6. SME

6. Appreciates the contribution of small & medium scale businesses in economic development.

6.1 Importance of small & medium scale businesses.

Various criteria are used both nationally and internationally to define the small & medium scale industries. These criteria are based on quantitative and qualitative factors.

 The factors that can be numerically quantitative are known as quantitative factors.

 Examples: The amount of invested capital, number of persons employed, the energy that  is in use, annual turnover.

The factors that cannot be measured numerically are known as qualitative factors.

 Examples: Types of business organizations, the technology in use, the nature of the market.

Based on the above criteria, various definitions have been proposed both nationally and internationally.

“A small business is one that is independently owned and independently operated but not gained any authority in the field.”

 (Small scale Business Administration” institute in the United States of America)

 Various criteria used by some organizations, in order to define a small scale business.

Institution	Criteria
Industrial Development Board	Where the invested capital does not exceed Rs.4million.
Institute of Industrial Technology	Where the invested capital does not exceed Rs.4million.
Small Industries Department	Where the invested capital does not exceed Rs.4million.
Ministry of Industrial Development	Where the invested capital does not exceed Rs.20million
Department of Census and Statistics	Business with less than 25 employees
Ministry of Rural Industries Development	Business with less than 50 permanent employees.
Central Bank of Sri Lanka	Businesses using less than 50Kw amperes electricity

Characteristics of Small & Medium scale businesses are given below:

1.      Having a small market

2.      Invested capital being low

3.      A fewer number of staff being employed.

4.      Family labor being used most probably.

5.      Decision making is based solely on information available personally

6.      The management of the business being independent, most probably owner is the chief manager.

7.      The business mainly being targeted to the local markets. (However, there are some small & medium scale businesses that supply goods to overseas markets as well)

8.      Compared to large scale businesses they have less financial bonds

9.      Modern technology being used.

 Small & medium scale businesses contribute to the economic development of a country in various ways.

·         As these businesses are labor intensive more employment opportunities are available.

·         Contribution in growth of the national product

·         Utilizing inland resources

·         Minimizing the problems of urbanization as a result of the regional development.

·         The inequality in income distribution being minimized.

·         The supplement of raw materials and finished goods required for the large scale businesses.

·         Engaging in business affairs which are not performed by large scale businesses.

The factors should be considered, when small & medium scale businesses are begun and continued.

·         Studying and evaluation of one’s own abilities and skills

·         The market available for the production and the possibility of entering that market.

·         Studying about the opening capital and working capital requirements

·         Studying of the type of business organization.

·         Type of Business organizations and existing rules and regulations.

·         Existing competition.

 There are several reasons that have an impact on the success or failure of small & medium scale businesses.

The reasons for the success of small & medium scale businesses:

1.      Availability of sufficient infrastructure facilities

2.      Incentives such as financial and tax relief.

3.      Having an expanded market

4.      Providing with various institutional and marketing facilities.

5.      Having a sound management

6.      The enthusiasm and commitment of the business men.

The reasons for the failure of small and medium scale businesses:

1.      Financial problems

2.      Inability to face the competition in the market

3.      Weak points in management

4.      Less entrepreneurial skills

5.      Insufficient infrastructure facilities

6.      Less awareness of modern technology and modern technology not being applied.

  Reasons for the importance of entrepreneurship for the success of small & medium scale business

·         The beginning of a business is risky and this can be minimized through the risk management abilities of the entrepreneurs.

·         The business becomes successful mainly on the commitment and interest of the entrepreneur.

·         The self-confidence and determination of the entrepreneur has a direct impact on the success of small and medium scale businesses.

·         Similarly, businesses can be made successful by developing the entrepreneurial competencies of the entrepreneur.

6.2  The incentives that is available to make small and medium scale businesses successful.

6.2

 The incentives given by the government to encourage small and medium scale businesses can be divided in to two.

1.      Financial incentives

2.      Non-financial incentives

Examples for the financial incentives

1.      Short term , long term loans

2.      Financial assistance

3.      Tax concessions

4.      Refinancing facilities.

Examples of non-financial incentives

1.      Advisory services

2.      Entrepreneur development programmers.

3.      Research and technological services.

4.      Provide infrastructure facilities.

5.      Provide market facilities.

6.      Offering awards and awards of excellence.

Organizations that provide incentives to small and medium scale businesses can be divided into two categories as

1.      Government institutions

2.      Other institutions

Examples for some of the government institutions that provide incentives to small and medium scale businesses

·         Industrial development board

·         Export development board

·         Sri Lanka standards institution

·         National development bank

·         Industrial technology institution

 Examples for other institutions that provide incentives to small and medium scale businesses

Sarvodaya

·         JICA (Japanese International Co-operation Agency)

·         Private organizations involved in preparing taxation

·         Sanasa (Thrift and credit co-operative society)

·         Private banks and financial institutions

 The organizations that provide incentives to small and medium scale businesses and the incentives they provide

Organizations	Incentive provided
National Entrepreneur Development Authority	·         Provide financial assistance ·         Conducting entrepreneur ·         development training workshops
Small and Medium scale entrepreneurship board	·         Provide foreign market facilities
Industrial Development Board	·         Advisory services ·         Provide technical knowledge ·         Infrastructure facilities
Export Development Board	·         Marketing facilities ·         Advisory services
Sri Lanka Standards Institution	·         Advisory services
National Development Bank	·         Provide financial facilities
Industrial Technological Institute	·         Provide technical knowledge ·         Provide advisory services
Sri Lanka Small and Medium scale Industrial Board	·         Financial facilities ·         Offering excellence awards

Several projects that provide incentives for the success of small and medium scale business currently are given below:

Liya Isura

Interest free loan schemes without securities for women - micro entrepreneurs (Liya Isura) Introducing micro entrepreneur loan schemes without securities for women making available working capital requirements through the Regional Development Bank (CBSL)

 Suwana

With the financial backing of the Japan Bank for International Co-operation (JBIC), the National Development Bank provides re-financing for the development of small industry entrepreneurs. This is known as SMILE (Small and Micro Industries Leader and Entrepreneur promotion projects). At present the 3rd stage of this project is in operation.

 Shanya

This is a loan scheme that is being implemented with the financial patronage of the Asian Development Bank. The DFCC and other commercial banks participate in this scheme.

Sanasa Loan Project

This is a loan scheme that provides loan facilities to agrarian, livestock, small industry, trading and commercial activities. National Development Trust Fund and membership deposits are utilized for this purpose while the administration is exercised by the Sanasa Apex Development Society.

Co-operative Rural Bank Loans

Loans are furnished for Agrarian, fisheries, Livestock management, trading and commercial activities. National Development Trust Fund and membership deposits are utilized here. Administration support is extended by the multi-purpose Co-operative Society and Co-operative Development Department.

Samurdhi / Divineguma Development Loan Scheme

This scheme was initiated to provide loans and other services to the Samurdhi and Divineguma beneficiaries. The fund requirement for this scheme is made available from government grants and savings deposits of the membership.

Control of this scheme is exercised through the divineguma Development department. (Government has announced that Samurdi/ Divineguma banks work jointly with Regional Development Banks)  (Ref. The CBSL report - 2014)

Agrarian Bank Pilot Project.

This is a project of the Agrarian Development Department under the purview of the Ministry of Agriculture Development and Agrarian services. Farmers are provided with short and long term loans for planting purposes. The Farmers Trust Fund established in Agriculture Department and membership deposits are utilized for this purpose.