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ADB Expanding Access to Credit for Micro and Small Rural Enterprises in Sri Lanka

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The Asian Development Bank (ADB) has approved a $50 million loan to the Regional Development Bank (RDB) of Sri Lanka to provide affordable and accessible credit to rural micro, small, and medium-sized enterprises (MSMEs) in the country.

“Limited access to finance is a key barrier facing entrepreneurs in Sri Lanka,” said ADB Financial Sector Specialist Mr. Takuya Hoshino. “The project will not only directly fund $50 million of long-term financing to micro and small enterprises outside of Colombo, including 500 women-led businesses, but also be structured to provide the regulatory capital that would leverage up to an additional $533 million of lending to MSMEs.”

MSMEs have high growth potential, create more jobs, and over time, potentially increase the tax base at a quicker pace than larger enterprises. Because of their distribution over the whole country, they also help reduce regional inequalities. However, only about 30% of Sri Lankan firms have sufficient access to bank loans and other capital. These constraints are even greater for micro and small enterprises led by women or located in rural areas.

One of the means to address this challenge is through RDB, a state-owned bank whose mission is to strengthen the living standards of the rural population by providing affordable and accessible credit facilities. With its unique business model and wider branch network across rural areas, RDB can effectively cater to rural small and micro enterprises that are mostly missed out by private sector commercial banks.

Despite its relatively strong operating framework and sound financials, RDB is seeking additional capital to meet higher Basel III regulatory capital requirements, which came into effect in Sri Lanka on 1 January 2019, in line with RDB’s continued credit growth expansion. Given fiscal space considerations, the ADB loan to RDB is structured to be subordinated with a sovereign guarantee to qualify as tier 2 capital. As a result, RDB’s lending capacity to MSMEs will be enhanced and the credibility of the Sri Lankan banking system will be ensured through its full compliance with Basel III requirements for the first time in the South Asia region.

Integral to the project is a new technical assistance (TA) grant of $1 million from the Japan Fund for Poverty Reduction, financed by the Government of Japan, to support RDB’s sustainable long-term growth. The TA will upgrade RDB’s business model by supporting a deposit marketing campaign to source low-cost funding and strengthening RDB’s operational capacity in client outreach, risk management, environmental and social safeguard management, and loan origination and administration. The TA will also directly promote gender mainstreaming through trainings to about 500 women entrepreneurs who are current or prospective clients on how to prepare a business plan.

The project will further expand ADB’s support for MSME financing in Sri Lanka with an emphasis of gender empowerment. Over these three years, ADB provided a $100 million line of credit project in 2016, a $75 million additional financing and a $12.5 million grant that targeted women entrepreneurs funded by the Women Entrepreneurs Finance Initiative. The support for MSMEs will continue to be a priority under ADB’s country partnership strategy, 2018–2022.

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Energy News

IEA hosts high-level meeting on Africa’s energy outlook

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Workshop findings will provide input to a special report on Africa that will be published later this year in the World Energy Outlook. (Photograph: IEA)

The International Energy Agency held a day-long workshop on Wednesday to discuss ways to promote greater energy development across the African continent.

More than a hundred senior representatives from governments, energy companies, financial institutions and academia attended the meeting, which was opened by H.E. Dona Jean-Claude Houssou, Minister of Energy of the Republic of Benin, and H.E. Chakib Benmoussa, Ambassador of His Majesty the King of Morocco to France.

Findings from the Workshop will provide input to a special report on Africa that will be published later this year in the World Energy Outlook, the IEA’s flagship publication. It will also inform the IEA’s first ministerial summit with the African Union Commission, which will be held in Addis Ababa, Ethiopia in June. 

“Promoting access to energy across Africa is one of the world’s major development challenges and one of the IEA’s key priorities,” said Dr Fatih Birol, the IEA’s Executive Director, during his opening remarks. “While the challenges are important – particularly with regards to access to energy or clean cooking fuels – the continent’s energy resources are tremendous. With the right policies and investments, they could be harnessed to provide greater economic benefit for all populations across the continent.”

Developing Africa’s energy sector potential is an essential step to providing greater economic opportunities and prosperity across the continent, which is home to vast energy resources. Still, today more than 600 million people across the continent remain without access to electricity. The workshop addressed policies, technologies, business models and financing to accelerate the transition to a thriving and sustainable African energy sector, set against a favourable backdrop of declining energy technology costs, increasing digitalisation, and strengthened policy commitment, including through Africa’s Agenda 2063 and the United Nations’ Sustainable Development Goals.

The workshop marked an important milestone in the IEA’s strengthened engagement with Africa. In recent years, the IEA welcomed Morocco and South Africa to its family and recently forged a strategic partnership with the African Union Commission (AUC). The IEA is also stepping up its collaboration with African countries and regional organisations on capacity building for data and long-term planning, and technical policy dialogues on a range of topics.

The workshop was followed by deep-dive sessions on energy access, energy and gender, energy and growth, and power system reliability and sustainability.

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EU Politics

EU is strengthening its political partnership with Latin America and the Caribbean

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The European Union is strengthening its political partnership with Latin America and the Caribbean by focusing it on four priorities – prosperity, democracy, resilience and effective global governance – for common future.

The vision for a stronger and modernised bi-regional partnership focused on trade, investment and sectoral cooperation is set out in a new joint communication presented by the European Commission and the High Representative. This new partnership aims at working together in changing global and regional realities that require joint efforts to address common challenges and opportunities.

On this occasion, High Representative/Vice-President Federica Mogherini commented: “Latin America, the Caribbean and Europe have social, cultural and economic deep links, a long history of common work for peace and prosperity, and share the same attachment to cooperation and multilateralism. With this communication, we lay the ground for further strengthening our collaboration, for the sake of our peoples and of the whole world.”

Commissioner for International Cooperation and Development Neven Mimica said: “Our commitment remains to continue engaging with countries in the region according to their different levels of development through tailor-made partnerships and innovative forms of cooperation such as transfer of knowledge or triangular cooperation. In this context, we will pay particular attention to countries least developed and in situations of conflict where the potential to raise finance is the lowest. Only when we join forces can we deliver on our ambitious Agenda 2030 for Sustainable Development or the Paris Agreement”.

Building on the achievements of the last decades, the partnership should concentrate on four mutually reinforcing priorities, underpinned by concrete initiatives and targeted EU engagement with the region:

Partnering for Prosperity – by supporting sustainable growth and decent jobs; reducing socio-economic inequalities; transitioning towards a digital, green and circular economy; as well as further strengthening and deepening the already solid trade and investment relationship

Partnering for Democracy – by strengthening the international human rights regime including gender equality; empowering civil society; consolidating the rule of law; and ensuring credible elections and effective public institutions

Partnering for Resilience – by improving climate resilience, environment and biodiversity; fighting against inequalities through fair taxation and social protection; fighting organised crime; and deepening dialogue and cooperation on migration and mobility, in particular to prevent irregular migration, trafficking in human beings

Partnering for effective global governance – by strengthening the multilateral system, including for climate and environmental governance; deepening cooperation on peace and security; and implementing the 2030 Agenda.

Background

The strategic partnership between the European Union, Latin America and the Caribbean is based on a commitment to fundamental freedoms, sustainable development and a strong rules-based international system. As a result, there is an unprecedented level of integration and our economies are closely interconnected.

The EU has signed association, free trade or political and cooperation agreements with 27 of the 33 Latin American and Caribbean countries.

Close to six million people from both regions live and work across the Atlantic, and more than one third of Latin American and Caribbean students studying abroad do so in the EU. The EU is the third largest trade partner of Latin America and the Caribbean and the first investor. Total trade in goods amounted to €225.4 billion in 2018, while foreign direct investment reached €784.6 billion in 2017.

The EU has promoted the cooperation in areas of strategic interest, efforts to tackle anti-microbial resistance, improving aviation safety, working together against climate change and promoting a safe and human-centric digitalised economy are some concrete examples that illustrate this partnership towards a common future.

The EU has been the largest provider of development cooperation to its partners in Latin America and the Caribbean, with €3.6 billion in grants between 2014 and 2020 and over €1.2 billion in humanitarian assistance in the last 20 years, including assistance under the EU Civil Protection Mechanism in case of natural disasters.

The EU and LAC countries often align in the United Nations, and have closely cooperated on the 2030 Agenda for Sustainable Development and the Paris Agreement.

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Tech News

EU plans to invest €9.2 billion in key digital technologies

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The Digital Europe Programme is a new €9.2 billion funding programme whose goal is to ensure that all Europeans have the skills and the infrastructure needed to meet a full range of digital challenges.

It is part of a strategy to further develop the digital single market, which could help to create four million jobs and boost the EU’s economy with €415 billion every year while increasing the EU’s international competitiveness.

“For too many years, Europe’s tech sector has lagged behind third countries such as the US and China. We need a coherent Union-wide approach and an ambitious investment to secure a solution to the chronic mismatch between the growing demand for the latest technology and the available supply in Europe,” said Austrian ALDE member Angelika Mlinar, one of the MEPs repsonsible for steering the plans through Parliament.

A part of the budget  would be allocated to encourage small and medium-sized enterprises and public administrations to use technology more often and better, while other parts will cover strategically important fields such as supercomputers, artificial intelligence and cybersecurity.

“We can count on European excellence when it comes to research and innovation, but our businesses, especially SMEs, still found it difficult to access and take advantage of new solutions,” said Milnar. “This programme has been crucially designed to tackle the low take-up of existing testing technologies. We are on track to deliver one of the most promising and necessary funds for Europe’s future.”

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