Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

European Definition 
In the European Union there is a fixed system in place for classifying Small to Medium 
Enterprises. A firm employing fewer than 250 individuals is classified as a medium-sized 
organization, whereas a small organization hires less than 50 individuals. Businesses operating 
with less than 10 individuals employed are classified as micro-businesses. Table 1.1 shows the 
EU classifies SME’s based off number of employees and based on annual turnovers. 
Table 1.1 
European Commission SME Classification Table (Ward, 2018) 
Company Category 
Number of Staff 
Balance Sheet / Turnover 
(Euros) 
Medium-sized
< 250
<= 50 M 
<= 43 M 
Small 
< 50
<= 10 M 
<= 10 M 
Micro 
< 10
<= 2 M 
<= 2 

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Table 1.1 shows the schematic of how SME’s are classified in Malaysia according to 
the SME Corp. There are different sets of criteria for industries in manufacturing and industries 
in services/ other sectors. Firms are classified in terms of medium, small and micro enterprises. 
Definition of SME’s in Sri Lanka 
Compared to the other countries assessed above, Sri Lanka has defined how it regards 
SME’s with certain ambiguity. Various government agencies and sectors classify SME’s using 
several different criteria such number of employees, amount of fixed capital and sector of 
business operation. There are other terms frequent along the same lines as SME such as Rural 
Enterprises, Small Medium Activities, Small Scale Industry.
Traditional Definition 
As Sri Lanka has been considered as a developing country which has been at a rapid 
rate in recent years ever since the end of the civil war a decade ago, it is expected to see that 
the interpretation of SME’s will have changed over the past 30 years or so.
The Industrial Development Board (IDB) in Sri Lanka classifies a small enterprise as 
an organization that whose fixed capital in terms of plant and machinery costs do not exceed 
Rs.4 Million or 20 000 Euros in addition to the total number of employees being lower than 50 
persons (Central Bank of Sri Lanka, 1998). In contrast, the government agency known as the 
Department of Small Industries (DSI) classifies firms with fixed capital of less than Rs. 5 
Million or 25 000 Euros along with total number of employees being under 50 as Small to 
Medium Enterprises (Ponnamperuma E. , 2000).
The World Bank classifies the size of businesses in Sri Lanka based on the number of 
employees. Firms with less than 50 employees are considered as small enterprises, firms with 
employees between 50-100 are medium enterprises and firms employing more than 100 
employees are large enterprises. Using the number of employees is a practical criterion to 
classify enterprises in this case as the World Bank can distinguish the enterprises regardless of 
their line of business and will not have to consider fixed capital investment as it can be largely 
affected by inflation in a country like Sri Lanka. Export centric enterprises that are followed 
under the Sri Lanka Export Development Board (SLEDB) classify SME’s with fixed capital 
investment excluding property being under RS 8 Million or 40 000 Euros or having annual 
turnovers of less than Rs. 50 Million (Hewaliyanage R. , 2001). 

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Table 1.2 clearly shows the several government bodies which define SME’s differently. 
Table1.2 
Different Definition of SME in Sri Lanka (Lakshman, Vidanagama, Senanayake, 
Kaluarachchi, & A., 1991) 
Table 1.2 shows different definition of SME’s this could be to benefit state development 
rather than improve privatisation and raise more confusion. Moreover, it could have provided 
loopholes in tax exemption and abiding to certain regulations as the definition was not uniform. 
According to their definitions, the price ceiling on employment and fixed capital used are 
respectively 50 employees and Rs. 4 million excluding land, buildings and permanent working 
capital. 
As a result, it is obvious that various institutions in Sri Lanka have adopted different 
definitions for SMEs, causing uncertainty in recognizing SMEs for various supportive 
measures.SME definitions are fairly clear in other emerging as well as developed nations with 
strong SME sectors.The New Small and Medium Enterprise Basic Law in Japan (amended Dec. 
3rd,1999), for example, explicitly defines what SMEs are based on the number of employees 
and capital size.The European Union (EU) has precisely defined SMEs in their member 
countries based on the number of employees, turnover, and balance sheet total.India, as a 
developing country in the region, defines Small Scale Industry (SSI) as investment restrictions 
on plant and machinery, omitting land and buildings, testing equipment, anti-pollution 
measures, and so on.As a result, in order to develop the sector for various goals, it is critical to 
establish a clear definition for SMEs. 

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