ECONOMYNEXT - Sri Lanka's budget for 2018 has announced plans to build a bank for start-ups and small and medium enterprises with a tax payer funding of a massive 10 billion rupees, raising fears of another crony state bank being set up.
Finance Minister Mangala Samaraweera said start-ups and SME lacked capital when they did not have collateral.
"Our objective is to ensure that no entrepreneur is ever denied credit due to the lack of collateral, but is able to access financing given the viability of the project proposal," Samaraweera told parliament.
"To this end, we will also facilitate the establishment of a Development Bank with an EXIM window, to enable the much desired long term financing for our private sector ventures.
"Until the Bank is established, we will continue with the targeted, existing and the proposed loan schemes."
State-run Exim banks is a widely practiced corporate welfares scam and is part of the overall program of crony capitalism, critics say.
The current so-called 'Good Governance' administration initiated the idea of setting up a EximBank in 2015 but it is one of the controversial budget proposals that were not carried out.
"The proposal to set up an Exim Bank with state participation to cater to the international trading sector is another misconceived venture though it is going to be a public private partnership," top economist W A Wijewardene warned in his economic column in Sri Lanka's Daily FT newspaper at the time.
"The Government has already burnt its fingers in the banking sector by getting the public funds to buy private banks and establishing two state banks on similar lines earlier.
Sri Lanka has set up two banks, Lankaputhra and SME Bank to 'help' businesses with subsidized credit in the past.
Most unbankable firms, which already had non-performing loans, including in the export sector rushed to get loans from the banks and promptly defaulted, leading to the collapse of both banks and billions of rupees of tax payer money was used to bail them out.
Funding start-ups is an even risky affair. The majority of start-ups fail.
The budget said 10 billion rupees of tax money collected from the people, will be used to set up the new bank. The administration also slapped a controversial 20 cent for 1,000 rupee tax on banks, probably violating a 'first do no harm' principle of policymaking, from which the state seeks to extract 25 billion rupees. (Colombo/Nov11/2017)