‘Young and developing economies like Sri Lanka should seriously explore private equity in order to fast track growth’ said Lee Oon Yew from investment bank Kuwait Finance House at the CIMA/ RAM Ratings CEO Forum held recently. The forum which was held at the Cinnamon Lakeside on Tuesday the 22nd of June featured many industry leaders, educators, officials and intellectuals of note.
Private Equity is a form of investment where a private party provides the necessary funds for businesses to expand and speed up growth. Often, private equity investors choose small to medium enterprises (SMEs) to fund and sometimes they buy into management to ensure the finds are handled prudently. Although private equity acquired some disrepute in the hubris following the credit crunch led global financial crisis it is still alive and flourishing in most fast developing nations, Mr. Yew cited Brazil, India and the Middle East as examples.
Koshi Mathai, the resident representative of the IMF to Sri Lanka speaking at the panel discussion that took place as part of the forum said ‘Sri Lanka has a financing model that is heavily bank dependent and long term finance (for time periods longer than seven years) is not available’. He went on to add that SMEs have limited sources of funding as a result. ‘The capital market in Sri Lanka must be developed and after corporate bonds and listing in the stock market, private equity is third natural thing to consider as financing options for businesses’.
However, problems exist in implementing this method of raising capital in Sri Lanka and according to Rienzie Wijetilleke, chairman of Hatton National Bank the fundamental problem is a cultural one. ‘We require a major cultural change in the way corporate and the way people look at private equity. The small scale villagers’ SMEs must be helped out in order to develop our economy and private equity must be used in a way the SMEs also get management expertise’
Together with adopting a more thought out development orientation to a private sector driven private equity funding base Mr Wijetilleke also stressed on the importance of getting rid of governmental red tape to create a business environment that is more accommodative and friendlier to startups.