Supporting Women focused SMEs through Credit Guarantee Fund

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Supporting Women focused SMEs through Credit Guarantee Fund

Sri Lanka
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

Lesser number of South Asian women is engaged in SMEs. Primary reason is, women are considered as dependant (socio cultural context). Women have lesser opportunities in accessing capital, (social exclusion and collateral issues). A Credit Guarantee Fund for Women will mobilize, private sector credit for women focused SMEs.

About Project

Solution: What is the proposed solution? Please be specific!

Credit Guarantee Funds are not new. But a credit guarantee fund for women focused SMEs is unique in Sri Lanka. With three decade long internal conflict is over, Sri Lanka is at a critical juncture. All communities are looking for peace dividends. New investments, every scale and type, are materializing. North and East (most affected by the conflict), development is taking place. Like everyone else women are also hoping to enter into business. Women have been one of the most affected groups in the conflict. Women, both in north and south, lost their loves ones, husbands, sons and daughters, relatives due the escalated war. In the north city of Jaffna, it was stated that there are over 1500 unemployed women graduates. The war had created over 34,000 widows in the whole country. In this aggravated background, and intensified by the South Asian cultural context towards women; more and more women are finding themselves isolated from the main stream development agenda and getting more distanced away from the economic independency they desire. Even if the women have viable opportunities in SME sector, they are unable to obtain startup capital due to socio-economic exclusion created by cultural contexts, social disadvantageous situations, and risk averse nature of private SME financing institutions. While accepting that these contributory factors cannot be eliminated, practical interventions can be bought to circumvent the consequences and bring women closer to SME capital. Women focused Credit Guarantee Fund does just that.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

About You
Ceylon Chamber of Commerce
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About You
First Name


Last Name


Your Organization

Youth Business Sri Lanka


, WE

About Your Organization
Organization Name

Ceylon Chamber of Commerce

Organization Phone

+94 11 5588884

Organization Address

Ceylon Chamber of Commerce, 50 Navam mawatha , Colombo 02

Organization Country

, WE

Organization Type

Non-profit/NGO/Citizen-sector Organization

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Your solution
Country your work focuses on
If multiple countries, please list them here. If your solution targets an entire region, please select it below
Region(s) your solution focuses on:

Range of turnover in your target firms, in USD

Less than $1 Million.

Average turnover in USD of your target firm


Number of employees in your target firms


Average number of employees of your target firm


Specify the size, average and range of expected loans or investments in each target firm

Loan Range: US$ 1000- 5,000; Average: US$ 4,000; Number of loans: 200 loans ; of US$ 4,000 (US$ 800,000 in total) over a 03 year period

What stage is your solution in?

Operating for 1‐5 years

How does your proposed innovation leverage public intervention in catalyzing private SME finance?

The impediments in mobilizing available private SME capital, is the high cost of source capital, high transaction cost and higher consideration for the risk associated with SMEs. Sri Lanka private banks have higher liquidity ( as witnessed by decreasing interest rates- 24% per annum two years ago to 16% per annum at present, still coming down); and hence even if the banks wants to provide funds for SMEs, their returns are not justified considering the effort in administering higher number of smaller loans and extreme follow up services associated with SME financing. On the other hand during liberal fiscal structures and market economies, the banks tend to minimize risk and increase their profits. Non Performing Loans (NPLs) does affect the bottom line, SMEs are associated with higher NPLs. The more comfortable solution for the banks is to avoid financing SMEs. In the case women focused SMEs this situation is worse.
The Women focused Credit Guarantee Fund is an intervention to provide a comfort level to private SME financiers (banks); to lessen the burden of project risk, NPL risk, and counter support transaction and follow up cost. With the SMEs risk ( at optimum to a maximum of 50%) being taken up by the guarantee fund, the banks will lend start up and expansion capital to SMEs. Another key area is the involvement of local business chambers to provide support in preparation of SME business proposals, evaluate the business proposals and recommend financing options and do the follow up together with BDS services. This approach will lessen the administrative burden of the Bank, hence lessen transaction cost. The benefit the Chamber is that they will have growing membership base which will contribute to the sustainability of the chamber, and capture clientele for their BDS services.
The proposed Women’s Credit Guarantee Fund addresses the issue of “Access to Finance” by women focused SMEs.

What barriers does your proposed solution address?

Asymmetry of information, Lack of collateral, Unavailability of financial products tailored to SME needs, Lack of institutional capacity of financial intermediaries, High transaction costs for financial intermediaries to serve SMEs, Lack of competition / incentives for financial intermediaries to serve SMEs, Lack of financing to women entrepreneurs.

If you checked any of these barriers, describe how your solution addresses them

Asymmetry of information AND lack of collateral : From the supplier’s side (banks) the most commonly said drawback of SMEs is the asymmetry of information coupled with lack of collateral. Banks usually carry out extensive due diligence on project finance and one area they particularly look for is the credible information about the business starting from the business plan. Any deficit in such due diligence needs to be backed by collateral. SMEs are known for lack of both, credible information and bankable assets, which results in higher premiums to cover “perceived “ risk of SMEs. Women being less business prone are assessed high risk and because of their dependency does not command adequate collateral. Women focused credit guarantee funds reduce the perceived risk level of women focused SMEs, through combination of provision of capacity building in information management and covering the credit exposure risk.

Unavailability of financial products tailored to SME needs AND Lack of financing to women entrepreneurs : SMEs financial performances are different from conventional high investment enterprises. SMEs face seasonality, fluctuating markets, macroeconomic disturbances and often may take longer periods to recover. Banks assessment terms are common for all financing requirements, and hence SMEs face more vulnerability from external financing. Cash flow based financing are yet to come to Sri Lanka as a common practice. There are no specific financing for women entrepreneurs SMEs as well. One important element of women focused SME financing should be the bank’s ability to consider co-ownership of assets as bankable assets (as more often it’s the husband who owns most of the family assets in south Asian context). Women’s Credit Guarantee Fund assures the financing institutions in lowering the credit risk of women SMEs, by intervening procedures and practices.

Lack of institutional capacity of financial intermediaries AND High transaction costs for financial intermediaries to serve SMEs AND Lack of competition / incentives for financial intermediaries to serve SMEs : Serving SMEs is considered costly, partly because of smaller scale of financial operations and higher costs of operations of banks. SMEs are spread mostly in outstations and hence follow up costs are high. The use of regional chambers as facilitates in assessing and follow up of SMEs reduces the cost of operation for the bank, provide incentives for the bank their credit officers are relived of following up on smaller SMEs and can be deployed on more profitable larger loans, while mainlining SME portfolio. Hence establishment of women SME credit guarantee fund provides a solution for lack of institutional capacity as well.

Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact

Approximately 450 words left (2000 characters).

How many firms do you expect to reach?

With approximate investment of US $ 4000 per SME and planned 200 SMEs in a 03 year period island wide. The credit investment will be about US$ 800000. With reasonable projection of 50% credit guarantee, the Women SME credit guarantee fund will be of about US $ 400,000.

What is the volume of private SME finance you aim to catalyze?

The expected private SME finance investment will be in the range of US$ 800,000. With a 75:25 leverage , the total investment would be around US $ 1,000,000 over a period of 03 years by 200 women focused SMEs.

What time frame will be required to reach these targets?

A full term of 03 years. 06 months for establishment and mobilizing of partners. 2 years for SME financing implementation. 06 months for creating a public vehicle to take over the Fund and repatriate overseas Fund components. The success of the fund may attract both public and private capital players. The exact methodology of backstopping the Fund need to be worked out , from available options.

Does your solution seek to have an impact on public policy?


What would prevent your solution from being a success?

The critical success factor is the emergence of the women to be in the forefront of SME businesses. While a risk is not expected from the social arena, some factors that may derail the success exist. The intervention is easy to copy. The Government coming up with popular, short term financing measures and establishing a credit guarantee fund for SMEs.[ the need for proposed Women’s Credit Guarantee Fund vanishes]. With excess liquidity in Banks and reducing interest rates, banks may relax collateral requirements, [one impediment in obtaining credit taken care of]. Introduction of specialized SME credit schemes for women with enhanced terms of lending, [structural issues taken care of]. However if these scenarios occur, the purpose of the solution is achieved.

List all the funding sources that are required for the sustainability of this solution

G20 Funding US$ 500,000
(US$ 400,000 Credit Guarantee Fund + US$ 100,000 co funding of Capacity Building Activities)

Engagement of Private SME Capital (through lending institutions)
US$ 800,000

Corporate CSR initiative -mobilized through Ceylon Chamber commerce and Women Chamber of Commerce- US $ 50,000 [for capacity building chambers and women SMEs]

Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?

A 03 year period for SMEs is a long time in its consolidation. During this period the supported SMEs have established themselves as, they are credit worthy, have all proper documentation and statutory requirements fulfilled (to eliminate information asymmetry), We also expect Financial institutions changing their attitudes towards SMEs and have developed new products focused on SME lending, and have themselves done structural and procedural adjustments to make SME lending less cumbersome to financial intermediaries. A policy change is expected, through fiscal measures, that the Ministry of Finance together with SME lending banks will establish a SME credit guarantee fund for the continuation of the started Women SME credit Guarantee Fund. The proposed G20 funded credit guarantee fund will mobilize private capital for the same, through various fund instruments, even up to maturing into a SME stock exchange, where SME debt instruments can be traded.

Demonstrate how your proposed solution will survive a potential loss of its largest private funding source

The proposed credit fund is private oriented ( Ceylon Chamber of commerce is the oldest and leading business chamber in Sri Lanka, with over 170 years of active history, is a not for profit, nongovernmental organization) , working with private sector financiers to mobilize their capital to fund women SMEs. Setting of a successful example is needed. Hence the fund requests from G20 Challenge to finance the Guarantee Fund. (it is assumed that 75% of the Fund, US$ 400,000, can be replenished back). The proposed Credit Guarantee Fund pivoted on this G20 assistance. If it is not forthcoming, the proposal will not survive.

Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation

Partnership with a Bank:
Partnership with District Chambers:
Partnership with CSR initiatives:

Are there non-financial issues that could threaten the sustainability of your proposed solution?

None. Proposed intervention is focused to eliminate an issue of financial nature. So there are no non financial issues that would undermine the sustainability.

Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically

It could be scaled up encompass the whole of the SME sector in Sri Lanka.