FINANCIAL INTER MEDIATION

Financial inter-mediation is a productive activity in which an institutional unit incurs liabilities on its own account for the purpose of acquiring financial assets by engaging in financial transactions on the market; the role of financial intermediaries is to channel funds from lenders to borrowers by inter-mediating between them. Financial intermediaries move funds from parties with excess capital to parties needing funds. SME Banking In Sri Lanka, too, SMEs have been recognized as an important sector of the economy due to their significant contribution to national income, employment, inclusive private sector development, bridging regional growth disparities and poverty reduction. Since independence, successive governments have introduced various support programmers to facilitate the growth and expansion of SMEs in different sub-sectors of the economy. However, as the SME White Paper (2002) argued, there has been no deliberate policy effort to exploit the full development potential of SMEs. Many private sector development policies in the past have continued to focus more heavily on large-scale enterprises (through Board of Investment and other schemes) over smaller ones. The SME sector in Sri Lanka today faces many challenges. Understanding these better and devising smarter, more comprehensive and coherent Bank approaches to the challenges of serving SMEs To frame the discussion of how banks, approach the challenge of serving SMEs, IFC adopted a standard banking value chain framework consisting of five discrete stages and one cross-cutting task. The five stages are: (1) understanding the market, (2) developing products and services, (3) acquiring and screening clients, (4) serving clients, and (5) managing information and knowledge. Cutting across each of these five stages is the ongoing and critical task of risk management. At each stage of the value chain, there are actions and considerations particularly relevant to the SME sector. A condensed overview of the key activities within each stage of the “SME banking value chain” is provided below: The SME banking opportunities Planning for long-term growth requires evaluating your capital budgeting decisions to fund this growth. Today's unpredictable economic climate is one of the greatest challenges you will face. Standard Chartered SME Banking will give you the support you need both to make plans and to put them into effect. Business Expansion Solutions: Trade Services Working Capital Overdraft Short-Term Loan Trade Services With the support of a global network, Standard Chartered SME Banking provides you with a spectrum of professional Trade Services to help you capitalize on business opportunities that develop in both domestic and international business communities. Working Capital The working capital of a business is determined by 1)collections 2)credit terms and 3)inventory management. SME Banking will help you to maximise all three in order to efficiently manage your working capital and cash flow. Overdraft Overdrafts are a flexible form of borrowing intended to finance day-to-day cash flow requirements generated by normal business activity. Overdraft facilities are offered to SME customers to meet their borrowing requirements for business needs such as working capital, capex, upgrading factory/ office, and purchase of property or equipment. Short-Term Loans Short-term loans are loans that do not exceed a period of one year. Where they are provided on a committed basis they are sometimes known as '364 day committed loans' or 'short term money market loans, less than one year'. Drawings can be made and repaid throughout the period of the facility. Interest is charged on the individual drawings made under the loan at a rate agreed on at the time of the drawing. The drawing is either repaid on the maturity of the drawing or rolled into a subsequent drawing. The loan can be continually drawn & repaid throughout the term of the facility. Unmet demand for banking services deposit the recognize importance of the SME sectors, evidences indicates  that SMEs continue to be under-supplied with the financial product  and services that are critical to their growth.