Small-scale industries in Sri Lanka encompass a variety of productions such as pottery, handloom, batik, beeralu lace making, coir, cane, lacquer work, honey, and many more. Traditionally fashioned by artisans who follow diverse handicraft traditions, they preserve the nation’s cultural heritage.
These small-scale industries often consist of cottage industries that demand consistent skilled labour. They are sometimes family-owned and socio-occupational, rooted in distinct ancestries and predominantly region-specific.
However, advancements in technology and the rise of modern mass manufacturing, alongside a heavy reliance on imported commodities, has led to a risk of extinction for some of these culturally unique artisanal crafts.
Many small-scale industries lack financial support, proper business training programmes, foreign market access, and availability of innovative technology. Despite the decline in traditional manufacturing rates and their reduced popularity as professions, these small-scale industries provide livelihoods for many Sri Lankan families, especially those from rural areas who invest their labour despite thin margins.
Challenges to meeting market demand
During the Covid-19 pandemic and the subsequent financial crisis, many small-scale industries such as handloom faced severe debts. Speaking to The Sunday Morning Business, Ko Lanka Owner Dr. Binuj Ubeyarathne noted that the inability to repay debts due to these crises remained a significant issue for handloom businesses. Additionally, the migration of skilled weavers has led to a shortage of labour, resulting in lower production despite high demand.
“Talented creative weavers have migrated because of the issues in the country. As a result, there is a lack of weavers while production is already low. In the handloom industry, a machine will only weave around 60 m per day. Therefore, when there are fewer weavers as well, production also declines despite demand being high.”
He explained that this made it challenging to meet market demand, especially during peak seasons. He also identified high-quality standards for exports as a challenge.
Dr. Ubeyarathne suggested several measures to address these issues such as introducing financial settlements to relieve debt burdens, offering vocational training to attract new weavers, and implementing initiatives to develop the tourist market such as creating iconic landmarks or handloom villages to attract foreigners.
He emphasised the need to educate the public regarding the distinction between machine-made and handcrafted products in order to increase the market value and popularity of such products. Addressing the export capability of these enterprises, he pointed out the need for a separate entity that focused on them, particularly in terms of the handloom industry.
Dr. Ubeyarathne also said that introducing these products to the global market through exhibitions or seminars was crucial while stating that ensuring high quality was an equally important factor for exports.
Low demand
One of the primary issues faced by Sri Lanka’s small-scale industries is the low demand for handcrafted products. Unlike machine-made goods, handcrafted items lack uniformity, making it difficult to maintain consistent quality.
Speaking to The Sunday Morning Business, design consultant for the small and medium business sector, visiting lecturer, and Pérez Leather Artisans and Concept Garage Owner Vajira Peiris shared her perspectives on the pressing issues faced by crafters in Sri Lanka.
She elaborated on the issue of low demand, noting that it was difficult to maintain consistent high quality when items were produced by hand, as manual methods made it challenging to follow the same methods, appearance, or finish machines could achieve.
“There are imported products from China in the market. Everything we make is compared with these imported goods, but it’s hard to maintain the same quality and finish when done by hand.”
She explained that low demand and the tendency to undermine these handcrafted products meant that they were unable to sell them for a higher price.
“Usually, in developed countries, handcrafted products are far more expensive and they’re usually regarded as high-end luxury items. But in Sri Lanka, it is undermined and costs less as artisans can’t charge as much as they want to and they can’t leave a reasonable margin – sometimes the margin is very little.”
Limited access to funding
Most artisans are self-employed and do not maintain registered companies, limiting their access to financial support and loan schemes.
Expressing concern regarding access to funding, Peiris noted that they did not have direct sales and as they did not maintain private limited companies, most were not registered and did not maintain a current account. Consequently, they lack access to funding facilities. If there are any funding schemes through the Government or other associations, they are usually not evenly distributed.
She explained that those recognised by the National Crafts Council or Municipal Councils sometimes had buyers who provided funding. As a result, the same companies receive funding every year instead of it being granted evenly.
Artisans also face challenges in market exposure, internet access, and research capabilities, making it difficult to stay informed about market trends and customer preferences. Peiris added that many artisans relied on secondary sources of income, as their craft businesses did not generate sufficient revenue for reinvestment.
“They can’t rely solely on their craft business because it doesn’t provide enough income to reinvest. I worked with some broom makers who had lived for years in the same impoverished house which they couldn’t even repair to continue the business. When I asked about the revenue and margin, they said that they had maintained the same margin for years. Even though the material cost had increased, the margin had not. Therefore they lacked enough savings for reinvestment.”
Peiris also commented on the lack of financial guidance, which needed to come from the Government as uplifting entrepreneurs and startups was an investment which would benefit the Government and was therefore partly its responsibility.
“It’s a 50/50 task between the Government and the people to integrate and collaborate,” she added.
She further highlighted that handicraft artisans were considered to be poor, with some having to earn through sympathy rather than their craftsmanship. She views this as detrimental to the image and value of products which have the potential to allow for reasonable margins and reinvestment in the business.
Export potential
These small-scale industries represent historical traditions and an authenticity unique to Sri Lanka. Therefore, it is imperative to support these enterprises as they bear significant cultural values that can be leveraged in the global market while promoting indigenous sentiments of the country and maintaining sustainable local industries.
While Peiris observed significant opportunities in the export capabilities of small-scale industries, she noted that artisans were unable to meet the export quality required by the global market as they lacked exposure.
She further stated that there was a lack of customer and market research and since most artisans lacked the knowledge to conduct this research themselves, it called for a collective effort by the Government and other stakeholders.
She said that the Government could help by providing a forecast of upcoming market trends, supplying the right information, and focusing on specific aspects such as materials, resources, and machines. Peiris added that certifications needed to be updated for ethical and sustainable manufacturing and that schemes had to be established to help artisans obtain and maintain these certifications.
“We can easily export if these structures are in place. Currently, we don’t even have a proper courier service for exporting. Artisans can’t send products through courier services and they need import-export knowledge and support from ambassadors abroad to find markets. Ambassadors have a huge responsibility in connecting markets between countries. This shouldn’t be an election agenda but a development agenda.”
Peiris also added that in order to re-export, artisans needed to import certain goods to create export products because of the lack of raw materials. However, there is a significant raw material problem and there is a need for a support scheme for re-exportation to facilitate imports into Sri Lanka.
“There is a huge tax for some of these items. For example, it’s difficult to import luxury leather, because it’s categorised as a luxury item, and due to the tax, it’s difficult to manufacture and export as well.”
Need for Govt. support
Speaking to The Sunday Morning Business, Saterra Pottery Founder Bhagya Senanayake shared her perspective on the struggles of small-scale industries on the verge of extinction. She identified the primary financial struggle as the lack of working capital to operate smoothly given that orders varied.
“This could have been managed if financial instruments such as overdraft facilities and short-term/long-term loans were at affordable rates of interest,” she said, adding that the flexibility of banks in honouring credit payments, despite years of relationship with these banks, was a concern.
Addressing the initiatives that could be taken by the Government and other stakeholders, she emphasised they should provide room for local cottage industries to develop and establish themselves for export orientation.
“When the Government changes trading policies and allows imports to be dumped from other countries, especially arts and crafts, it makes it challenging for local entrepreneurs to reach a market with their price as imports are dumped at competitive prices. Also as imports are heavily promoted, it poses a further challenge for local producers to expand awareness.”
Addressing potential solutions, Senanayake stressed the need for long-lasting discipline in economic policies, especially those related to banking rates, as businesses, big or small, were unable to not plan their future investments amid changing rates. She suggested that the Government should connect more stakeholders who manage projects to support small-scale industries through grants.
“For example, India gives prominence and massive support to developing cottage industries. From an enterprise perspective, we aim for export capability by improving our offerings in terms of quality and value addition,” she added.
She also shared insights regarding the type of programmes which would be helpful to such small-scale industries.
“The Government needs to intervene in the management of the scarce resources for the longevity of cottage industries and provide assistance and budget allocation to improve research and development of industries. It should also connect foreign and local stakeholders to provide training programmes aiming to enhance the skill sets of local artisans and connect them to marketplaces.”
Govt. efforts
Government assistance is crucial for the sustainability and growth of small-scale industries. Speaking to The Sunday Morning Business, Ministry of Industries Director Rizvi Mohamed highlighted the efforts undertaken by the Government in supporting Sri Lanka’s small-scale industries.
He explained that several financial arrangements had been initiated, including two special facilities under the Ministry of Industries known as the Small and Micro Industries Leader and Entrepreneur Promotion Project Revolving Fund (SMILE III RF) Loan Scheme and the environment-friendly loan facility.
He further said that the Government had recently introduced two new loan schemes in collaboration with the Ministry of Finance and the Ministry of Industries. These include investment loans for any industry, including Small and Medium-sized Enterprises (SMEs) and cottage industries, and working capital loans also known as the Non-Performing Loan (NPL) scheme.
Mohamed also elaborated on the additional financing bodies that were of use to these industries. “The Asian Development Bank (ADB) also gives financial facilities directly through the banking sector, but the regulatory body is the Ministry of Finance under the Department of Development Finance. In addition, a credit guarantee institution also exists. There are some small facilities under other ministries like the Fisheries and Agriculture Ministries as well.”
Technology adoption
Adopting technology not only has the potential to revamp these industries but also allows them to preserve their traditional values. Access to innovative technology is a critical requirement for these sectors. Integrating modern advancements while maintaining their age-old craftsmanship ensures that these industries can meet shifting market demands without compromising the unique heritage and cultural significance that define these artisanal crafts.
Mohamed stated that the ministry prioritised innovative thinking and industries demonstrating new technology adaptations, especially those focusing on environmental sustainability. He provided the recently introduced schemes such as the solar energy initiative for manufacturing as examples of this approach.
“We have prioritised innovation and technology adaptations, especially under the environment-friendly loan scheme, through which we have given the priority for new technology adaptations for these policies and environmental mitigation.”
Policy support
Discussing the scope and limitations of these efforts, Mohamed noted that there were inherent fund limitations. Annually, provisions under schemes like SMILE III typically range from Rs. 2-3 billion, only supporting approximately 250-400 applicants per year.
He stated that divisional-level officials within the Ministry of Industries, as well as regional officials and those from the Industrial Development Board (IDB) were equipped to disseminate important information at the ground level.
“All financial channels come through the National Budget. The Ministry of Finance has a tab for every ministry, so whenever it makes the estimation, the loans also come under the purview of the Ministry of Industries. These loans can’t be expanded over a year or overnight,” he added, explaining the financial limitations.
Government support is channelled through policymaking, which plays a crucial role in addressing the core sentiments underlying prevailing issues. By formulating and implementing effective policies, the Government can tackle the fundamental challenges faced by industries, ensuring that support mechanisms are aligned with their real needs and concerns.
Addressing potential policy solutions, Mohamed emphasised the collaborative nature of policymaking, noting that while the Ministry of Industries could make policy recommendations, the ultimate decision would come from the Cabinet and the Finance Ministry.
Expanding on the support provided by the Ministry of Industries, he noted that following the Covid-19 pandemic and subsequent financial crisis, the Ministry of Industries, in collaboration with the Ministry of Justice, had presented a Cabinet paper to suspend the enforcement of parate execution by financial institutions. He pointed out that these efforts had resulted in three moratorium extensions, now scheduled until 31 December.
Preserving these small-scale industries is crucial, given their cultural and economic significance. Similarly, facilitating their exports is significant not only for their sustainability but also for promoting local craftsmanship on a global scale. This support can help these industries access broader markets, increase their competitiveness, and ensure their continued contribution to both local communities and the national economy.
NCE efforts
Speaking to The Sunday Morning Business, National Chamber of Exporters (NCE) President Jayantha Karunaratne expressed the need for prioritising product innovation. He emphasised that for small-scale industries to succeed in exporting, they must prioritise product innovation, quality, and competitive pricing.
Karunaratne further argued that without innovative products, it would be challenging to face the highly competitive global markets dominated by countries like China and Thailand. Therefore, his recommendation is to first focus on developing unique and high-quality products that can stand out internationally.
He however acknowledged the need for effective financing options tailored to the needs of these industries. While acknowledging the existence of bank schemes, he suggested that these be optimised and made more accessible. However, he noted that prior to seeking financing, small-scale industries should produce comprehensive business plans.
“Firstly, we must educate them to prepare a plan, which is needed regarding the product, where it should be sold, and why people should buy that product.”
Highlighting the efforts underway through the NCE to support small-scale producers across various regions, Karunaratne said that through programmes and direct engagements in places such as Matara, Hambantota, Kandy, Kurunegala, and Jaffna, chamber officials collaborated with local manufacturers to enhance product development and facilitate connections with potential exporters. This initiative aims to educate and assist small-scale industries in showcasing their products on international platforms while boosting their export capabilities.
“We try our best to educate and push their products to the international markets,” he added.
Discussing efforts to enhance export capabilities of small-scale industries, NCE Secretary General/CEO Shiham Marikar highlighted the programmes implemented by the chamber, collaborating with regional chambers to identify cottage industries and facilitating connections with leading exporters.
He explained that they organised around four to five delegations annually, where member exporters visited regions such as Kilinochchi, Vavuniya, Kandy, Kurunegala, and southern areas.
“There should be greater focus on these areas because these are SME regions and our plan is to make these enterprises direct exporters. However, there are many steps that need to be taken, since often these products are not export ready and require value addition in terms of packaging, branding, and labelling.
“We have a programme called the Starting Exporters Programme, where we get producers on board as members. There is a special membership category and we provide them the necessary training and invite them to our events where they get networking opportunities with leading exporters who promote their products and services.”
Commenting on future plans, Marikar stated that they would be launching a digital platform starting with a WhatsApp chat forum. This platform will enable producers to share details, photographs, and quantities of their products, which will then be distributed to member exporters.
“It’s very important that we work hand in hand with these cottage industries and help them develop export-ready products,” he added.