1994 & Hailey, establishes shared values through
therefore, can occur anywhere 2004). Further, Bennis (2000) socialization, develops facilities
in the organisation and the says that leadership is managing to supervise change, engages
innovation genome introduced by relationships and therefore identified leaders at all levels,
DeGraff & Quinn (2007) describes needs to have followers and to synchronises to operationalise
the complete coordination of have the capacity to align them the new vision, and systemises
organisational innovation tasks to the changed vision (Worley, the change by critical reviews and
at all levels. This is the strategic 2006, & Rogers, & Meehan, 2007). revision.
environment, where value is Hence, the implication is that
recognised by stakeholders. The change is focused on groups, 4.0 Management of
innovation genome shows a map of with an individual reflecting the Change
different approaches to innovation perceptions, feelings and actions The discussion so far indicates a
by identifying innovation in the of the group (Lewin in Burnes, people-oriented leadership over
areas of collaboration, creation, 2001). Accordingly, effective task orientation (Blake and Mouton,
competition and control. leadership in change is one that 2104) as the recommended

method, and a tacit approach in risks in mind over emergent objectives, measurement tools and
leading change. The question is issues as the focus is external targets, together with identifying
‘can there be a sustainable change change through creativity and ways to initiate the measurement
if the change is not imposed?’. competition (DeGraff & Quinn process within a budget. Hence
Appreciative Inquiry (AI) of 2007). The planned change can there will be indicators that will
change management is a way to also be considered incremental, highlight positive and negative
address this issue if it is conducted punctuated and continuous and results of action periodically to
effectively (Lewis, Passmore & transformational (Burnes, 2007; take strengthening or corrective
Cantore 2011). The ideas above Bennis 2004). Bennis (2001) also measures respectively.
draw attention to structure and says that one needs to think deep
agency and question whether the and obtain a generalist view 6.0 Conclusion
tacit change can occur through and function as a beginner to The discussion above on leading
structure contrary to thoughts of question each and every aspect innovation and change is to
Foucault who said death of agency of the proposed process. Hence, establish a nexus between the
and change; and change without vulnerability and quest to learn is words ‘leading’, ‘innovation’ and
agency (Cladwell, 2007). McKinsey more important than certitude. ‘change’ because there is a gestalt
(Waterman, Peters, & Phillips, He supports the approach of interpretation collectively. However,
1980) seems to have understood Shakespeare seeking negatives or it is evident that the gestalt effect
this sensitivity when introducing learning more from failure than must be obtained through leading
the 7S model of change where success (Madsen & Desai, 2010). innovation and leading change.
the discussion is focused on hard Similarly, Cao (2001) suggests DeGraff and Quinn (2007) have
changes – strategy, structure and change in process, structure, reduced the ambiguity of the words
systems, and soft changes – staff, culture and power distribution and hence the review has clarity in
skills and style, which effectively which refer to management of interpretations right through out.
address the concerns of structure interaction where employees
and agency. feel win-win relationship (Rogers, The review is comprehensively
2007). This view is further focused on leading innovation,
5.0 Sustenance of Change elaborated by Schein (2007), who leading change, management of
For sustainable change according mentions that organisational change and sustenance of change.
to Burnes (2004), Lewin’s 3-step forces are stronger than In each stage it was evident that
model still holds where there individual when under cohesive the reviewed literature supported
is a need of unlearning and/or conditions, and that changes the decisions taken on shifting
abolishing old methods prior need to be psychologically safe. focus from internal to external
to change. Then the proposed Kotter (2002) on the other hand and addressing creative and
change must be introduced prescribed an eight step process competitive platforms instead of
through leaders who have the that ensures the change in a development and control. The
characteristics discussed above. practical manner. In this context reviewed literature established
However, there will be a concern creating a sense of urgency, the importance of change
whether the change should be identifying effective leaders for management and readiness
planned or emergent (Burnes change, and celebrating short which complemented hard
& New, 1997, & Burnes, 2004). term gains is crucial in instituting factors over soft factors as per
There are merits and demerits change which is discussed above. the evolved corporate vision. The
for both schools of thought, Once the change process is concept of change management
but it seems highly subjective established, the critical need is was elaborated further by way of
depending on the dynamics of monitoring and measuring the establishing sound monitoring and
the company and cycle of change transformation. In this regard the measurement processes based on a
(Mintzberg, & Westley, 1992). In balanced scorecard (Kaplan & balanced scorecard.
this context, most companies Norton, 1996) is necessary to meet
warranted a planned change with the expectations through setting

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Page 20
Certified Professional Managers of Sri Lanka
www.cma-srilanka.org | Volume 06 - No. 3 - December 2018
Mr.Ramachanrdra Sarmaa Mahalingam,

Managine Director
Pet Packagine (Pvt) Ltd
There is no substitute to Hard Work....

I also had a “no looking back attitude”...this helped me to progress.
Mr. Ramachanrdra Sarma In 1992, he identified the need University of Colombo.
Mahalingam had his Primary for Bottled Drinking Water in
Since 2007, he has been an active
Education at Hindu College and the Maldives, and returned to
Executive Committee member
Royal College, Colombo. He holds Sri Lanka to start the Bottled
of the MBA Alumni Association
a Bachelor of Commerce Degree Drinking Water business under
of the University of Colombo and
from the University of Jaffna and the brand name of CRISTAL for
currently is its President.
an MBA from the University of Export. In 2004 ventured into
Colombo. And he is part qualified carbonated soft drinks under He is an Executive committee
in CIMA (UK) and started his career the brand name of “My Cola”. member of the PET Bottlers‘
as Assistant Accountant at MISUI To date he has created over 300 Association.
CEMENT in 1986 and was promoted employment opportunities in
He has been a Toastmaster for
to Accountant in 1988. In 1989 Sri Lanka.
the past twelve years and is at
he moved to the Maldives as a
He was a visiting lecturer in present the Programme Quality
Financial Controller with OGOL
the MBA programme and Director of District 82 Toastmaster
Resort Management. Within a year
the Postgraduate Diploma in International covering Sri Lanka
he was promoted to Group Chief
Management programme of the and Tamil Nadu.
Financial Officer.

What are the challenges you

faced at the beginning?
Challenges were maintaining
quality. Local knowledge of bottled
drinking water business. Testing
facilities in Sri Lanka. Exorbitant
freight costs. Bottled drinking
water is a volume business;
Changes in freight rates hampered
our exports.
How did you get to where

you are today, and who /
what helped you along the
way?
Always remember. There is no
substitute for hard Work....I also
had a “no looking back attitude”...
this helped me to progress. If there
is a will, there is a way. Faith too is
important. My former employer
offered to support me by advancing
the funds for his imports, and still
continues to by my partner in the
business. Creating value among
employees is very important.
A good relationship with our
employees took our business to
greater heights. Understanding
them and empowering them is the
key to success.
What motivated you to How did you select the How do you think an
become an entrepreneur? area to start a business? entrepreneur has turned you
You need to have a dream. If your While working as an accountant into a better person?
dream is to create something in a Resort Hotel in Maldives, Understanding our employees and
different, the solution is to start I realized the importance of working as a team made things
something new on your own. If drinking water. Bottled drinking easier. Without people nothing
you have a dream and purpose, water was imported from will move. You can have a financial
try and live that dream, and create Malaysia and Singapore. I realized background but everything moves
a business which satisfies your that Sri Lanka was geographically only with the support of your
dream, rather than just follow closer to the Maldives, I saw an employees. They can make or break
others............try and understand why opportunity, I brain stormed......I your dream. Be humble, simple and
you want to do, what you want to studied this project, and launched transparent.
do......My dream was to be different into it.
and to contribute to society.

What advice do you have No. But my undergraduate and

for others starting their own postgraduate studies helped me What systems have you set
business? to understand my business better up in your business to help it
Identify your dream and purpose. and helped me to mitigate many grow?
Live with your passion. Do not force risks. Transparency and empowering
yourself into any business that employees in all jobs.
others are pursuing. If you have What is the smartest thing Understanding our employees. Be
a passion and purpose, create a you did in the first year of transparent and identify the unique
venture which is unique. your business? selling proposition of your product.
Invested in the market.
Also identify customer needs.
Did you follow any Maintained quality. Selected
educational programme Modern Trade as the first channel
What is your most
that assisted you to to market the products. Invested
memorable experience as
become an entrepreneur? in brands and created visibility.
an entrepreneur?

First, the export of bottled drinking takeover. As an entrepreneur What advice do you have for
water to Taiwan. Launch of you live with a passion to provide others who are starting their
carbonated Beverage drinks in support to people who have been own businesses?
the market. Fire in the factory in around you and you have a social Best decisions. Believe in you. Live
2012. Fire gutted the main areas responsibility. But if someone with your dreams. Identify your
of the Beverage plant and with wanted to cash you with your purposes and live accordingly.
the support of the passionate business, what will happen to the Never look back at the past and be
employees, bounced back within human capital which we built? positive.
one month. Team work and unity I do not want to see such selfish
were key to putting things back on situations by forgetting people What would you be doing
track in such short time. around you for some time. right now if you weren’t
here?
What is the single most May be practising and preaching
important reason for your How do you achieve a my religion. At times we realize that
success? work-life balance? happiness is the most important
Faith and hard work Do everything with pleasure. thing in your life. The highest
Make your family understand happiness comes from finding
What is your greatest fear what we are doing and why we yourself often referring to Inner
as an entrepreneur? are doing it. Be involved in a crisis Engineering. If I had not been in
We have offered my leading and accept their suggestions and business I would have chosen the
market players and others to views. spiritual path.

Mrs.Ayesha Imalika Gamage

Managine Director
Kavum Kokis.com
Tell me about yourself How did you get your What was the key
idea or concept for the driving force behind your
I came from an IT background.
business? becoming an entrepreneur?
I completed an Action Learning
Are your parents’ entrepreneurs I wanted to implement what I had
Professional Bachelor’s degree
or your husband? Where did the studied for my Master’s.
in E Business and an Action
idea of your business derive from? I gave much thought to it and
Learning Professional Master’s
I started this business as a though there are people who are
degree in Modern Business at
project for my Master’s final unemployed if the ingredients
the O 2 Campus. I also completed
project and implemented it as are freely available why not do a
an Entrepreneurship and
a family venture which I am business with their help and as an
Small Business Management
carrying forward. It was my income generator for those people
programme. Currently, I
mother’s business; she used to who are generous and willing to
am following a Bachelor of
make tasty sweets and distribute work.
Management Studies course at
them among all the villagers.
the Open University in Nawala. “Actually, cost
She comes from a village where
My main ambition was to become management was
all the ingredients for this were highly beneficial for my
a woman entrepreneur and I
available and plenty of people to business”
have achieved it. I am also a B.Sc.
help.
Software Engineering (Hons)
graduate of the Open International
University, Colombo, Sri Lanka.

What products do you

offer/manufacture?
Sri Lankan traditional sweets
such as (kevum, kokis, athirasa,
mung kevum, and also dodol and
muscat, etc. These sweets are used
mostly served at house warming
ceremonies New Year celebrations
and other events.
As a professional How far have Finance & experience in making sweetmeats

engineer, how did you Cost Management helped and its traditions are behind it. They
gain knowledge of you in your business knew the art of making it but they
entrepreneurship? career? never know how to market it or
In my studies and by implementing Actually, cost management was sell it outside. It was my intention
what I had studied. I did a case highly beneficial for my business. to make use of them and in return
study and thought why not From the beginning I used to they are paid wages. This helped to
implement it and move forward. keep record of all my operating develop the business. The villagers
Initially it was done on a small scale cost in a very systematic manner. are an asset to me as when there
and gradually it expanded. Cost accounting analyzes is a high demand they help me
Even though there is no regular each and every cost incurred out day and night to deliver on
market but only seasonal demand in a business. This helps the time. It’s not only making the
when I started I had a certain entrepreneurs like us to decide sweetmeats; there is packaging
target which I never exceeded as which costs are contributing to involved which takes longer hours
these sweets are hand-made by the the profit-making aspect and than production. Especially when it
workers and not by machine. That’s which are not. Furthermore, it comes to exports there is a special
what is special about my products helped me for easy budgeting, packaging method that I use to
and also only original organic identify breakeven and very ensure durability and freshness of
ingredients are used to make them. importantly it facilitated me to the items.
reduce overhead costs. Finally,
How do you advertise your it helped me for making future What made you choose
business? strategies. your current location?
Via the Internet and social media. It’s my village and I am known to
Since I have an IT background What do you look for in the villagers well and I had my
I manage to handle the social an employee? parents around to assist me.
media and related elements with
The most important thing for us Do you work nationally or
knowledge and experience. The
is that they fit into our corporate internationally?
payment gateway is also managed
culture! I supply locally and also export
by me. To manage a business
More than employment it assists to 17 countries according to the
which has an export market you
the unemployed people in the requests. Initially my products were
need to have an IT background.
village. People with hands on

sold at exhibitions and through in Sri Lanka and to help the Yes, it’s very much community-
known people and gradually vilagers I get it from the villagers based as the villagers are very
it increased. Then I went into and the quality of the rice is much obliged to help me and it’s
advertising on the social media good as they cannot give me their day to day livelihood. They
and web sites. Even though it’s a low quality since I am a regular have talent and ability but they
seasonal sweet on and off there are buyer and live in the village. That’s do not come out due to financial
export orders as well as local orders. the privilege I enjoy. I add no constraints and also lack of
preservatives to the sweets and knowledge. The educational level of
How did you build a my warranty is only one month. the villagers is also very low.
successful customer base
internationally? What are your If you had one piece of
I built a customer base via the responsibilities as a advice for someone just
social media and Internet. This woman entrepreneur? starting out, what would it
came in later but it drastically To build and develop my business be?
increased production as I had while assisting the unemployed. My advice is especially to all
many export and local orders and As a mother and housewife I fulfill housewives is that there are many
also via a local on-line sales agent. my duties and the rest of the day opportunities around that they
50% of my orders come through I am home relaxing, so I manage could make use of. Make use of
the local online agent annually. to do this as well to keep me self- the unskilled people and skilled
So even when the export market occupied and make a living and people too and the available
drops the local supplier has orders assist the villagers by giving them sources within your village to make
for me. employment and making them a product or a service and become
my supplier of ingredients. an entrepreneur. We are born
How far has technology with some talent. Make use of it
helped you to develop your Does your company help by helping others and make use of
business? the community where it is their talent too.
My IT background helped me a lot located?
and also made things very easy
for me because I knew the subject
very well. As mentioned above,
basically I implemented what I
had studied, and it was a hands-
on experience for me. I did not
have any difficulties in terms of
monitoring and fulfilling the orders
which came via online and tracking
them until it reached the end user.
I tied up with a well-established
courier company who has
been there right through with
me and delivered on time
without delay and damage to
packages.
What is unique about

your business?
My products are made
hygienically and with
local ingredients without
preservatives. Most of these
sweets and the rest are made
of rice which is readily available

What is your opinion to

Sri Lankan women?
I guess every successful woman
is born with a talent. It’s nothing
new and if the will power is in them
they should be able to manage.
There are many opportunities in
this country where you can make a
living plus; make use of them.
What personality traits

have helped you most in
becoming a successful
entrepreneur?
I have met many people and made
loads of contacts after being a
woman entrepreneur and it’s a
pleasure getting to them too. It
has helped me to expand the
market and get new ideas and
leads through them. I have learnt
so much about exports from the
Export Development Board. In
return they have guided me in so
many ways and I have followed
all their seminars/workshops on
exporting to different countries.

B.Nishantha
Senior Lecturer
Department of Management & Organization Studies
Faculty of Management & Finance
University of Colombo
Small and Medium Enterprise

Sector (SMEs) in Sri Lanka:
Significance,
Opportunities and Challenges
ABSTRACT 1. Introduction to the Central Bank of Sri Lanka
It is widely accepted in literature (1998), the cottage and Small
The Sri Lankan Government has
that Small and Medium Scale industries sector plays
taken many measures to support
Enterprises (SMEs) play a an important role in economic
the development of Small and
crucial role in contributing to development through creation
Medium Enterprises (SMEs), which
overall industrial production, of employment opportunities,
are expected to play a crucial
employment generation and the mobilization of domestic
role in employment creation,
poverty reduction in developing savings, poverty alleviation,
gross domestic product growth,
countries (Arinaitwe, 2006; income distribution, regional
innovation, equitable income
Tulus Tambunan,2011). This development, training of workers
distribution, resource utilization
paper attempts to discuss the and entrepreneurs, creating
and regional development. More
contribution of SMEs to economic an economic environment in
specifically, it aims to address the
development in which large firms flourish and
following research questions: How
Sri Lanka and the possibilities contributing to export earnings
important are SMEs in Sri Lanka?
for promoting the SME sector. on one hand. On the other hand,
The paper goes further to review
At the same time, the study SMEs do not exist in isolation from
the existing literature, empirical
attempts to explore the prevailing the rest of the economy, since they
studies as well as the prevailing
challenges that have limited are integral of the supply chains;
data bases in order to identify the
the growth of the SME sector with large enterprises, as suppliers,
challenges and opportunities for
and finally, try to come up with customers, or complementary
the development of SMEs. The
some policy recommendations. producers.
study found that there is a vast
opportunity for Sri Lanka to harness In the afterthought of the 1.2 Methodology
the opportunity by developing three –decade civil war, the Sri The current situations of the SMEs
this vital sector. The paper further, Lankan government has given are analyzed by using data of latest
attempts to identify the policy more priority to rebuilding Sri industrial surveys of Sri Lanka.
changes necessary for enhancing Lanka in order to achieve a The Department of Census and
the role of SMEs in economic higher economic growth. More Statistics conducted industrial
development. specifically, the government surveys in 2013/14. In addition to
targets to achieve a balanced this, various other data sources
Keywords: Small and Medium development in all parts of the such as Central bank of Sri Lanka,
Enterprises, Sri Lanka, Economic country including Northern and easy of doing business ;world bank
Development eastern Provinces. According report also used

2. Review of Overall ways by various countries using comprehensive definitions for

Performance in Small and Medium such parameters such as number SMEs by considering two border
Enterprise Sector of persons employed, amount criteria namely; annual turnover
Sri Lanka is a tiny Island with a of capital invested, amount of and number of employees.
total land area of 65,610 square turnover or nature of the business, According to their definitions, the
kilometers and a multi-racial etc. not only different countries ceiling on employment and annual
country which has total population apply different definitions on the turnover for manufacturing SMEs
of 21 million. According to the concept of SMEs, even within are respectively 300 employees
Asian Development Bank countries, different regions and Rs 750 million and for SMEs
(2008), Sri Lanka is becoming a and different institutions adopt in service sector, ceiling on
middle-income country and on varying definitions in this regard. employment are 200 employees.
track to achieve the Millennium In Sri Lanka , there is no clear SMEs encompass establishments
Development Goal (MDG) on definition for SMEs. Different operating in agriculture, mining,
poverty reduction. The country is government agencies and other manufacturing, constructions and
also on track to achieving most organizations use different service sectors. They have been
other MDGs, as its social indicators criteria to identify SMEs. Among identified to play a crucial role
are high compared with those these criteria are the number in the economic development
of countries of similar income of employees, the size of fixed process by developed as well
status. However, the civil strife investment, energy consumption, as developing countries. They
that prevented Sri Lanka from and the nature of the business are even more important to
exploiting its full potential and and the sector,( i.e. formal or developing countries as the poverty
benefiting from its proximity to informal), in which the industry and unemployment are crucial
India, just as Hong Kong profits operates. As shown in table problems in these economies.
from being a trade hub to China 1, Ministry of Industry and
SMEs are defined in a variety of Commerce has introduced
Table 1 :Defining SMEs in Sri Lanka

Sector Criteria Medium Small Micro
Manufacturing Annual Turnover Rs. Mn. 251 - 750 Rs. Mn. 16 - 250 Less than Rs. Mn. 15
No. of Employees 51 - 300 11 - 50 Less than 10
Service Annual Turnover Rs. Mn. 251 - 750 Rs. Mn. 16 - 250 Less than Rs. Mn. 15
No. of Employees 51 - 200 11 - 50 Less than 10
Source : National Policy Framework for SME Development
All successive governments since cluster approach, the entire  Encourage and promote
1948, have been introduced various value chain from input supply flagship SME sectors with
policies for promoting SME sector to processing and export will high potential spillover effects
in Sri Lanka. The current policy be supported and promoted. to facilitate job creation or
frame work was introduced in 2016. employment generation.
 Promote enterprises with
This SME Policy Framework will
high value addition and  Promotion and relocation of
support start-up SME enterprises,
encourage enterprises that industries in the backward
strengthen the existing enterprises
use the local raw materials as regions to reduce urban-rural
and extend nursing programmes
they offer strong comparative imbalances.
for potentially viable sick SMEs.
advantages due to factor
SME policy focus on the following  Transforming the landscape
endowments.
aspects. of the SMEs away from mere
 Promoting high potential,  Motivate and encourage trade and commerce towards
viable and promising sectors export oriented or import production and industry based
substitution enterprises and with special focus on high
 Focus on cluster approach for
industries. value addition, innovative and
SME Development. Under the

usage of modern appropriate 1983, there were a total of and 71.6% of total employment
technology. 102,721 formal registered and (Central Bank of Sri Lanka, 1998).
unregistered informal industrial
 Strengthening the SME sector All the existing data sources lack
units in the country producing
in order to enhance inclusive accuracy and complete coverage
various types of products and
economic development and of the ‘enterprise sector’ in spite
employing 639256 persons. The
thus provide opportunities for of various government and semi
survey findings indicated that
better employment and higher government institutions engaged
industrial establishments below
income. in compiling SME related data
5 employees accounted for 84%
bases. The Department of Census
 Achieve regionally balanced of the total establishments and
and Statistics has been conducting
growth across Sri Lanka. 28% of total employment, but
annual industrial surveys, it has not
accounted for only 7.5% of the
 Promote resource efficiency at covered the establishments with
total output and 7.0% of the
all levels including the use of less than 5 persons engaged, due
value added in the industrial
Green Technology to the financial limitations and non-
sector. Enterprises having over 5
availability of a proper frame. The
According to the industrial census employees represented less than
most recently conducted industrial
conducted by the Department 15.7% of all establishments, but
survey dates back to 2015.
of Census and Statistics in accounted for 92.5% of the output
Table 02 Overview of Sri Lankan Manufacturing Sector Classified by Industrial Size in 2015
Industrial Size Industrial Industrial Total Total

Establishments Employment Value-Added Output
No. % No. % Million Rs % Million Rs %

Micro Enterprises 5,779 34.12 33,301 2.85 27,080 1.94 52,675 1.40
Small Enterprises 6,914 40.82 136,932 11.72 137,763 9.90 287,806 7.62
Medium Enterprises 2,442 14.42 166,152 14.21 230,732 16.58 774,457 20.51
Total SMEs 15,135 89.36 336,385 28.78 395,575 28.42 1,114,938 29.53
Large Enterprises 1,803 10.64 832,265 71.22 995,961 71.58 2,660,550 70.47
Total 16,938 100 1,168,650 100 1,391,536 100 3,775,488 100
Note: In manufacturing industry only

Source: Author’s calculation based on Industrial Census 2016, Sri Lanka
The data provided by this survey contributed to only 2.85 percent 14.42 percent of the total number
provides a good frame for of total employment in the of industrial establishments
analyzing the contribution of manufacturing sector, about 1.94 accounted for 14.21 percent of
SMEs to the national economy in percent of total value added and total employment, 16.58 percent
Sri Lanka in terms of employment 1.4 percent of total output. of total value-added and 20.51
generation, value of output and percent of total output. It reveals
Small enterprises which had a
value addition. For the purpose of that medium sized establishments
work force of 10-39 employees
present analysis, we categorized are much better than micro and
accounted for 40.82 percent of
very small or micro enterprises small enterprises in terms of
total number of establishments in
were those enterprises employing employments generation and value
the manufacturing sector. Small
between 5-10 people, small 10-39 addition.
firms accounted for 11.72 percent
people, medium 40-99 people and
of industrial employment, 9.9 All the industrial establishments,
large 100 or more. As shown in
percent of total value-added and which have employed less than
table 2, in 2015, micro enterprises
7.62 percent total output. Medium 100 employees, can be categorized
accounted for 34 percent of the
sized firms which had a workforce as small and medium enterprises
total number of enterprises but
of 40-99 employees accounted for (SMEs). They accounted for

89.36 percent of total number of 3. Geographical (21.4%). In the case of employment

industrial establishments but only Concentration of generation in small scale industries
28.78 percent of total employment, Manufacturing Gampaha (16%), Colombo (27%)
28.42 percent of total value- Industries and Kurunagala (7.5%) are the main
added and 29.53 percent of total Table 3 shows the geographical districts.
industrial output. As for large firms distribution of industries in Sri Medium and large enterprises
which employed more than 100 Lanka. Small scale enterprises are also mainly generating
employees, while accounting for are concentrated in the Western employment in the Western
10.6 percent of total number of province based districts of Province based districts of
establishments, they contributed to Colombo (28%) and Gampaha Gampaha (34%) and Colombo
71.2 percent of total employment, (15.5%) and North-Western (37%). This clearly shows the heavy
71.5 percent of total value-added Province based district of concentration of SMEs in Western
and 70.4 percent total output. It Kurunagala (6.6%). Medium Province of Sri Lanka.
revealed that SMEs are providing and large scale industries are
more employment opportunities concentrated mainly in Western
but their contribution for output is Province based districts of
relatively low. Colombo (33.9%) and Gampaha
Table 03 Geographical Concentration of Industries (Formal Industries)
Establishments less than 25 Establishments more than 25

employees employees
District No. of Persons No. of Persons

Establishments engaged Establishments engaged
Colombo 485 6973 1151 309690

Gampaha 267 4019 725 281768
Kalutara 105 1485 246 38152
Kandy 107 1296 271 26291
Matale 5 65 6 4440
Nuwara-Eliya 12 166 37 21702
Galle 110 1639 170 26746
Matra 79 1513 65 4650
Hanbantota 41 746 12 1029
Jaffna 37 559 10 431
Mannar 2 10 na na
Vavuniya 7 49 na na
Mullaitivu 2 13 na na
Kilinochchi 4 38 2 47
Batticaloa 13 180 2 264
Ampara 4 96 4 8615
Trincomalee 10 92 2 534
Kurunegala 114 1916 225 47180
Puttalam 86 1198 142 13525
Anuradhapura 48 665 7 1265
Polonnaruwa 36 562 28 2055
Badulla 34 645 61 2721
Monaragala 9 142 8 5908
Ratnapura 46 735 146 25827
Kegalle 59 805 72 11628
Total 1722 25607 3392 834468
Source: Author’s calculation based on Economic Census 2013/14 conducted by Department of Census and
Statistics, Sri Lanka

4. Opportunities Colombo district). According fisheries, organic agriculture in

Associated with the to the World Bank (2009), with large scale, wind and solar energy,
Development of the SME the gradual resettlement of the oil and gas exploration, Eco-
Sector in Sri Lanka displaced people and restoration tourism ect. Then SMEs can play
There are multi-faceted of their livelihoods, agriculture a complimentary role to large
opportunities prevailing in the and SME production is expected industries through subcontracting,
SME sector. Development of SME to pick up. At the same time, thus facilitating the linkage
sector can be used to promote regional demand will be created between the formal and the
balanced regional development. for SME products. informal sector.
Due to the war situation, in the past
Subcontracting Green Businesses
few decades, major commercial
With further improvement in Converting businesses in to a
activities were more scattered in
the overall investment climate, “Greening businesses” can be
urban areas, especially the western
foreign direct investment is considered as a strategic avenue
province of the country. With
expected to continue flowing in for Sri Lankan SMEs. Strategies and
regard to the overall industries
to the country. More investment polices related to green business
by the end of the year 2006, 80
opportunities are emerging in ensure a sustainable future
Percent of the registered industries
following areas; precious and for customers, employees and
were located in Colombo district
semi-precious stone mining, communities through enhancing
and Gampaha district (next to

quality of life and environmental created in the informal sector. 11 areas of the life of a business
concerns. Entrepreneurs are are covered: starting a business,
expected to conduct experiments 5. Constraints Associated dealing with construction permits,
continuously to make innovations with Development of registering property, obtaining
relation to sustainable practices. SMEs credit, protecting investors, paying
It help to reduce energy Development of the SME sector taxes, trading across borders,
consumption, carbon footprint, in Sri Lanka is constrained by enforcing contracts, closing a
environmental damage and number of factors. According business, getting electricity, and
support environmental and human to the white paper (2002) employing workers. Sri Lanka with
sustainability. Small entrepreneurs prepared by Task Force for Small 21 million populations and GNI
who are adopting green practices and Medium Enterprise Sector per capita US$ 3,840, is placed 100
will have significant advantage Development Programme, has among 190 countries, in the “ease
over the others in terms of sales, identified the major constraints of doing business” (table 04). The
goodwill and sustainability. that critical for the SME rank of Sri Lanka in “starting a
development in Sri Lanka. In business” is 83, while in “obtaining
Backward Linkages addition to that, multilateral and credit”, it is ranked 124. Table 4
There is a high possibility to bilateral agencies such as USAID, shows the comparison of easy of
creating a strong backward linkage world bank,JICA,ADB,UNIDO have doing business indexes between
between SMEs and agricultural carried out number of studies on countries in South Asia. India, in
sector. Many inputs in to the problems of SMEs in Sri Lanka. 77th place in the Doing Business
SME production are based on In order to know more about rankings, is the highest ranked
agricultural and forestry products the business environment of Sri economy in South Asia, followed by
(Arsyad, 2009). As a result of such Lanka, we address the annual Bhutan (81) and Sri Lanka (100). Sri
linkages SME manufactures will report of World Bank (Doing Lanka has carried out four reforms
be much less import intensive Business 2019) that investigate which included making dealing
than large businesses. The North the regulations that enhance with construction permits easier,
and east parts of the country have business activity and those that while the introduction of online
more agricultural land. Before the constrain it. Doing Business systems made it easier to pay taxes.
civil war the region’s agricultural presents quantitative indicators Sri Lanka has also made it easier for
production compared favorably on business regulations and businesses to register property and
with that of other parts of the the protection of property enforce contracts which made the
country, mainly rice, vegetables, rights that can be compared country to move up in the doing
fruit, and other cash crops. SMEs across 190 economies over business index.
can add value for those primary time. Regulations affecting
products and market to the other
parts of the country and export
markets.
Employment Opportunities
The SMEs can be started with low
investments, mainly from personal
savings or informal borrowings.
Therefore, the sector contributes
to broad –based capital formation
throughout the economy. As
discussed in earlier section, SMEs
especially medium sized firms
absorb more labour per unit of
capital employed implying that; by
promoting this sector large huge
employment opportunities can be

Economy Rank Easy of doing business score Number of Reforms

(1-190) (0-100)
DB2019 DB2018 DB2019 DB2018 DB2019

Afghanistan 167 37.13 47.77 0 5
Bangladesh 176 41.06 41.97 0 0
Bhutan 81 65.88 66.08 4 1
India 77 60.60 67.23 8 6
Maldives 139 54.33 54.43 2 0
Nepal 110 59.95 59.63 2 0
Pakistan 136 52.78 55.31 4 3
Sri Lanka 100 59.42 61.22 1 4
Source: Doing Business database
The lack of a comprehensive in SME sector. Adaptability for ICT market competitiveness. According
framework in terms of policies applications support for product to Silva (2013), traditional mind-
toward SMEs development is one improvement, productivity sets, short term focus on business
of the most important factors improvement, operational operations, lack of awareness on
that constraint the growth and accuracy enhancement, cost technological improvements,
development of SMEs. There is reduction, local and global cost of technology acquisition,
no national policy for industrial marketing. According to less preparedness of supporting
development of the country and the recent survey done by national mechanisms would be
the policies are changing with Athapaththu and Nishantha obstacles in this regards.
government changes. (2018), there are five perceived Proliferation of imports of products
Access to sufficient finance is also a barriers for ICT adoption by from emerging global economies
major problem faced by SMEs due owner- managers of SMEs in is also a threat for Sri Lankan
to lack of access to bank facilities, Sri Lanka namely lack of proper SME sector. More products which
lack of regional spread of loans, lack internal IT infrastructure, lack of could be locally manufactured are
of knowledge of bank facilities, lack trust, lack of personal motivation, being imported from China, India
of knowledge of bank procedures, internet connection issues and Japan and Thailand. It squeezes
and inability to provide collateral. lack of knowledge. the manufacturing segment
Lending institutions are expecting The use of low level of technology and replaces the losing layers
land based collateral but most of and absence of technical and of manufacturing with trading,
the SME owners do not their own managerial skills has also altering the SME composition
lands. Many of the entrepreneurs been identified as important harmfully.
are looking for more borrowing for constraints affecting the
survival, not for business expansion. development of SME. With low 6. Conclusion and Some
Low adoption for Information and level of technology it is difficult to Policy Recommendations
Communication Technology (ICT) maintain higher productivity and The purpose of this article was to
development is a one of the key quality, resulting in higher costs examine the current situation of
challenges faced by entrepreneurs of production and a reduction in the SME sector in Sri Lanka and

explore the opportunities and play an important role. Even Development Progremme, Sep, pp.1-38.
challenges prevail for developing more than most international Central Bank of Sri Lanka .1998.
Economic Progress of Independent Sri
a healthy SME sector. Available operators, since they have the
Lanka, Colombo,
secondary data and extensive local connections and, the pp.121- 124.
literature indicates that 89 percent personal motivation to contribute
Central Bank of Sri Lanka. 2008. Annual
of the industrial enterprises to their country’s reconstruction.
Report, Colombo , Sri Lanka.
belonged to the SME category While living abroad, they may
and they play a vital role in the have picked up valuable expertise, Central Bank of Sri Lanka.2008.
Economic and Social Statistics of Sri
economy and are a major source in addition to amassing funds
Lanka, Central Bank of Sri Lanka ,
of various economic contributions. ( Bray,2007). As war is over, the Colombo.
The study revealed that medium government should provide
Dasanayaka,S.2009. Small and Medium
sized firms (employees between 40 various incentives and security
Scale Enterprises in Informal Sector in
-99) have been gaining relatively to them to come again to their Pakistan and Sri Lanka with Research
higher productivity and their motherland and convert the Agenda, IARIW-SAIM Conference,
contribution for value addition, accumulated financial and Kathmandu, Nepal.
total output and employment human capital in to assets of the Department of Census and Staistics
generation is also better than micro development process. Third, .2007. Annual Survey of Industries-2007,
and small firms. There is a huge as lack of finance constrains Colombo.
potential for this sector to prosper the growth and development Department of Census and Staistics.
in war affected areas given the high of SMEs, the government and 2017. Economic Census-2013/14,
level of human capital and natural other supportive agencies need Colombo.
resource endowments. to promote micro lending and Government of Sri Lanka, Ministry of
Having identified some of the SME lending on a much bigger Industry and Commerce. 2016. National
challenges and opportunities scale, with greater participation Policy Framework for Small Medium
associated with SMEs it is possible of women entrepreneurs on the Enterprise Development. Colombo.
to present some strategies that line of the “ Grameen” scheme Narman, A. & Vidanapathirana, U.2005.
the government and the agencies of Bangladesh. Forth, beyond Transiting from Prolonged Conflict to
responsible for development of the enhancing the coverage and Post Conflict Developmeny: Locating
SMEs in Sri Lanka. quality of basic infrastructure, the Case of Trincomalee District of Sri
Lanka, Pease and Democracy in South
First, the government has to take initiatives would also help
Asia,1(1),pp. 13-22.
measures to formulate national improve access to markets for
policy for SMEs as an integral part rural firms. Tahi Hamonangan Tambunan, T., 2011.
Development of small and medium
of the overall industrialization
enterprises in a developing country: The
policy. Without such policy 7. References Indonesian case. Journal of Enterprising
frame work, it is difficult to Arinaitwe,S.K. 2006. Factors Communities: People and Places in the
develop this sector. Given Constraining the Growth and Global Economy, 5(1), pp.68-82.
Survival of Small Scale Businesses.
the, non -diversification of the Task Force for SME Sector Development
A Developing Countries Analysis.
industrial structure and its heavy Journal of American Academy of Program.2002. White Paper: National
concentration in the few low value Business, Cambridge, 8(2), pp.167-179. Strategy for Small and Medium
added industry categories is a Enterprise Sector Development
Asian Development Bank, .2008. in Sri Lanka, Ministry of Enterprise
main problem for sustainability Country Partnership Strategy, Manila, Development, Industrial Policy and
of the industrial development Asian Development Bank. Investment Promotion, Colombo.
(Dasanayaka,2009) process. There
Athapaththu, J. C., & Nishantha, B. Wattanapruttipaisan, T., 2002.
need to be gradual shift towards 2018. Information and Communication Promoting SME development: some
high value added domestic Technology Adoption in SMEs in Sri issues and suggestions for policy
resource based production Lanka; Current level of ICT Usage consideration. Bulletin on Asia-Pacific
activities. Second, innovative and Perceived Barriers. International Perspectives, 3, pp.57-67.
Journal of E-Entrepreneurship and
measures should be used to attract
Innovation (IJEEI), 8(1), pp.1-15. World Bank. 2018. Doing Business 2019
investment and business interest
from the Diaspora. Diaspora Bray,J.2007. The Role of Private
Sector Development in Post-conflict
investors have the potential to
Economic Recovery, United Nation



Adrian Perera
FCMA,FCCA,FCMA(UK),MBA(Sri J),AIB,FCPM
Development of the
SME Sector in a
Sustainable Manner
The writer is a member of the economic dynamism. SMEs and not as susceptible as large
governing council of CMA Sri enhance competition and firms to the unpredictablity of
Lanka, an immediate past entrepreneurship and thus financial markets. The sector is
president of the member network have economy wide benefits marked by the relative ease of entry
panel of ACCA Sri Lanka, a former in efficiency, innovation, and and exit and scaling up or down. As
governing council member of productivity growth. For a a labor and capital scarce economy,
CIMA Sri Lanka, a former Vice developing country such Sri Lanka can ill afford not to use
President of OPA, a former MD/ as Sri Lanka, where SMEs a vehicle such as SMEs for labor
CEO of Lanka Rating Agency account for nearly 90% of the absorption, poverty alleviation,
and is currently the director industrial establishments, import substitution and economic
of corporate affairs at OASIS 70% of employment in the development.
Hospital Pvt. Ltd. industry sector (over 30% of all
employment), while contributing 2. How are SMEs defined
1. Why are SMEs to about 26% of GDP, the sector in Sri Lanka?
important? has been considered a veritable Sri Lanka does not have a single
Small and medium enterprises engine of economic growth, statutory definition for SMEs. Some
(SME) are recognized enhancing productivity, creating of the definitions in use in Sri Lanka
for their contribution to new jobs, and reducing poverty. are given in Table 1.
employment, innovation and SMEs are nimble and responsive
Table 1: How SMEs have been variously defined in Sri Lanka

Institution Criterion Medium Scale Small Scale
Sri Lanka Standards Institution (SLSI) No. of Employees Between 50 - 249 Less than 50
Industrial Development Board (IDB) Value of Machinery Between Rs. 4 Less than Rs. 4 million
million to 10 million
Ministry of Industry, Tourism and Value of fixed assets Up to Rs. 16 million Less than Rs. 16 million
Investment Promotion other than land and
buildings
National Strategy for SME No. of Employees 30–149 employees 5–29 employees
Development in Sri Lanka
(Government White Paper 2002)
Federation of Chambers of Capital employed Between Rs. 2 million Less than Rs. 2 million
Commerce and Industry of Sri Lanka to 20 million

Institution Criterion Medium Scale Small Scale

Ministry of Small and Rural Industries Total Investment Between Rs. 20 million Between Rs. 1 million to
to 50 million 20 million
Ceylon National Chamber of Industries i) Value of assets other Between Rs. 4 million Less than Rs. 4 million
than buildings and lands. to Rs. 20 million Less than 10
ii) No. of employees Between 10 -50
Sri Lanka Export Development Board i) Capital investment More than Rs. 40 million Less than Rs. 20 million
(EDB) excluding lands and More than Rs. 100 million Less than Rs.100 million
building
ii) Annual export turnover
World Bank (for Sri Lankan country No. of employees Between 50-99 Less than 1- 49
studies and loan programs)
Dept. of Census and Statistics No. of Employees More than 10 (Year 2003/04) Less than 10
(Year 2003/04)
Task Force for SMEs Development in Asset Value excluding land Not exceeding Rs. 50 Not exceeding Sri Lanka
(2002) and buildings value million Rs. 20 million
Sri Lankan Apparel Industry, Task force i) Export value Rs. 101 million to 250 million Rs. 0.25 million to 100
on five year strategy (2002) ii) No. of Employees million
The Dept. of Small Industries i) Capital investment Between Rs. 25 – 5 million Less than Rs. 5 million
ii) No. of Employees Between 100 - 50 Less than 50
employees
Note: Rs. represents Sri Lankan Rupees

Source: S.W.S.B. Dasanayaka (2009), ‘Small and Medium Scale Enterprises in Informal Sector in Pakistan and Sri Lanka with Research Agenda’,
paper prepared for the Special IARIW–SAIM Conference on “Measuring the Informal Economy in Developing Countries”, Kathmandu, Nepal,
September 23-26, 2009
3. How have SMEs grown in Sri Lanka over the years?

SMEs in Sri Lanka includes establishments operating in agriculture, mining, manufacturing, construction, and
service sectors. A comparison of the number of establishments and value added by various size groups of industry is
given in Table 2.
Table 2: Growth of SMEs in Sri Lanka
Size class by no. of employees 1983 1996 2006
No. of Value No. of Value No. of Value

establish- added establish- added establish- added
ments (%) (%) ments (%) (%) ments (%) (%)
Small (5–9) 86.6 11.3 70.7 4.1 65.6 5.7
Medium (10 –149) 11.4 19.8 20.1 8.4 25.9 26.1
Large (150 and more) 2 68.9 9.2 87.4 8.4 68.2
Total 100 100 100 100 100 100
4. Support Available for growth and development while Sri Lanka, A Ten Year Horizon
SMEs in Sri Lanka reducing regional imbalances and Development Framework 2006-
poverty on a sustainable basis in 2016’, released in 2010, set for the
4.1 Policy support a number of policy documents. first time quantifiable targets
The importance of SMEs in driving However, there has been no by sector and ministry for the
economic growth has long been comprehensive document economy to pursue. Specific
recognized by governments. reviewing the SME sector in Sri strategies included upgrading of
Successive governments have Lanka. SMEs, subsidized loan schemes,
articulated their policies and setting up of entrepreneurial
the policy document ‘Mahinda
strategies to accelerate economic centers in every district, trade
Chintana: Vision for a New

centers in every province for selected administrative districts

convenient marketing of produce, 4.2.2 Financial institutions of the economy and provide skills
and establishment of handicraft. Banks: In 2005, the then development programs on record
government established the keeping, accounting procedures,
To implement these policies, a
SME Bank to implement its labour management and product
special SME Bank was established
policies for the SME sector, development. The well-established
in 2005, followed by a National
following a recommendation NGOs provide a wide range of
Enterprise Development Agency
by an SME-focused cluster consultancy and advisory services
(NEDA), both of which were under
of the National Council for in the field of marketing, financing,
the then Ministry of Enterprise
Economic Development (NCED). engineering and preparation of
Development and Investment
The SME Bank was a licensed project proposals.
Promotion. The NEDA Act No 17
specialized bank owned by
of 2006 was enacted to promote,
the government. Its objectives 4.2.4 Multilateral and bilateral
support, and facilitate enterprise
were promoting the growth donor agencies
development within Sri Lanka
of SMEs by providing credit, Donor agencies such as Asian
with special emphasis on SMEs.
guarantees, venture capital, Development Bank (ADB), Japan
Subsequently, the SME bank
and entrepreneur development International Cooperation Agency
had to be consolidated with the
and support services. In 2006, (JICA), World Bank and United
Lankaputhra Bank due to very high
Lankaputhra Development States Agency for International
NPAs.
Limited was established solely Development (USAID), play an
4.2 Institutional support to provide finance and seed important role in promoting SME
The institutional support system capital to the SME sector. The two sector activities in the economy
to SMEs in Sri Lanka comprises banks merged in 2008. State and in Sri Lanka. In addition to supply
of four pillars: (a) public sector, private sector banks have also of low cost credit, these agencies
(b) financial institutions, (c) non- offered various loan schemes and have been actively involved in
government organizations (NGOs), projects for the SME sector. The capacity building and policy reform
and (d) multilateral and bilateral present government had initiated initiatives jointly with private sector
organizations. a loan scheme ‘Enterprise Sri organizations. However, SMEs have
Lanka’ with concessionary interest been unable to fully benefit from
4.2.1 Public sector institutions
rates geared at developing the these programs due to an absence
Under the previous government
SME sector. of an integrated development plan
administrative, SMEs came under
at the national level.
the Cabinet Ministry of Traditional
Chambers of commerce and
Industries and Small Enterprise
Development while many
industries: Extend advice 5 What challenges do
other ministries were directly
on business promotion and SMEs face in Sri Lanka?
development through various SMEs in Sri Lanka are often
or indirectly engaged in SMEs
associations and projects. constrained due to limited financial
through (a) policy formulation, (b)
access and high cost of funds. Loan
regulatory functions, (c) support
4.2.3 Non-governmental procedures are often complicated.
services, and (d) coordination.
organizations (NGOs) Unreliable power supply, poor state
Statutory bodies under different A number of local NGOs such of roads and transport services pose
cabinet ministries provide as Sarvodaya are involved in major obstacles to development.
common services relating to providing various services SMEs are also hampered by poor
the SME sector. The Industrial to SMEs. The NGO sector, in technical and management skills,
Technology Institute (ITI), Industrial general, covers a highly diverse marketing constraints, outdated
Development Board (IDB) and set of institutions representing technology and inflexible labor
Export Development Board (EDB) both national and international laws. Primary challenges identified
deserve special mention in view participation in enterprise in the National Strategy for
of their involvement with SME development. Most of them Small and Medium Enterprises
development relating to skills are confined to selected Development in Sri Lanka
development, technology transfer economic sub-sectors or (December 2002) are as follows:
and access to markets.

 Lack of focused policy 6.1 Sources of funds For a SME, borrowing from a RFC
framework and reform The primary sources of SME will come at a significantly higher
 Lack of access to information financing In Sri Lanka is through cost than a similar loan from a
and technology to facilitate registered finance companies commercial bank. The average
decision making and planning (RFCs) and leasing companies. lending rate of RFCs as of 31 March
at affordable cost 2010 was around 16.5% as opposed
 Lack of access to finance at As Sri Lanka graduated from to 6.3% for commercial banks.
a reasonable cost and high being a ‘less developed country’ However, RFCs have been able
emphasis on collateral in 1990 to a ‘developing country’ to get a firm foothold in the SME
 Lack of market information and in 2009, it lost the benefit financing market over the years
marketing skills of concessionary funding due to their small size and flexibility,
 Absence of a single standard for SME development from which are important factors, when
definition for SMEs global development financial catering to a sector which is highly
 Lack of adequate infrastructure institutions. However, multilateral unstructured and informal. Despite
 Shortage of skilled manpower and bilateral institutions do the high interest rates, SMEs have
 Lack of professional on occasion lend to private grown consistently in number over
management skills for the SME leasing companies in Sri Lanka, the years. The high hurdle rate in
sector after conducting stringent due the market has however created
diligence, for ultimate lending to a credible barrier to the entry and
6. How are SMEs financed SMEs . survival of efficient SMEs.
in Sri Lanka?
Lack of access to finance at a 6.1.1 Registered finance 6.1.3 Leasing companies
reasonable cost and high emphasis companies Leasing companies in Sri Lanka are
on collateral have been cited as Traditionally, RFCs have been not authorized to accept customer
major obstacles to SME growth in the biggest lenders to SMEs in deposits. They source funds
the National Strategy for Small and Sri Lanka. Funds raised from through loans from banks and
Medium Enterprises Development public deposits and bank loans lending agencies both multilateral
in Sri Lanka (December 2002). are then used to offer advances and bilateral. In the absence of a
Access to finance is in fact a bigger to SMEs through a diverse range proper legal and tax infrastructure,
challenge than even rising cost of of financial instruments. These securitization remains a
material. include: cumbersome task. This makes
 Leasing borrowing from leasing companies
Though the issue of access to
 Hire purchase expensive specially since other
finance and cost of finance are
 Mortgage loans lending institutions will be its direct
interrelated, they are not identical.
 Pawning competitors.
Lack of access to finance or
 Factoring
high cost of finance to the SMEs
6.2 Constraints to financing
merely indicates that financial
6.1.2 Commercial banks Availability of funding is the
intermediaries tend to lend to
Most commercial banks have Achilles’ heel of SME sector
sectors where risk and return
relied mainly on the central financing in Sri Lanka. The National
match their risk appetite and the
bank and government funded Strategy on SME Sector Financing
risk preferences. Loan sizes to SMEs
refinancing schemes for SME identified the following challenges
tend to be small in value while the
financing. A few have used their for SME’s access to finance:
relative risks and processing cost
own funds. Although SME lending
are comparatively high. This in 1. Existence of marked
is considered by and large
turn is compensated through high information asymmetries
profitable, commercial banks
interest rates. To cope with high between SME borrowers and
generally tend not to expose their
cost of funds, SMEs across Asian lenders.
portfolio to the SME sector to a
countries are constantly looking for 2. Sizeable transaction cost for
very great extent (except in the
opportunities to diversify their risks SME financing and high cost of
case of pawning since the loans
and funding sources. borrowing.
are backed by gold).
3. High risk of default

4. Lack of acceptable collateral There also may be instances 6.2.5 Fall-back option:
5. Lack of diversified financing inadvertent and unintended gaps Borrowing from the non-formal
mechanisms in paperwork which cannot be sector
6. Poor management of finance overlooked by the lender. While Difficulties in accessing financing
the applicant may be an astute from the formal financial sector
6.2.1 High lending rates businessperson with a great invariably pushes SMEs towards
It has been observed that in Sri business concept, the information the high cost non-formal financial
Lanka even with dipping inflation provided to financiers may be sector for funds. Insignificant
in the past, both borrowing incomplete and inaccurate; economies of scale of SMEs results
and lending rates to SMEs are documentation may be weak or in low bargaining power and
downward sticky, and financial even non-existent. This leads to limited choices.
institutions tend to maintain high two problems. First, the lender
margins even on comparatively is unable to fully gauge the risk 7. How can the barriers
low risk lending. Interest rates profile of the project. Second, to SME financing in Sri
play the role of a credit rationing once funds are disbursed, the Lanka be lowered?
instrument. lender is unable to ascertain the It is evident that policy directed
effectiveness of fund utilization. finance, RFCs and leasing
High lending rates must also be
This could result in the facility companies have been the main
viewed in the context of adverse
being refused or funds offered sources of finance for the SME
selection. When lending rates
at high interest rates and high sector in Sri Lanka despite the
increase, the risk of default
collateral. high cost of borrowing. By and
increases, and safer borrowers
large, policy directed lending
are driven out of the pool leaving
6.2.3 High transaction costs with massive interest subsidies
only the riskier borrowers. This
Transaction costs are have created negative tradeoffs
increases the portfolio risk. In order
independent of loan size. for the stakeholders concerned.
to maintain portfolio quality, banks
Therefore, loans to the SME sector Most of the donor funding and
go in for credit rationing which
which are smaller in value, bear technical assistance schemes have
typically precludes the high risk
a disproportionate amount in not achieved the desired results
SME segment from the lending
transaction costs. Banks recover since they are supplier driven.
pool. Credit rationing may result
transaction costs through high Development financial institutions
in situations where potentially
premiums which add to the have played only a minor role.
profitable ventures suffer sub-
overall financing cost.
optimal allocation of credit due to This section highlights ways in
small size, lack of collateral etc. which credit risk evaluation can
6.2.4 Zero access to capital
enable SMEs to access funds
markets
6.2.2 Information asymmetries in a timely and efficient way by
SMEs in Sri Lanka have challenges
SME entrepreneurs are not always reducing restrictions in current
in accessing the capital market
able to competently articulate and funding channels.
as most are incorporated as sole
attractively present information to
proprietorships, partnerships and
convince potential lenders about 7.1 Building a rationale for a
private limited companies. Sri
the viability and profitability of their Credit Guarantee Fund
Lanka does not have a developed
business. Credit guarantee schemes on
venture capital industry or a
debt/equity aim at increasing
These entrepreneurs have developed equity market for
lender/investor confidence by
also been known to indulge in SMEs. India has set up a SME
compensating the lender/investor
malpractice by maintaining two exchange. However this may not
for much of the risk should the
sets of books to reduce their tax be best solution for Sri Lanka
borrower default or the business
liability. Such actions on the part of until some form of financial
fail. Sri Lanka does not have an
the potential borrower, perceived and management discipline
established credit guarantee
as risky behavior, erodes a lender’s is brought to the SME sector
corporation for SMEs. However,
confidence. through regulation.
CBSL has been extending credit
guarantee on loans to certain

sectors in line with prevailing situations of loan default. Of unwilling to take. The Institute
government policy. To ensure importance is the decrease in of Chartered Accountants of Sri
that a guarantee fund does more transaction costs over time as Lanka has published a specific
for the economy than needlessly banks gradually shift to risk based accounting standard for SMEs to
increasing the government’s pricing. A credit rating could standardize financial reporting and
fiscal burden through high non- also help a SME in obtaining information transparency. However,
performing loans (NPL) ratios, longer periods of credit from its adherence to accounting standards
it is important to put in place suppliers. by SMEs has been low.
mechanisms for strict credit risk
evaluation and monitoring through 7.3 Credit risk evaluation in Sri 7.4 How can the credit rating
registered domestic credit rating Lanka: A quick overview process be made SME-friendly?
agencies (CRAs). In Sri Lanka credit risk rating is The survey-based ‘Assessment of
only ten years old. Its three CRAs, Financial Institution Use of Credit
7.2 Building a rationale for credit Fitch Ratings Lanka Ltd (FRL), Scoring for Small Business Lending’
risk assessment RAM Ratings Lanka Ltd (RRL), (2006) presents competitiveness,
The merging of the specialized and ICRA Lanka Ltd, are governed regulatory issues, documentation
banks for SME lending, ie. The by the Securities and Exchange and transaction costs related
SME Bank and Lankaputhra Commission of Sri Lanka (SEC issues, SME credit evaluation
Development Bank, in 2008, Sri Lanka). Apart from the three challenges, absence of low cost
brought attention to the lending domestic CRAs, the CBSL has additional information and the
portfolio of the two banks which also recognized the three global lack of secondary market loan
had nearly 40%–50% NPLs. rating agencies, Fitch Ratings, sales as factors that influence
This subsequently reached an S&P, Moody’s, and their respective lending institutions to adopt
unsustainable NPL level of 97%. rating scales. credit scoring as a determinant
How did this happen? It happened in a lending decision. Of these,
Sri Lanka does not utilise risk-
due to the absence of proper the most relevant to Sri Lanka are
based pricing of loans. Banks
credit risk evaluation and a lack of issues related to documentation,
lend to local corporates based
monitoring credit. cost per transaction and lack of
on negative pledges and
low cost additional information.
Credit risk rating can be used to mortgage over receivables.
Documentation and transaction
gradually replace collateral based For mid-size corporates, asset
costs are disproportionately high
lending with information based mortgages are common. SMEs
in SME lending when compared
lending. The rated entity (the resort to a plethora of lending
with the loan size. This predisposes
potential borrower or issuer of the arrangements—leasing, hire
the lender to turn away an SME
debt instrument) will be evaluated purchase, mortgages, guarantees
applicant even if its default risk
comprehensively in terms of and pawning—all of which are
is low. SME Credit rating is one
business, market, and commercial collateral-based. Banks lend
method where the documentation
viability to assess risk of default and to SMEs relying on time tested
costs and the information costs can
assigned a certain risk rating. This collateral value analysis backed
be minimized to an affordable level
rating will disperse informational by the borrower’s CRIB report
to both the borrower and lender.
asymmetries for the potential and project report. This ensures
lender while helping to bring down that the lending decision is CRAs will have to develop a new
the cost of funds and the need for based on considerations that credit risk analysis matrix for SMEs
large collateral requirements. are quantitatively justifiable where the methodology is simple
and appropriately supported. and the model inexpensive to drive.
With a credit risk rating, a SME
Accounting-based lending The methodology must also be
loan applicant’s track record and
for SMEs (where there is robust enough for the ratings to be
financial viability of the project
rampant misreporting and acceptable to lending institutions
will be of greater significance in
misrepresentation of facts and such as banks, credit guarantee
lending decisions. Good credit risk
figures) demands the exercise corporations, RFCs, and leasing
information would help financial
of qualitative judgment which companies.
institutions anticipate and avoid
is a risk lenders in Sri Lanka are

8. Policy sit overseas and lack financial institutions. Initially,

Recommendations understanding of Sri Lankan the process could start with
realities and compulsions. medium scale enterprises.
1. Credit rating agencies are The domestic ratings
regulated by the SEC of assigned by these CRAs are 8. Default customers should be
Sri Lanka while the task of not viewed favorably by SME blacklisted with relevant details.
developing SMEs lies with clients who lose confidence This report should be provided
NEDA. The financing aspects and revert to applying for to the CGF as well as CRIB.
are managed by the Ministry collateral-based loans. SMEs
of Finance and monitoring of are unique to each country 9 Conclusion
banks and finance companies and region and have greater This paper attempted to identify
is done by CBSL. Since there are fidelity to the local context the barriers that SMEs in Sri
many interrelated institutions and culture than corporates. Lanka face in accessing finance
involved it would be ideal if CRAs need to develop new at a reasonable cost. Although
NEDA took the lead in the methodologies catering to the the government has injected
establishment of a Credit SME Sector in Sri Lanka and significant sums into policy
Guarantee Fund (CGF) and the methodologies must be directed lending, it has not
implementation of SME credit approved by CBSL and SEC of achieved the desired outcomes.
ratings in Sri Lanka. Sri Lanka. Since both rating With pressure to display greater
agencies are foreign, they do fiscal prudence, the government
2. It is important to gain buy in not have a vested interest in finances are severely stretched.
from banks and other financial developing the local market by Therefore innovative ways to bring
institutions when establishing incorporating a local domestic down the cost of funds while
the CGF. It is proposed that rating agency. ensuring easy access for SMEs is
CBSL and other commercial strongly required. The solutions
banks are involved in the 5. A SME credit rating should should be self-sustaining without
process. CBSL should manage be made mandatory for all placing an excessive burden on the
the process of obtaining policy directed lending. Non- government budget.
the initial seed capital from existence of risk based pricing
multilateral lending agencies. will result in discouraging In this context, the paper
SMEs from obtaining a suggests the setting up of a Credit
3. The Board of the Credit voluntary rating which in itself Guarantee Fund (a corpus pooled
Guarantee Fund should will carry a financial burden. by representatives from NEDA,
comprise of representatives CSBL, commercial banks, and
from NEDA, CBSL, commercial 6. CRAs will become legally multilateral agencies) along with a
banks (public and private), as responsible for their ratings statutory SME credit rating to bring
well as the Institute of Chartered under the new Securities financial discipline and enhance
Accountants of Sri Lanka and Exchange Commission development in the SME sector.
and CMA Sri Lanka. This will Act which is expected to be Looking forward, if SMEs are to
increase the confidence and effective mid-2019. This may be listed in the SME Board of the
sustainability of the CGF and discourage CRAs from rating Colombo Stock Exchange (as is
help in identifying segments SMEs. To encourage CRAs planned), their financial discipline
where assistance is required. to service the SME sector, will certainly need to be superior to
directions to mitigate risk and the existing level. Domestic CRAs
4. Though Sri Lanka has two CRAs, legal liability will be required. can help by rating SMEs keeping in
the number of rated entities mind the unique characteristics of
as at December 2011 was 98. 7. CRAs should publish default the SME sector in Sri Lanka.
An important factor is that the studies annually and all rating
rating methodologies are not reports should be filed at the
refitted to the local context of Sri SME Credit Guarantee Fund
Lanka. The rating committees to create a one-stop shop for


M.M.M. Rizley
ACMA,FCPM,MAAT,
Bach.of Management
Studies(Open UNIVERSITY OF Sri Lanka)
The Practice of Integrated

Reporting in the Public
Municipality Sector
“It’s great to have an absolutely rigorous reporting framework.
The only problem is they’re useless unless somebody uses
them.” – Civil servant, Dublin City Council
Introduction <IR> is gaining momentum and a statement about the

Most city governments/municipal around the world and with it management of any risks also
councils in the world, as part of creating interest in the public form part of the Report. It may
their reporting practices produce sector as well. Therefore, it is also contain a description of how
an annual report, together with timely to review the present the data demonstrates successful
a sustainable report that may be practise of Sustainability implementation of corporate
either voluntary or required by Reporting under the guidelines values. Sustainable Reporting
law. In the European Union, an of the Global Reporting is aimed at a wide circle of
accounting directive applies to Initiative(GRI), that is followed stakeholders such as employees,
all large public interest entities to by most city government/ customers, the general community,
disclose ‘non-financial and diversity government municipalities investors, and business suppliers
information’ in their annual reports by comparing it with <IR> to and looks to the near past, present
from 2018 onwards. In France, evaluate the benefits that <IR> and near future. Materiality is a
it has been mandatory for all will bring to these entities. relevance filter that helps to decide
municipalities with more than whether information should be
50,000 inhabitants, to periodically Sustainable Reporting included in the Sustainability
produce sustainability reports versus Integrated Report, based on it being
along with their financial reports Reporting important enough to the various
(Niemann and Hoppe, 2018, pp. The contents of a Sustainability interests of the stakeholders
201-23). Report consists mainly of covered.
non-financial data. It includes
Integrated reporting <IR> is a
information on aspects such An Integrated Report contains both
recent development in corporate
as employee satisfaction and financial and non-financial data
reporting with a focus on
corporate awareness of the local linked by a narrative explaining
conciseness, strategic relevance
community through to recycling what the data means for future
and future orientation. The
and carbon reduction initiatives. corporate profitability, as well as
guidelines for <IR> is given in the
A narrative description of the how the company can derive profit
International <IR> Framework
risks and benefits to the social from programs that benefit the
issued by the International
and natural environment posed social and natural environment.
Integrated Reporting Council (IIRC).
by the company’s operations <IR> is aimed at equity investors,

stockbrokers, and providers of outcomes such as information (Flower, 2015). Yet it is increasingly
debt finance. Materiality is a overload (de Villiers, Rinaldi and popular among companies and
relevance filter to help decide Unerman, 2014) remains ignored. has influenced the public sector
whether information should be (Bartocci and Picciaia, 2013).
included based on whether it could Advocates of <IR> suggest it as Sustainability reporting
influence the providers of finance an effective approach to increase as promoted by the GRI
capital in the short, medium or the relevance of sustainability recommends the participation
long-term. information for decision making. and targeting of a wide
(view from the Corporate Box The aim is to promote integrated stakeholder audience, while
Blog-18.4.2016, http://www. thinking and to overcome
integratereport.com/) duplications and thinking in silos
by integrating information systems
Relevance of Practicing of internal and external reporting <IR> has a narrower focus on
<IR> as a Further (Stacchezzini, Melloni and Lai, its stakeholders of providers of
Development of 2016). Early discussions included financial capital (Adams C.A., 2015).
Sustainable Reporting the idea for an organization’s The latter may be inappropriate
in Government integrated report to be a high- for the public sector (Bartocci and
Municipalities/City level overview, yet the current Picciaia, 2013).
Governments Globally <IR> framework proposes
Sustainability Reporting is at a replacing other forms of reporting Practice of <IR> by Local
risk of merely exacerbating the (de Villiers, Rinaldi and Unerman, Municipalities/City
already overwhelming amount 2014). Critics ironically dub <IR> Governments
of disclosures provided without as the new holy grail (Milne and <IR> is not presently practised
adding further insight (Adams and Gray, 2013) and talk of capture by Sri Lankan local government
Simnett, 2011, p.294), if negative by the accounting profession municipalities. However, the

this growth will be concentrated

in developing countries, with
nearly 90% increase occurring in
Asian or African cities.
 In addition, cities are responsible
for two-thirds of the world’s
overall energy consumption
and an estimated 70% of all
greenhouse gas emissions.
With developing countries
experiencing unprecedented
urban growth, efforts to build
liveable and sustainable cities
are hampered by mounting
challenges in areas like water
supply and sanitation, waste
management, transport
infrastructure and services,
energy supply, as well as climate
change.
 Cities around the world are
in urgent need of effective
planning and financing
strategies to meet these
challenges. Integrated urban
planning offers a unique
opportunity for cities to realign
their growth trajectories onto a
more sustainable, resilient, and
inclusive path.
Led by the World Bank, the Global

Platform for Sustainable Cities
(GPSC) is a forum for knowledge
sharing and partnership to achieve
urban sustainability. GPSC supports
the following activities:
international view is that <IR> The Concept of a  Using geospatial data and tools
definitely helps in planning and Sustainable City to support integrated urban
identifying areas that enables local According to a World Bank report planning;
municipalities/city governments (November 2016):  Developing GPSC national
to draw joint partnership with the planforms to enable public
private sector and other similar  The world is urbanizing at a access to reliable and accurate
cities globally. There have been rapid pace. Already more than location-based information;
recent instances of Sri Lankan half of the global population  Establishing and enhancing
local municipalities joining in lives in cities, and this number urban sustainability indicators
partnership with foreign cities in is expected to increase to two in close alignment with the UN
the area of developing sustainable thirds of the global population Sustainable Development Goal
cities. by 2050. The vast majority of 11;

 Implementing a diagnostic creditworthiness, as well as “Linking knowledge to finance is

process to assess cities’ to identify priorities for urban critical to directing investment
sustainability status; investment flows to quality and sustainability.
 Preparing and implementing  Delivering workshops and We see this platform as a great
action plans to facilitate trainings at regional and opportunity to connect cities not
planning for sustainable urban national levels to share only to cutting-edge knowledge,
growth; knowledge and experience but also to development banks
 Providing capacity building among client cities. and financial institutions. “
opportunities to improve
municipal finances and city
Ede Ijjasz-Vasquez Developing an

Senior Director of the World Bank’s <IR> system in
Social, Urban, Local Government
Rural, and Resilience Global Municipalities in Sri Lanka
Practice Having had opportunities to
“ If planned and managed well, compact, resilient, inclusive, and resource-efficient cities partner with global cities, how can
can drive development, growth, and the creation of jobs, while also contributing to a local government municipalities
healthier, better quality of life for residents and the long-term protection of the global achieve a sustainable development
environment. “ plan to provide an effective service?
NAOKO ISHII How can the use of <IR> help?
Global Environment Facility
CEO and Chairperson When developing an <IR> system
it will be necessary to identify the
GPSC Support to Participating Cities with Partnership Organizations core activities and issues of the
local government municipality. The
co-operation of those heading the
 Brazil: main activities will also be key to
$25m for cities
of Recife and Brasilia, ensure the availability of required
 Senegal  Mexico:
$8.7m for cities and the creation of $15m for cities information. Thereafter, an effective
of Greater Dakar a National of Xalapa and
Knowledge <IR> process can be implemented.
and Saint Louis Compeche
Platform
Steps to Implementing
 Malaysia:
FINANCE PARTNERSHIP $2.7m for Melaka <IR> in a Local
Government Municipality:
 China: 1. Establish an <IR> team with an
$36m for 7cities of  Cote D’Ivoire:  India:
Beijing, Guiyang, $5.2m for cities of $13.5m for cities of effective reporting structure.
Nanchang, Ningbo, Abidjan, Bouake and Vijayawada, The Municipal Commissioner
Shenzhen, Tianjin San Pedro Mysore, Guntur,
and Shijiazhuang Jaipur and Bhopal as head of the team could
be assisted by the functional
heads with their comprehensive
 Paraguay:
$7.4m for Asuncion knowledge of the municipality
TOOLS & PLANNING
INDICATORS activities and also obtain the
 Viet Nam:  Peru: services of a consultant.
 South Africa:
$12.7m for cities of $6.3m for Lima and $8m for
Hue, Ha Giang and a national Platform Johannesburg
Vinh Yen of Sustainable Cities
and Climate Change

An <IR> Team Organization Flow chart as follows-
Consultant
2. Comparison of <IR>
Finance with the present
reporting practises
of the municipality.
Administration Clearly recognise
the differences and
apply the guiding
Mechanical Engineering
principles of <IR>
to the six capitals –
Municipal Commissioner
Health & Waste Disposal financial, manufactured,

intellectual, human,
natural and social &
Legal COUNCIL OF
relationship.
BOARD
MEMBERS
Electrical Engineering 3. How relevant is the
municipality’s vision &
mission to its activities
Fire & Emergency unit
and outcomes? Linking
the vision and mission
Civil Engineering to the integrated report.
4. Creation of a Business
Welfare Section Model and how it serves.
BUSINESS MODEL
INPUT BUSINESS OUTPUT

OUTCOME ACTIVITIES
Infrastructure
& Housing
CITY RESIDENTS & Projects & Fire
BUSINESS UNITS Service
MUNICIPALITY
DEPARTMENTAL HEADS &
TEAMS INVOLVED IN
MODEL CITY
PUBLIC SERVICE –
FINANCE ACTIVITIES Environment
HUMAN RESOURCE Cleaning
INTELLECTUAL
NATURAL
MANUFACTURED
SOCIAL RELATIONSHIPS
UTILITY & MATERIAL Health
SUPPLIERS Facilities

5. Identification of stakeholders, ensure clean environment, 6. Identifying both internal

their needs and the services awareness programs utilizing and external material issues
provided. all renewable & non-renewable and encouraging integrated
resources – Natural Capital thinking in the team to find
a. The finance division obtains the
solutions to the issues
necessary funding from internal e. The engineering department
& external sources -Financial will ensure all assets are in 7. Each project undertaken
Capital proper use - Manufactured by the municipal council
Capital. will be reviewed to ensure
b. Human resource department
value is created taking into
will obtain the required resource f. Relationships with all
consideration the funds
personnel- Human Capital stakeholders such as resident
allocated and spent .
& business customers,
c. Planning & research department
utility providers & suppliers 8. Finally, the outcome of a safe,
will encourage innovation in city
and furthering global city clean and a model city under
planning, licencing, systems -
partnerships are maintained municipality control is achieved.
Intellectual Capital
cordially by the public relations
d. The solid waste disposal units - Social & Relationship
department coming under Capital
the Health Department will
Many participating cities will pursue transit-oriented development (TOD) initiatives.
Conclusion like municipal and urban councils creation on each and every activity
<IR> is gaining momentum in Sri Lanka do not practice undertaken. Adopting <IR> with its
in both the public and private <IR>. They continue to provide emphasis on value creation could
sectors. Although initially <IR> a short sustainable report with help to achieve transparency in
was designed for the private their annual financial report. reporting for local government
sector, the public sector has However, the guidelines laid municipalities along with an
accepted the relevance of key down in the International <IR> ideal model city that is clean,
concepts underpinning <IR> Framework could be useful for environmentally sustainable and
such as integrated thinking and local government municipalities healthy.
overcoming silos. Local authorities in instilling a sense of value

Mr. Janaka Heenkenda Mrs. Jayani Hapugoda Mr. Asanka Senevirathne Mr. Chanaka Weerasekara
BBA in Entrepreneurship B.Sc. Statistics with B.Sc. Accountancy & Management (sp.) (SUSL),
(sp.) (RUH), M.Sc. (SJP) Computer Science (UOC), Business Finance (sp.) M.Sc. (SJP)
CIMA (UK) (WUSL), MBA (WUSL)
Lecturer
Lecturer Lecturer Lecturer Department of
Department of Department of Department of Management Studies
Management Studies Management Studies Management Studies The Open University of
The Open University of The Open University of The Open University of Sri Lanka
Sri Lanka Sri Lanka Sri Lanka
ASSESSMENT OF BUSINESS INNOVATION

CAPABILITY: A CASE OF MICRO, SMALL AND
MEDIUM-SIZE ENTERPRISES IN SRI LANKA
Department of Management Studies, Faculty of Humanities and Social Sciences,
1234
The Open University of Sri Lanka, Nawala, Sri Lanka

Corresponding author: [email protected]
Abstract
Micro, small and medium-size was analyzed utilizing statistical was of a relatively high level. The
enterprises (MSMEs) make a methods. The exploratory factor findings of this study will be useful
significant contribution to business analysis revealed six capabilities for MSME owners, MSME-based
innovation and economic growth of business innovation applicable stakeholders and policy makers
in a country. This study attempts to to MSME owners: knowledge for MSME development thereby
assess the ability and competencies and competence capability (KCC), contributing to both enterprise and
of micro, small and medium- size participatory leadership capability national economic development.
enterprises to innovate. A self- (PLC), networking capability
administered structured Likert (NC), technology capability (TC), Keywords: Business Innovation
scale questionnaire was distributed product and services capability Capability, Micro, Small and
among a sample of 292 MSME (PSC) and marketing capability Medium size enterprises (MSMEs)
owners to collect primary data. (MC). According to the descriptive
This study adopted a quantitative analysis, the business innovation
research approach and the data capability of MSME owners

INTRODUCTION growth essential for developing products, redesigning, production

competitive and efficient markets and so on. Successful innovation
Micro, small and medium size and reducing poverty, particularly comes from the integration of a set
enterprises (MSME) play an in developing countries (Fan, of capabilities rather than a single
important role in the economic 2003). type of capability (Zhang, Garrett-
growth of both developed Jones, & Ricky, 2013).
and developing economies by Business innovation is recognized
contributing not only to Gross as a key driver of economic The SME sector is recognized as
Domestic Production (GDP) but development (Prajogo et al. an important strategic sector
also to employment creation (Abor 2013; Raymond et al. 2013) in in Sri Lanka for generating high
& Quartey, 2010). MSMEs have many studies on how best economic growth and for reducing
contribute significantly to the to nurture and maximize unemployment, inequity, and
socio-economic development of business innovation capabilities poverty. It contributes to 30% of
both developed and developing for sustainable economic GDP, 30% of manufacturing value
economies through employment development. However, added, 35% of the national labour
creation, provision of goods and measuring innovation capabilities force, and 20% of total export values
services, and tax and export is complex. Multi-dimensional according to the Asia SME Finance
revenue generation, in addition difficulties arise in the innovation Monitoring Report (2014). Most of
to supporting economic growth, process. Innovation involves a the enterprises established in Sri
livelihoods in developing countries, broad and dynamic spectrum of Lanka belong to Micro, Small and
social stability, and economic activities related to markets, new Medium size categories.
diversity. MSMEs are the engine of
Table 1: Sri Lankan Economic Senses
Enterprise category Micro SMEs Large

Number of Enterprises 880,066 132,483 4931
Number of Employment 1,160,138 930,889 915883
Source: Asia SME Finance Monitoring Report (2014)
Globalization has changed the attempts to assess the ability and size enterprise owners of
business environment and competencies of the micro, small Sri Lanka.
increased competition especially and medium size enterprises to
in developing countries, according business innovate in Si Lanka. LITERATURE REVIEW
to Kassim et al. (2003), because
of which MSMEs have not only to RESEARCH OBJECTIVES In the competitive, complex and
struggle among themselves but intellectual environment of today,
 To identify the dimensions of
also with larger manufacturing the literature claims that business
business innovation capability
firms. In addition, unlike large innovation is the most fundamental
pertaining to the micro, small
companies, small firms lack determinant of a firm’s success and
and medium sized enterprises
resources, expertise and impact survival (Adams et al., 2006). There
owners of Sri Lanka;
on the marketplace (Talib, Ali are several definitions of business
and Idris, 2014). In recent years,  To examine the existing level of innovation capability in the
business innovation capability business innovation capability literature. Innovation capability is
has become one of the important of micro, small and medium an important factor that facilitates
factors of success in modern size enterprise owners of Sri an innovative organizational
economies affecting the Lanka; and culture, the characteristics of
development of entrepreneurial  To study the influence of internal promoting activities, and
ability and competency among demographic factors on the capabilities of understanding
micro, small and medium size business innovation capability and responding appropriately
enterprises. Accordingly, this study of micro, small and medium to the external environment.

According to Romijn & Albaladejo and controlling. In this context networks for their innovations.
(2002), innovation capability can be the capability to identify new Previous research on small firms
defined as the knowledge and skills technologies, to assess their has emphasized the importance
required to absorb and develop value and to successfully exploit of networking for innovativeness
existing technologies efficiently, them are invaluable, Several (Adams at al., 2006). According to
in addition to producing new technological characteristics of Weerawardena (2003), marketing
ones. Numerous dimensions have an innovation would affect its capabilities are an indispensable
been identified in the literature adoption, including complexity, factor based on the innovative
pertaining to innovation capability, compatibility, and relative capabilities of a company that can
viz. knowledge and competence, advantage, ease of use, perceived generate growth and profit via
participants’ leadership culture, usefulness, information intensity distinctive innovation capabilities.
business networking, technology and uncertainty (Tornatzky, According to Li et al., (2007),
capability, product and service &Klein, 1982). tangible and intangible resources
capability, the market of the and capabilities are important for
business, risk-taking capability, Networking capability, another marketing operations, including
vision & mission, capability important dimension of IC, can be brand, sales, channel and service to
development, collaboration, defined as the interactionswith provide various marketing services.
strategic planning and individual suppliers, customers, industry Saunila at al.,(2014) mention that
activities. associations, and competitors, demographic characteristics

which provide entrepreneurs (such as age, gender, educational
Knowledge, competencies
with the missing external level, and experience) influence
and skills are fundamental to
inputs (Lawson & Samson, 2001). the business innovation
innovation as they provide the
Barney(1986) and Teece & Pisano capability which was considered
basis for new ideas and their
(1994) consider networking as a dimension of the dynamic
successful development (Hull
initiatives as essential for capabilities.
& Coombs,2000). Therefore,
innovation, for they act as a
goal-oriented development
vehicle for importing external METHODOLOGY
and application are extremely
knowledge. This vehicle is crucial
important for improving innovation
for many sources of innovation The conceptual framework of this
capability (Nonaka & Akeuchi,1995).
do not reside exclusively within study was designed based on the
Participatory leadership culture
an individual firm. Often the bulk above identified relationships, the
refers to the overall atmosphere
of these networking initiatives following conceptual framework
of the organization that supports
are informal. Innovative firms is proposed which is subject to
and motivates innovation and
rely on both informal and formal empirical validation.
the leadership that facilitates
innovation. The ability to lead,
direct, and support the creation
and sustenance of innovation
behaviours is important for a
Demographic Factors Business Innovation
firm (Bessant, 2003). Leadership
Capability
that fosters innovation enables
Age Participants Leadership
setting task boundaries, sharing
information, obtaining resources, Gender Culture
instilling a positive attitude, and Education Networking
a leadership style that keeps the
Methods of Starting Technology
employees challenged and focused
(McDonough, 2000). Another Business Experience Product & Service
dimension of innovaton capability Business Registration Marketing
is technology capability. Technology
is a prerequisite for new products Figure 1: Conceptual Framework
and production processes; it
addresses planning, management

In order to measure the level of methods to analyze the hundred and ninety-two (292)
innovation capability six main data. Data was collected questionnaires were received,
dimensions were identified with structured Likert scale representing a retrieval rate of 87%.
based on the literature, namely, questionnaires. The sample Cronbach’s Alpha coefficient test
Knowledge and Competence, consisted of three hundred indicated that the questionnaires
Participants Leadership Culture, thirty six (336) respondents were reliable since the coefficient
Networking, Technology, Product who are members of the Small was above 0.5 (ā=0.903).
and Services, and Marketing. Enterprise Development Divisions Respondents were selected based
Accordingly, business innovation from three (03) districts in the on simple random sampling to
capability was considered Western Province in Sri Lanka. arrive at the desired sample of the
the dependent variable and The study was limited to MSME owners of SMEs in three districts
demographic factors of the learners firms registered under SEDD in Western province. Statistical
the independent variable. and operating in Colombo, techniques were used to test the
Kalutara & Gampaha districts hypotheses.
This study adopted a quantitative covering 42 divisional secretariats
research approach and statistical in the Western province. Two
All above variables decided to ensure following indicators and related measures
Table 2: Operationalization
Dimensions Indicator/(s) Literature Support
Knowledge & Understanding own strengths & weaknesses Nonaka,I.,Takeuchi, H. (1995),
Competence Capability to enhance the knowledge base Calantone, R. J., Cavushila, T. S.,
Systematic knowledge Management Zhaob, Y. (2002)
Participate Encouragement Kallio et al. (2012), Saunila and
Leadership Culture Feedback Ukko, (2014)
Network Successful external corporation Romijn, H., Albaladejo, M. (2002),
Successful Internal corporation Bullinger, H. J., (Hrsg.) (2006),
Technology Technology Strategy Bullinger, H.J.(1994), Burgelman, R.
Technology forecasting A., Christensen, C. M., Wheelwright,
Technology evaluation and Sourcing S. C. (2004),
Products and Superior of Products and Services Bullinger, H.J., (Hrsg.) (2006), Von
Services Continues improvement of existing products or Hippel, E. 2005,
services
Strong customer orientation
Marketing Market intelligent and industry trends Bullinger, H.J., (Hrsg.) (2006), Von
Strong cooperation with suppliers and customer Hippel, E., Katz, R. (2002)
Source: Author constructed
Table 3: Demographic Characteristics

Characteristic Frequency Percentage (%)
Gender Male 105 35.9
Female 187 64.1
Age 26-30 78 26.7
31-35 114 39.0
Education Primary Education 89 30.4
Secondary Education 154 52.7
Business Experience Less than 1 year 64 21.9
Between 1 to 5 years 148 50.6
Methods of Starting Inherited from parent 29 9.9
Started by my self 257 88.0
Business Registration Sole Proprietorship 263 90.0
Partnership 18 6.1
Source: Author constructed

Factor Analysis (FA) items respectively,Hair et al rotated by a Varimax with Kaiser

(2009) recommend accepting Normalization. As a traditional
The statistical analysis tool SPSS values greater than 0.5 as barely experiential item with loading
22 was used to extract the factors acceptable (values below this 0.5 for any factor was removed.
using Principle Component should lead you to either collect Furthermore, items that revealed
Analysis (PCA). FA was done more data or rethink which cross loadings larger than 0.5
with respect to each construct variables to include). Furthermore, on more than one factor were
to test the factor structure of values between 0.5 and 0.7 are removed since they do not give
scales using PCA as extraction mediocre, values between 0.7 perfect measures of a specific
method and Varimax with Kaiser and 0.8 are good, values between construct. Moreover, both Eigen
Normalization as the rotation 0.8 and 0.9 are great and values value one standard and Scree test
method (Hair et al, (2009). The above 0.9 are superb. However, in were used to identify the number
Kaiser-Meyer-Olkin (KMO) measure this study the KMO test resulted of factors.
and Bartlett’s sphericity test were in 0.760, which is at an acceptable
used to check the adequacy of the level. The process was limited to
sample and correlations between a six-factor solution which was
Table 5: Means, Standard deviations and factor lording of the items
Construct and Items Mean SD Construct CA

Factor Lording
Knowledge & Competence Capability(KCC) 4.4024 .47613 0.775 0.751
Participants Leadership Culture (PLC) 4.2397 .46610 0.738 0.716
Networking Capability (NC) 4.3305 .55569 0.757 0.722
Technology Capability (TC) 4.1764 .47774 0.718 0.746
Product & Services Capability (PSC) 4.2740 .48679 0.710 0.742
Marketing Capability (MC) 4.2735 .48852 0.742 0.754
Notes: Scale: Standard Deviation (SD), Factor Lording (FL), Cronbach’s Alpha (CA)

The reliability analysis was used According to the parameter can be interpreted in the same way
to establish both the consistency estimates of the obtained model as for KCC.
and stability of the research (presented in the Table below),
instrument. Cronbach’s Alpha age, marital status and the
Technological Capability
value was calculated to test the starting status of the business
(TC)
The results reveal that the
internal consistency reliability of significantly influence KCC of
significant factors influencing the
the instrument. A rule of thumb SME owners. KCC of SME owners
TC of MSME owners are education
suggests that the accepted whose age is 26-30 years are 0.197
level and business experience. The
Cronbach alpha value should greater and it is 0.189 higher for
estimate values (presented in the
exceed 0.7. The Table below gives the owners whose age is 36-45
Table below) can be interpreted in
a summary of the scores of all the years than that of MSMEs owners
the same way as for KCC.
responses to the factors related of 46 years and above. An owner
to business innovation capability of a business inherited from Product and Service
of MSME owners in Sri Lanka. All parents has 1.04 lower KCC than a Capability (PSC)
factors exhibit a Cronbach’s alpha person who takes over a company According to the analysis, the
coefﬁcient of 0.70, indicating from another person legally. significant factors influencing PSC
that the reliability level of the are gender, age, education level
questionnaire is sound. Hence, all
Participatory Leadership
and starting status of the business.
the variables are retained.
Capability (PLC)
The estimate values (presented in
The results depict that the
Hypothesis Testing the Table below) can be interpreted
significant factors influencing the
In order to obtain more details of in the same way as for KCC.
PLC of MSME owners are gender,
the factors influencing the different business experience, starting Marketing Capability (MC)
dimensions of business innovation status of the business and The results depict that the only
capability, an analysis was registration of the business. The significant factor influencing the
conducted utilizing Generalized estimate values (presented in the MC of MSME owners is the starting
Linear Modeling (GLM). The factors Table below) can be interpreted in status of the business. The estimate
considered were age, gender, the same way as for KCC. values (presented in the Table
education level, years of experience, below) can be interpreted in the
income level, starting status of the
Networking Capability
same way as for KCC.
business, and registration of the (NC)
business. According to the analysis, the
significant factors influencing
Knowledge and NC are age and starting status of
Competence Capability the business. The estimate values
(KCC) (presented in the Table below)

Table 6: Parameter Estimate
KCC PLC NC TC PSC MC

Parameter Parameter Parameter Parameter Parameter Parameter
Estimate Estimate Estimate Estimate Estimate Estimate
(Intercept) 6.283 4.115 3.863 4.428 2.987 3.358
[Age=18-25] .246 .005 .117 .178 -.206 .171
[Age=26-30] .197 .114 -.185 .096 -.120 -.017
[Age=31-35] -.081 -.075 -.233 -.159 -.194 -.016
[Age=36-45] .189 -.055 .044 .091 -.113 .002
[Age=More than 46] 0a 0a 0a 0a 0a 0a
[Gender=Male] .049 .161 .073 -.036 .132 .106
[Gender=Female] 0a 0a 0a 0a 0a 0a
[Education=No formal education] .187 -.172 -.078 -.175 -.180 -.138
[Education=Primary education] -.002 .125 -.025 .052 -.194 -.100
[Education=Secondary education] -.045 .051 -.075 -.143 .005 .098
[Education=Tertiary education] 0a 0a 0a 0a 0a 0a
[Experience=Less than 1 year] -.010 -.314 -.137 -.218 -.094 .011
[Experience=1-5 years] .071 -.269 .042 -.258 -.173 -.099
[Experience=6-10 years] -.027 -.226 -.018 -.303 -.131 .052
[Experience=More than 10 years] 0a 0a 0a 0a 0a 0a
[Starting=Inherited from parents] -1.040 1.185 .639 .522 1.651 1.628
[Starting=Self-started] -.704 1.274 .841 .448 1.635 1.647
[Starting=Acquired from another legally] 0a 0a 0a 0a 0a 0a
[Registration=Sole propritership] -.773 -1.359 -.421 -.533 -.152 -.933
[Registration=Partnership] -.606 -.862 -.145 -.581 .093 -.732
[Registration=Private Limited Liability] -.715 -.462 .375 -.162 -.072 -.356
[Registration=Limited Liability Company] 0a 0a 0a 0a 0a 0a
The significant parameter estimates have been highlighted in the above table.
CONCLUSION at 4.1764, which is technology KCC, while gender, marital status,

capability. The other three business experience, income level,
This study focused on three
variables varied between 4.4024 starting status of the business
objectives all of which were
and 4.1764. The third objective and registration of the business
successfully achieved in the study.
was to study the influence significantly influence PLC. Further,
The first objective of identifying the
of demographic factors on age, income level and starting
dimension of business innovation
business innovation capability status of the business significantly
capability was achieved with the
of micro, small and medium size influence NC, education level and
exploratory factor analysis. The
enterprises (MSMEs) in Sri Lanka. business experience significantly
second objective was to examine
A further analysis was carried influence TC, age, gender, income
the existing level of business
out to assess the influence of level and the starting status of the
innovation capability of micro,
various demographic and other business significantly influence
small and medium size enterprises
related variables on business PSC while gender, income level
(MSMEs) in Sri Lanka. It was
innovation capability of MSME and starting status of the business
observed that knowledge and
owners. According to the findings, significantly influence marketing
competence capability recorded
age, marital status, income level capability.
the highest mean value (4.4024)
and the starting status of the
with the lowest records of mean
business significantly influence

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Mr.Ruchira Perera
FCMA, MBA(PIM-USJ) FCMA(UK),CGMA,BSc(Acc)
SME
Sector Financing
The Small and Medium Enterprises (SMEs) sector poses unique
challenges for banks and other lending institutions requiring a more
complicated approach to risk assessment and financing.
Supply side
The main challenges in are either not willing or lack the
lending to a SME is the lack of technical knowhow to service this
constraints financial records, absence of an important sector that constitutes
independent audit conducted a large number of organizations,
SME lending is considered highly by a reputed firm and loopholes contributes significantly to the
risky by bankers. It’s not just the in its credit history. Unlike national economy and provides
single person risk. It’s also the listed companies, SMEs are not a large number of employment
uncertainty surrounding the required to comply with Sri Lanka opportunities.
business activities, continuity Accounting Standards. These
Banks require long-term credit
of the business, integrity of the organizations can adopt the
lines to fund the SME sector.
financial records, low capitalization, Sri Lanka Accounting Standard
However, most deposits in the
insufficient assets etc. Banks for small and medium entities
financial sector tend to be short-
are likely to experience a high when preparing financial
term and long-term funding on
percentage of non-performing statements. However,, even
a large scale causes maturity
loans from the SME sector the more established SMEs
mismatches. This issue has been
compared to other sectors. are unable to provide specific
exacerbated in the recent past
information required by lenders
Providing and following up on by the decrease in credit lines
due to inadequate reporting and
loans to SME businesses is costly from foreign donor agencies to
understating profit figures to
for banks. Independent information development financing institutions
avoid tax.
about the SME clients will have to and several leading development
be collected from various sources The problem is further financing institutions (National
including the Credit Information aggravated as SMEs maintain Development Bank & DFCC
Bureau (CRIB) to minimize risks of two or three sets of different Bank) obtaining commercial
non-performing loans. The bank financial records for various banking licenses as a measure to
will also need to analyze the SME audiences. This makes it even aggressively target local funding
financials to ensure the business more difficult for banks to assess sources.
is credit worthy. SME lending can the credit worthiness of potential
erode a lender’s margin. loan applicants. Most banks

SME Financing -
Since the late 1970s’ there was scheme aimed at providing finance
a concerted effort to provide at a concessionary interest rate to
Situation in formal credit for small and SMIs. At present, there are many
Sri Lanka medium enterprises with the

commencement of an industrial
other credit lines available to SMEs
such as the SMILE credit scheme,
1961 marked a landmark year in policy promoting labour intensive SMAP credit scheme, E-Friends
providing institutional credit to enterprises. credit scheme, SPREAP credit
SMEs in Sri Lanka. The People’s scheme, SMERDP credit scheme,
A credit line called the ‘Small
Bank was established and the KfW credit scheme, Sahanya credit
Scale Industries (SSI) credit
Bank of Ceylon was nationalized. scheme, Susahana credit scheme
scheme’ commenced in 1978.
Bank of Ceylon through its many and Saubhagya credit scheme.
This credit line was operated
branches provided credit facilities
through the Bank of Ceylon and The share of the SME loan portfolio
under special programs for SMEs.
People’s Bank in collaboration of the top seven banks in Sri
Some of the private banks, with the
with the Industrial Development Lanka is shown in Table 1 based
expansion of their branch network
Board (IDB). In 1979, a new credit on a World Bank study done in
provided special facilities for the
line, called SMI Loan Scheme 2010. This forms about 75% of total
SME sector.
commenced operations. This lending to SMEs.
Table 1: Share of SME portfolio of the top seven banks covering SME lending-2009
Bank Total portfolio SME portfolio Percentage

(in million $*) (in million $*) (%)
Bank of Ceylon 1,865.75 58.83 3.15

People’s Bank 2,584.83 40.39 1.56
NDB Bank 485.53 30.73 6.33
DFCC Bank 339.79 140.48 41.34
Hatton National Bank 1,545.28 763.86 49.4
Commercial Bank of Ceylon 1,554.06 468.85 30.17
Wayamba Development Bank 66.73 7.02 10.53
TOTAL 8,441.97 1,510.16
(*Converted from LKR May 21, 2010)

Source: World Bank, SME Banking Assessment – Sri Lanka, 2010
Demand Side
It’s surprising to note that three is an issue that prevents most SMEs
private commercial banks, i.e. from offering land as collateral for
Hatton National Bank, DFCC Constraints loan applications.
Bank and Commercial Bank, were
It’s a common practice for SMEs are driven by entrepreneurs
actively engaged in SME financing
Sri Lankan banks to require who devote most of their time
and had the largest SME portfolios.
collateral as a prerequisite to for business activities than on
The lowest SME portfolios were
qualify for a loan. Even more than complex loan procedures. They
held by the two-large state-owned
cash flows, financial institutions are very sensitive to loan delivery
commercial banks, Bank of Ceylon
rely on collateral to minimize the time and lack the skills to prepare
and People’s Bank.
risk of non-performing loans. detailed business and financial
Being able to offer a clear title to plans required by lenders. This
Similar information on SME lending
land can be critical to qualify for a often leads SME owners/managers
by all banks is unavailable for
loan. Lack of proper title for land to look for other avenues, as much
recent years for analysis.

time has to be spent on compiling is rigid and most apply the members to access lending from
and obtaining information/ provisions of the Loan Recoveries banks. Banks can cooperate with
documents and meeting bank Act without negotiating other these organisations to identify
officials, which is time spent away workable solutions such as loan credit worthy SME clients and to
from running the business. restructuring. promote their financial products to
SME owner-managers.
Due to uncertainty and high risk
associated with SME funding,
Suggestions for SME operators are of the view that
lenders generally charge high Improvement loan documentation is a complex
interest rates. Costs such as legal process. Therefore, banks and
With the growth of their business,
fees, valuation charges, stamp duty, other financial institutions are well
SMEs require funding for
etc., also needs to be borne by the advised to expedite the loan review
expansions and diversions. Banks
borrower. This is another deterrent and approval process to encourage
need to understand the sector
for SMEs to obtain funding through more loan disbursements to the
and come up with innovative
financial institutions. The lack of sector.
lending facilities that minimises
branch networks in rural areas also
collateral and documentation. Banks can also advertise various
negatively affect SME financing.
Structured financing methods loan products available to the
Most banks are operational in
such as leasing, factoring etc., can sector and raise awareness of the
Colombo and its suburbs. A
also be used. options available, the costs involved
frequent complaint of many
and security required. Regular
entrepreneurs outside Colombo, Since SMEs lack financial records
meetings can be held between
is that most financial institutions and proper business plans, it
the bank and the SME customer
headquartered in Colombo are is recommended that banks
to further understand needs and
not sufficiently knowledgeable maintain all relevant financial
grievances and to offer tailor
about other districts and not and non-financial data relating
made products that suit individual
able to judge related credit risks to SMEs in their computer
businesses.
sufficiently, resulting in limited system. This will help them to
financial facilities being made regularly review SME operations Bank staff handling SME loan
available . as published data are often not facilities should also be trained to
available. handle the distinct characteristics
SME operators are also of the
of this sector bearing in mind the
opinion that some banks do not Organisations such as the
importance of the SME sector in
have the capacity and/or attitude Chamber of Commerce and
national development.
to support sick enterprises, that other business associations, can
their approach to problem loans play a key role in assisting their


Institute
NEWS
Excellence in Integrated Reporting Awards 2018
Welcome to Hon. Speaker Karu Jayasuriya and IFAC President Grant of Fellow Membership of CMA to IFAC President
Ms. Rachael Grimes Ms. Rachael Grimes
Life time achievement award granted to Prof. Lakshman R. Watawala Ten Best Integrated Reports
by Hon. Speaker Karu Jayasuriya and IFAC President Diesel and Motor Engineering PLC, John Keells Holdings PLC,
Ms. Rachael Grimes People’s Leasing & Finance PLC, Softlogic Life Insurance PLC, LB
Finance PLC, People’s Insurance PLC, Mercantile Investments and
Finance PLC, Hatton National Bank PLC, Citizens Development
Business Finance PLC, The Lanka Hospitals Corporation PLC and
National Savings Bank
Professional Excellence Awards 2018

Recipients: Mr. Graham Terry, Mr. Suresh Gooneratne, Mr. Adrian
Perera, Mr. Jagath Perera, Mr. S. G. Senaratna, Prof. M. T. A. Furkhan,
Ms. Indrani Jayasinghe, Mr. Janaka De Silva, Mr. Jagath Perera and
Prof. Ho Yew Kee

Institute
NEWS
Excellence in Integrated Reporting Awards 2018
IFAC President Ms. Rachael Grimes giving key note address at

Integrated Reports Awards 2018
Chief Guest Hon. Speaker Karu Jayasuriya addressing the Integrated

Reports Awards 2018

Institute
NEWS
IFAC Presidents Visit
IFAC President Ms. Rachael Grimes meeting with Three Professional Accounting Bodies CA Sri Lanka, CMA Sri Lanka
Governor Central Bank of Sri Lanka, Dr. Indrajit Coomaraswamy and AAT Sri Lanka jointly hosted a welcome dinner in honour of
Ms. Rachael Grimes, President of IFAC on 4th July 2018
Three Presidents Mr. Magdon Ismail, Mr. Jagath Perera and
Prof. Lakshman R. Watawala presented a plague of appreciation to
IFAC President.
Student recognition – CMA Sri Lanka Meeting with Security Exchange Commission, Chairman,
Mr. Ranel Wijesinha
Presenting of CMA Journal by IFAC President Ms. Rachael Grimes, and CMA President
Prof. Lakshman R. Watawala to Hon. Prime Minister Ranil Wickremesinghe

Institute
NEWS
CMA Sri Lanka hosted the SAFA Events and 55th SAFA
Board Meeting from 17-19 October 2018 at Hotel Citrus,
Waskaduwa, Sri Lanka.
We conducted a Certificate program on ‘Forensic Accounting & Financial Frauds’ in association with Gujarat Forensic Sciences University,
Gujarat, India from 20th – 22nd September 2018 at the Renuka City Hotel, Colombo.

Institute
NEWS
CMA Sri Lanka Apex Level Batch 8 and 9 Group successfully completed the work-
shop series on Speech Craft, honing the skills of communication and leadership.



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Small and Medium Enterprise Sector (SMEs) in Sri

Article · December 2018

impact on COVID 19 on SMEs View project

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“SME’s are the

By Ayesha Imalika Gamage

Ramachanrdra Sarmaa Mahalingam

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A Word from the

SMEs play a key role in national I am confident that the CMA

I am grateful to the Chairman and

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Message from the

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 5

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Mrs. Ramya Weerakoon,

Finance and Cost Management is the

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 7

1. Tell me about yourself?

2. Where did you get

My father was a public servant and

Initially, my hobby of batik

force that made you an you?

Page 8 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 9

Never to repeat. understand customer needs and

14. How do you build a

15. How do you market your

Page 10 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

Ajith D Perera started his career way back

Later he gained exposure in multinational

He has widely traveled within the

“SME’s are the of Management and Information

economy” Sri Lanka Institute of Credit Management.

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 11

(1) What is the role played registered, an estimated 52 per

Page 12 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

SME share of exports in the Region

The above diagram shows Sri

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 13

(2) What is the Government strategy and steps to introduce

Page 14 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

5. Lack of a mechanism for encourage increased competition, important to be realistic about

www.cma-srilanka.org | Volume 06 -No. 3 - December 2018 Page 15

aware of the diverse policies of the far behind in comparison with

(7) What is the role of SMEs in

Country Contribution Contribution to No of Enterprices GDP per capital

Sri Lanka 52% 45% 75% 4065

India 32% 40% 95% *1751

Malaysia 36% 67% 97% 9817

Singapore Over 50% 70% 99% 57722

and a sizable participation was

Page 16 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018

Ravi Bamunusinghe is a Management Consultant attached to

LEADING INNOVATION Post Graduate Institute of

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Page 18 www.cma-srilanka.org | Volume 06 - No. 3 - December 2018