Our impact, their stories

Restarting with resilience

A Value Chain Financing (VCF) model piloted by ILO as part of its COVID-19 response is helping Micro and Small Enterprises (MSEs) access working capital, and regain their footing

Feature | Sri Lanka | 26 April 2021

Avurudu (Sinhala-Tamil New Year) last year was an extremely difficult time for us. I was stuck – business was at a standstill, I couldn’t source raw materials or pay my employees. I borrowed money and managed to give them something for the festival."

A.M.S Ranjith from Kurunegala
Daily operations at A.M.S Ranjith’s small coconut husk processing facility in Kurunegala, Sri Lanka, starts at 7am. Prior to that, he cleans the place, lights the oil lamp at his house; located a stone’s throw away from the small building that he works from, finishes his prayers, double-checks the machinery, and then begins the tasks. Ranjith employs three others for specific roles in the processing facility, his family; wife, sister, and father, do all the remaining work.  Every day, they break for lunch at noon for an hour, then resume operations until 5.30 in the evening. This routine, and Ranjith’s business was completely disrupted with the onset of COVID-19 pandemic and lockdown in 2020.

“Avurudu (Sinhala-Tamil New Year) last year was an extremely difficult time for us. I was stuck – business was at a standstill, I couldn’t source raw materials or pay my employees. I borrowed money and managed to give them something for the festival,” Ranjith recalls.
Ranjith and his family
Setting-up this enterprise was a huge step-up for Ranjith, who initially worked as a lorry driver for the very same factory to which he presently supplies goods. Ranjith’s years of saving and his entire family’s efforts were invested into this business.

The business is a familiar affair for Rose Priynai Fernando from Weerapokuna, Kurunegala, as well. With the first entrepreneurship attempt failing, Rose and her husband were hoping that their luck would change with the new coir-processing venture. Since Rose’s family was already in the business, and they could use those connections, the duo started operations in March last year, filled with optimism. However, the unexpected pandemic and ensuing lockdown threatened to derail their efforts.

"On any day when the lockdown was lifted briefly, we were here from dawn till midnight. It was the only window we had to get our goods to the factory. So even if it meant sourcing raw coconut husks from a supplier nearby at a higher cost, paying extra for multiple-loads of transport to the factory, or paying employees for overtime, we did whatever necessary to keep the business running” says Rose.

H.D.S Nishantha from Kurunega, also faced similar challenges “My business is located in the backyard of my house, and none of my employees reside near our premises. Four families depend on the salary they get as my employees; they were able to come to work. While I managed to pay them what I could, without daily operations, I didn’t have a steady source of income.”

Rajith, Rose and Nishantha are all part of the supplier network of Tropicoir Lanka Pvt Ltd; one of the biggest national exporters of coconut related products.

Rose Priynai Fernando and her fellow workers
Without our suppliers, there is absolutely no way for the business to run. In fact, suppliers and buyers are of equal importance to us. Fortunately, since coco peat is used as a growing medium, we continued to have a demand from buyers overseas, but getting the product from our local supplier network was challenging. We did what we could in terms of providing small advances, getting the necessary permits, but just like the MSEs that supply to us, we were also stuck,” explains Lesley De Silva, Group General Manager, Tropicoir Lanka

Without our suppliers, there is absolutely no way for the business to run. In fact, suppliers and buyers are of equal importance to us."

Lesley De Silva, Group General Manager, Tropicoir Lanka
This relationship between buyer and supplier was an important factor in the designing of the International Labour Organization Sri Lanka’s innovative VCF model. It is among the many interventions of the much larger ‘Health Socio-Economic Recovery of Micro and Small Enterprise Sector of Sri Lanka’ project implemented by ILO with funding from the COVID-19 United Nations Multi Partner Trust Fund.
For the VCF intervention, through collaboration with the Coconut Substrate Exporters Association of Sri Lanka, ILO partnered with four of Sri Lanka’s largest coir and coconut related product exporters, including Tropicoir Lanka. Through the VCF model, the buyer provided an interest free loan to their MSE supplier.  This amount was matched by ILO as a grant to the same supplier to be used for improving Occupational Safety and Health (OSH) and working conditions, machinery acquisition or similar capital investment.

I will be constructing a drying floor using the grant money."

Nishantha from Kurunegala
“Through the interest free loan from TropiCoir I paid for more raw materials, and the rental for tent material necessary for drying the coconut husks and coco peats” say Rose. Access to working capital is one of the biggest obstacles faced by MSEs across the country, with many already struggling with loans obtained prior to COVID-19, and unable to access benefits from the formal financing sector. The interest free loans were vital to business continuity for the beneficiary MSE suppliers and helped with procuring raw material, paying for transport, employee salary and other running costs.

Nishantha from Kurunegala

“I will be constructing a drying floor using the grant money,” says Nishantha.

Ranjith is looking at improving the OSH standards in his building in terms adequate cover for the electric supply and switches, and put up a drying floor.

“I will be repairing roof, that’s priority, then I hope to construct a drying floor, I also have plans to get into secondary manufacturing, like fibre,’ says Rose. All three MSEs are now looking at not just business recovery, but also business expansion.

Thus far, the ILO has been engaging with 93 raw husk-processing suppliers, which has resulted in benefits to over 1,000 working people out of which approximately 50% are women. VCF provides an alternative but effective financing model for MSEs, which often remain outside the target of the formal financial sector. Learnings and success stories from this model indicate that it can be adopted and replicated in any sector with strong buyer-seller relationships.