Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

Modern Definition of SME 
It was only until 2015 when Sri Lanka finally set a decisive definition of SME’s and 
acknowledged their value and necessity in the economy. It was laid out by the Ministry of 
Industry and Commerce the finalised definition for SME in 2015 under its ‘National Policy 
Framework for Small and Medium Enterprise Development.’ 
The criteria are annual turnover and number of employees is given in Table 1.3. It is 
interesting to note that in Sri Lanka the classification criteria are separate for industries in the 
manufacturing sector and industries in the service sector.
Table1.3 
Criteria for Defining SMEs in Sri Lanka (SME White paper-2012) 
As can be seen on Table 1.3 there are several aspects of criteria for determining if a 
business is small medium or micro and they also vary based on being in the manufacturing or 
service sector.
With the several interpretations of SME’s in Sri Lanka by different authorities and 
government bodies, causes a degree of confusion in understanding of SME policy and 
regulations. This is a stark contrast to the countries considered above which maintain fixed 
criteria throughout for SME classifications. In order for this sector to see valuable growth and 
enrichment there should be a standard understanding and definition island wide, in the country 
of Sri Lanka. 
Fast forwarding to present day market conditions, SME’s are currently contributing to 
greater than 70% of the nations’ economy. Another important point to note is that from the 
5,000 exporters that generate roughly 11 billion dollars to the economy, nearly 80% of them 
are SMEs showing how necessary they remain today. If we take another sector such as the tea 
industry, roughly from the 300 million kilograms of tea that Sri Lanka produces, almost 70% 
of them are from the small-scale producers that own minimal land area, which once again comes 
under the SME classification. Hence it is evident that there are many unsung heroes in the SME 

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business who never get highlighted or for that matter identified so that development can be 
done from a state level. 
In recent times the government has deployed regulating bodies such as the Ministry for 
Small Enterprises and Traditional Industries. Indicating there have been attempts to fuel and 
nurture this rapidly growing sector however, the key issues have successfully not been 
addressed. The reasons will be discussed in details later in the study. 
Looking at Figure 1.1 it can be noted that in the World Bank’s ‘Ease of Doing Business 
Report for 2019,’ Sri Lanka has emerged to the 99th position from the previous 100th with the 
the strong progress the country has made, in reforms relating to starting a business and 
protecting minority investors. Therefore, we see that while moving the economy to be 
progressive, the country was able to keep the pace of growth in relation to its other counterparts. 
Figure 1.1 Ease of Doing Business in Sri Lanka (Source: Tradingeconomics ,World 
Bank,2019) 
Figure 1.1 shows that the ease of doing business in Sri Lanka was in fact considerably 
lower 10 years ago than it is presently. This could be due to a range of factors especially 
government interference and corruption. The highest point was in 2012 was Sri Lanka was 
ranked 83 and the lowest point was in 2014 as in the span of 2 years the country managed to 
drop to 113
th
place. 

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