The project aims to increase the employment opportunities by strengthening SMEs' access to finance.

The loan agreement was signed by the Finance Minister, Ravi Karunanayake on behalf of the Government of Sri Lanka and the President of ADB Takehiko Nakao on behalf of ADB at the Galle Face Hotel, Colombo.

The proposed line of credit to small and medium size enterprises in Sri Lanka has an innovative feature of allocating loan proceeds to participating financial institutions via an auction system.

The Government will relend the loan funds in local currency to participating banks through eight semiannual auctions at which the relending terms and amounts will be decided. At each auction around US$ 12.5 million will be available for relending to the participating banks.

A Steering Committee chaired by the Secretary to the Treasury or a Deputy Secretary to the Treasury will oversee the operations of the auctions. The other members of the Steering Committee include the representatives from the Department of Development Finance, ADB, Central Bank of Sri Lanka, Export Development Board and Federation of Chambers of Commerce and Industry. The participating banks will lend the loan proceeds to SMEs and the banks will repay their loans to the Government in 10 year term disbursement linked bullet payment.

The Project Agreements of the SME Credit Line were signed with the ADB and 10 Participatory Financial Institutions (PFIs); People's Bank, Bank of Ceylon, Commercial Bank of Ceylon, Sampath Bank, Hatton National Bank, DFCC Bank, Regional Development Bank, National Development Bank, Nation Trust Bank and Seylan Bank. The Country Director of Sri Lanka Resident Mission of ADB, Ms. Sri Widowati signed the Project Agreements on behalf of ADB and the authorized signatories from the PFIs signed on behalf of PFIs.

The project also includes an attached technical assistance (TA) amounting to US$ 2 million which will be financed by a grant provided by the Japan Funds for Poverty Reduction for export-oriented cluster development to develop Sri Lanka's next generation of SMEs.

The TA Program includes two components and the first component will be used to manage the auction system of the SME Credit Line and design a National Credit Guarantee Scheme for SMEs. The second component will strengthen the capacity of women entrepreneurs, structure cluster based loans, strengthen international branding of ICT-BPO, and Increase women's participation in ICT-BPO. The first component will be implemented by the Department of Development Finance, Ministry of Finance which will act as the executing agency of the TA and the second component will be implemented by the Export Development Board.