DEVELOPMENT BANKING – THE NEED OF THE HOUR. 1 1387

Rajendra Theagarajah, is a name synonymous with Sri Lanka’s Banking and Financial Sector. As the former CEO of the National Development Bank, Hatton National Bank, and more recently Cargills Bank, Theagarajah has overseen significant growth during all his tenures. He is also a previous recipient of the Asian Banker Leadership Achievement Award in 2013 for Sri Lanka.

Commenting on the current economic environment, Theagarajah says that he believes that the banking sector needs to realign in order to streamline economic growth, and stresses the importance of a specialized Development Financial Institution to cater to the urgent needs of the country’s entrepreneurs.

With over 34 years’ experience in the local and international banking sector, Theagarajah offers his opinion on the needs for the industry, as the country strives to recover and progress following a year of unimaginable challenges.

What are your thoughts on the state of the banking sector leading up to 2021?

The year 2020 was one where two key events posted a ‘double whammy’ for banking in Sri Lanka. Firstly, the ‘over-spill’ into 2020 from the April 2019 impact on tourism and business in general, with moratoriums and the ‘hand holding’ of several sectors.

Secondly, the surfacing of the COVID-19 pandemic devastated several sectors due to them having to grapple with the unknown, and learn to live with working from home as a new norm. Lockdowns both locally and internationally, and restrictions on tourism, limited access to markets for many sectors, which in turn, slowed down the economy to record negative growth, and also led to a slow but sure rise in Non-Performing Loans in Bank & Financial Institution (FI) lending portfolios.

The negative economic growth and the downgrading of the sovereign rating no doubt has put further stress on the credit loss models in computing ‘Probability of Loan Loss’ and ‘Loss Given Default’ ratios, which impose additional stress on FI profitability, as well as a need for additional capital infusion in an environment where many investors have adopted a wait and see attitude (other than the upside seen in the CSE from a few stocks).

The banking sector has, to date, rallied around the government’s initiative to infuse relief by way of moratoriums to businesses for bank borrowings. The real impact however, will probably be known later in 2021 when moratorium deadlines expire, and the behaviour of foreign shareholders is seen when ‘the freeze on declaring cash dividends by banks is removed’, and whether the impact of excessive liquidity in the system actually reaches borrowers to fuel real growth.


The Central Bank has announced that a single-digit interest rate regime will be maintained. How will this affect the banking sector as well as the economy? 

Single digit interest rates have two components; one on the pricing of bank deposits, and the other being the pricing of loan products. In a declining interest regime, the latter tends to adjust itself faster than the deposit base, due to the prevalence of a substantial chunk of bank deposits being fixed deposits. 

While a single digit interest regime will naturally encourage businesses to think of activating investment and growth plans, what is pivotal to its success is (a) consistency in such a policy announcement, and (b) defending such a policy in the medium term at least for 5 years. In doing so, what is of paramount importance is regular, clear communication with the public on measures taken to defend such a policy despite “blips” in other factors contributing towards economic growth, such as revenue to GDP contribution etc.

Without intending to sound negative, my concern is that past attempts to maintain single digit interest rates have not been sustainable, mainly on account of the balance of payment position of the country. We will obviously have to look at this challenge in relation to future external debt repayments over the next five years plus time horizon.

While confidence reposed on borrowers will naturally look towards more borrowings, the drop in the price of deposits will also affect the large percentage of pensioners and those depending on deposit interest for their existence.

What is needed in parallel is the development/rollout of long-term savings options by the Colombo Stock Exchange, which can also offer a better yield from issuers who have sustainable business models. 

Three further issues to watch for are, (a) the danger of an external imbalance due to large imports which could result from investment decisions, and (b) dampening of foreign investor interest in the inflow of ‘Hot Money’ into the country, and (c) ensuring that lending rates fall sharper than the drop in inflation, thus improving the ‘real rates’ at which commercial borrowings from banks become attractive.

 

What is the role of a development bank for a country, and how is it different to a regular bank?

A development bank as a model should take a medium to long-term view of a business and its entrepreneur, and be able to assist in the growth of the business whether it is, (a) value added exports, (b) import substitution catering to domestic demand, and most importantly take a positive view on financing either capital expenditure (for manufacturing related entities ), and or support the strengthening of supply chains including dry/cold storage, transport from source to manufacture, manufacture to distribution, and/or shipping locations.

Regular banks traditionally engage in retail, consumer-related financing, acceptance of deposits, and mainly provision of short term working capital needs for both manufacturing and trading businesses.

While some regular banks have extended the portfolio offering to address some of the above areas relating to development finance, there is more room for a specialised Development Financial Institution (DFI), to play a more meaningful role, especially when the moment in the country’s journey towards building sustainable economic growth requires a clear long term view.

Why has Sri Lanka not ventured into development banking?

I believe that two institutions in 1955 and 1979 were set up under special acts of parliament to identify and promote development banking. These two institutions as a model, (a) did not accept public deposits, (b) did not engage in foreign exchange activity with customers, (c) did not engage in consumer or retail banking, and (d) over decades built solid ‘project and industrial financing’ capability, with structured training given to a carefully selected cadre of staff including those with sound engineering, financial analysis and structured financing capability.

These DFIs were also able to take equity stakes in businesses they financed, were allowed to sit on such company boards as observers adding valuable inputs to decision making etc. Another critical success factor of these DFIs was that the lending portfolio was not financed by short-term deposits from the public, but from structured credit lines negotiated both with local institutions as well as multilateral agencies, and DFIs with a long term appetite.

When the first wave of economic liberalisation was opened in the late 1970’s, the demand appeared to favour the fostering and encouragement to open a flurry of new Licensed Commercial Banks (LCBs), both with local sponsorship and/or as branches of regional and international banks.

These institutions mainly focused on short-term retail and working capital financing of a trading nature, with little or no focus, nor intellectual capacity for long-term project related financing. As a result, the banking ecosystem is skewed towards a few playing their rightful role in contributing towards nation building, while others simply mobilise deposits and take a very short term view.

As far as the two DFIs mentioned above were concerned, both had ventured into commercial banking including retail, by acquiring retail banking franchises and merging them into the DFI model and getting necessary regulatory approvals to get out of the respective acts of incorporation. Somewhere around 2014, the then government announced the facilitation for both banks to merge for a new development-focused Licensed Commercial Bank to be formed.

By doing so, the objective was to also harness and preserve the project/development finance skill set of respective banks in the new bank, which would have a sizeable balance sheet with a dedicated Development Banking pillar inside the overall model. A global advisory firm, highly experienced in bank M&As, was engaged by both boards to create the roadmap for amalgamation and a substantial amount of ground work had been done towards implementation.

Unfortunately, with the change in government at the time the project was dropped, and in my opinion we lost a golden chance to create a special vehicle harnessing the best in established development banking and commercial banking. The lesson for the future from this is do not reverse a good policy initiative merely because of a change in regime.

Why do banks continue to prioritise the trading sector over the manufacturing sector?

Over the years it was easier for LCBs to finance short-term working capital and trading related financing based on underlying short term deposit bases, which were the main source of funding. Secondly, Sri Lanka’s capital market has seen very little progress in non-deposit based funding tools from both listed and unlisted sources.

The maturity profile of a corporate debt instrument typically ranged from 2-5 years. Anything with a longer tenure had to typically see a reduction of 1/5th annually, instead of a bullet repayment in order to qualify for ‘Tier 2’ eligibility of capital adequacy.

At the same time the human capital capacity of LCBs was skewed mainly towards, retail, consumer, and branch banking with very little capacity in project financing.


Have Sri Lankan banks created an environment that supports the growth of a start-up and innovation led economy?

I would say relatively no. There are several reasons for this. In the start-up eco system, there are multiple cycles ranging from, (a) promoting a smart idea, (b) experimenting with innovation till commercial viability or otherwise is established or validated, (c) engaging banks for funding commercial activation including access to local and export markets, and (d) the patience to build a domestically testable model on 20 million people which is subsequently highly scalable to regional and international markets.

In each of this stages, there is a high degree of uncertainty, risk of failure, lack of courage among entrepreneurs to rise from initial failure, re-engage with applying key learning from initial failure, and most importantly to build and drive a brand which is a competitive USP (Unique Selling Proposition) which does not rely on government protection in terms of either tariff or exchange rate movement.

Banks are simply not geared to understand such models, nor take such a degree of risk with depositors’ monies (the main source of funding loan portfolios). Banks are also not permitted to take up equity stakes in such entities, and furthermore LCBs are subjected to accounting standards which include ‘impairment for credit losses’, which has a direct impact on their capital bases. Hence this eco system has, to date, relied heavily on private equity, which is able to take an informed decision weighing all the factors mentioned above.

Also when LCBs typically focus on short-term financing, there is very little capacity available internally both at management level or board level, to understand and keep pace with innovation and how innovation can contribute towards creating a sustainable business model not dependant on protection.

 

How should the sector adjust in order to focus on the long term growth of the Sri Lankan economy?

The banking sector has to clearly align itself to the journey that seeks long-term economic growth of the nation’s economy. In doing so the following areas for a shift should be introduced by those in control of policy formulation:

  1. The Central Bank, having responsibility for monetary policy, must clearly articulate its policy on medium and long-term interest rates. In doing so, it must also regularly communicate to banks and other stakeholders its rationale, and steps taken to defend their policy so that there is confidence reposed on consistency.

 

  1. There has to be recognition of the importance of technology, relating to value added agriculture, financial inclusion and supply, and value chains. In my opinion, banks are operating in isolation mostly in relation to the above ecosystems. We need to encourage the development of a Technology Centric Platform (similar to a national fibre network) where the various ecosystems can plug and, (a) upgrade individual infrastructure into a common minimum standard, (b) have the choice of either investing in such a platform, or benefit from it on a “Pay-As-You-Consume” basis 

 

  1. The sponsorship of such a platform mentioned in the second area mentioned above must be driven by the Central Bank as a key enabler of monetary policy stability. The reason for this is most bank CEOs/Chairpersons have a relatively short time frame in office, and probably do not have the luxury of time to drive such a vision for the sector. The anchor must come from an institution that has that bandwidth and long term vision. Future selection of bank boards must also have a good mix of skills that can think outside conventional models, and contribute towards steering the banks towards agility and competitiveness, whilst not compromising in risk and reputation.

 

  1. Currently the digitalisation roadmap for banks is driven by the Department of Payments and Settlements at the Central Bank. Some very good stuff gets discussed at technical official level, but it’s time that key developments, especially linking FinTech/AgriTech innovation with the financial system architecture of the country, must be escalated regularly to the attention of the Governor, Monetary Board and Bank CEO Forum to ensure there is strategic ‘buy-in’.

 

  1. The new Banking Act should actively promote the licensing of ‘Digital banking licenses’ with differential capital requirements, and limited service offerings (similar to the Monetary Authority of Singapore), which will bring in a new breed of agile innovation centric Financial Institutions into the ecosystem who can cohabit and compliment legacy FIs with larger balance sheets.

 

  1. The technology-centric platform mentioned in (2) must clearly foster the availability of data analytics and machine learning that can be offered to ecosystem players to improve their product offerings and competitiveness, instead of taking shelter behind a ‘protected’ ecosystem.

 

  1. LCBs should be encouraged to set up incubators, as well as commit a percentage of their capital into seed/start-up funds. That component can also be linked to a 100% deduction against assessable income of the respective bank.

Finally, on the setting up of the Development Banking Institution proposed in the recent budget, my humble opinion is that merging three institutions with little or no development/ project financing capacity will not achieve the objective. It is not too late to re-visit and re-activate the original tone set by the government in 2014, by merging NDB and DFCC and create a powerful balance sheet, positioning the merged bank as Sri Lanka’s premier Development Focused Commercial Bank.

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Talking to a Tea Titan 0 341

There aren’t many people in the world who can boast of having spent as much time as Dilmah founder Merrill J. Fernando, doing what they are passionate about and love. The results of this effort are clearly evident with Dilmah today Sri Lanka’s only significant globally recognised brand name.

Sri Lanka’s Tea industry is facing difficult times, and with low yields and a higher level of competition from larger producers, the future remains uncertain. With that, we spoke to the iconic Ceylon Tea trailblazer, Merrill J. Fernando, about his legacy, his vision, and his prescription for the ailing industry.

Back in 1950, when you joined the industry as one of the handful of Ceylonese to be trained, how challenging was it, and what spurred you on to build your own legacy?

Well, it was a big challenge because the British, who dominated the tea industry at the time, did not want to recruit any locals for tea tasting and training. They thought, or their excuse was, that they said that the Sri Lankans, or the Ceylonese at the time, ate too much spicy food and they can’t taste tea. That was, of course just to protect their work permits and visas.

Somehow when the tea commissioner selected six trainees for learning tea tasting under Mr. O.P. Rust, who was then the Tea Commissioner’s chief taster, and who had an undertaking during the war for a few years to supply a limited amount of tea direct to the UK food commission.

So Mr. Rust was overlooking that and the Tea Commissioner had clout with him. So he persuaded Mr. Rust to train six people. Soon after, when I heard about this, I got to him through a friend and maybe two, three months later, I was taken in for training. Learning it was not much of a challenge. He taught us very well, and he then left the country.

Then, I had the good fortune to learn again under two of the best tea traders in the country – that was Heath & Company, Mr. Sandy Mathewson, and Mr. Stan Campbell, two brilliant people. I then had a slight interruption when I broke away from tea and worked in an oil company, but came back to tea and joined A.F. Jones & Company.

It was then that the real difficult times started, because I went to London to learn tea branding and marketing. What I saw there accounts for my personal success, and when I saw what they did to our tea there it shattered me.


What was it that was happening to Ceylon Tea in the UK?

All of us, as exporters, including myself until 1985, were supplying tea in bulk and making other traders around the world richer and richer. Even today, most exporters – especially the large multinational brands – are traders in tea. Traders are what we were taught to be during the British period. We compete with each other here to sell it as cheap as possible to our buyers abroad, and they take our bulk tea and mix it with other teas and call it Ceylon Tea.

So in terms of what happened to our tea in the UK, when I say I was shattered, it was because I had a great respect for Englishman, and thought they were very honest and honourable men. I suppose once they become traders, honour and integrity all disappears for money. So I saw them mixing cheaper teas or teas from other tea producing nations, with Ceylon Tea, and their packs were marked ‘Ceylon Tea’ and were being sold out. I realised, oh my goodness, our poor labourers and our plantation owners are working their guts out to enrich people and traders outside our country.

They squeezed the tea farmers and their workers, and also lied to their consumers, because what they called Ceylon Tea was just a mixture of tea from other countries.

So that’s what changed me, and when I saw that I thought this cannot be, we should never sell bulk tea, but we should supply our own branded tea. Soon I realised I was dreaming and tried to forget that, thinking that we have no hope in this big world of tea. However, the thought kept haunting me and 34 years later, I came up with my brand Dilmah. That was the beginning of Dilmah.

How were you able to break out from this key trade monopoly and establish Dilmah as a Sri Lankan made brand and capture the global market?

Well consumers realised, or rather did not realise until I embarked on this journey with my tea, that they were drinking a lot of other blended mixed teas. They realised that what I launched was a real product, because I selected Australia to launch my brand because I was a strong supplier of bulk tea to Australian markets and to New Zealand.

So when I decided to launch in Australia they were importing 52 million pounds of Ceylon Tea for many, many years, but in the 80s the multinationals entered the market and acquired the family companies that were dominating the tea industry strictly with Pure Ceylon Tea. Once the multinationals entered the market they started eliminating Ceylon Tea from their original brand names and progressively replaced, maybe almost 60 to 70% of those packs and brands, with foreign teas and cheaper teas. However, the consumer perception was that these were Ceylon Teas.

I told the press that I was going to get integrity and honesty back to tea. I went to market with Pure Ceylon Tea grown by us, branded, packaged and processed completely in Sri Lanka by us, and marketed it in Australia as my first market.

I told them that from every pack you buy, I send a share of the earnings of what you pay back to Sri Lanka, and not into the pockets of big multinational traders.

So the consumers liked the concept that money was going back to Sri Lanka to help the poor, and I said I will bring single origin 100% pure Ceylon Tea, grown and packaged in Sri Lanka, and I will bring to the market the world’s only ethically produced brand. This was possible because all the value addition is done and the proceeds are retained in Sri Lanka. In my case I said I will share my earnings with the poor and the needy and I launched my brand named Dilmah after the names of my two sons Dilhan and Malik. That made the brand very valuable in the eyes of tea drinkers. I did not consult any marketing experts because I had no money to pay their fees.

Secondly, I had to find a method to market and advertise my tea. I used Kamal the famous singer in Australia, at the time who had been forgotten, but we relaunched Kamal in Australia, and we used him for two years.

Then my advertising agency said that the best person to promote and advertise your tea was me, because I knew so much about the tea, and suggested that I become the face on the product. I said I can never get on screen. So, for about six months, they worried and worried me and finally I agreed, and I started with a really simple commercial where I told the consumer “this is my own tea grown and packaged by me and named after my two children”. I just said “do try it” and still the equity of that line is enormous today.

When I used to walk around Australia and New Zealand people used to shout “do try it” and say “Mr. Dilmah how are you?”. So there was emotional value in the brand name and me as the owner facing the brand on TV and radio. Only I spoke for the brand.  So, the consumers began to really like the tea and my concept of putting my face on my own pack.

Consumers in both countries, Australia and New Zealand, would write to me and say “Mr. Dilmah you are not a faceless multinational, you have a face to it”. This meant that international traders and multinationals have a brand name, but when consumers try to find out who the owner of the brand is they realise that there is no owner. All the multinationals and big international companies are owned by investment banks, so there is no face. If consumers want to complain about it or compliment there is no one to write to. Whereas with Dilmah they have me, I was there to take responsibility. So consumers value that enormously, the integrity.

Today consumers have supported the brand so much it is globally the number three brand, and I’m aiming to be the number one brand in the next three years, because the quality, freshness and the purpose behind Dilmah remains unchanged. Not even a little bit has changed from the day I launched that tea to today, and forever it will remain that quality. So consumers around the world know this is an excellent, outstanding quality.

We are the only company in the world that is fully integrated in the tea industry. We own plantations, we own the factories, we own our own printing and packaging facilities and everything that is needed to bring Dilmah tea into overseas markets. No other company in the world has that, and importantly, we are the only company in all tea producing countries and coffee producing countries too, which has a country-owned, farmer-owned brand globally.

So what I have to say is that traders say “we can’t do this”, but you can if you say “I can do it and I’ll be different”. I named the brand, and I face the brand in a way that nobody else could, and every step of the way, I did the right thing. I never did anything wrong by the consumer or by the tea producer.

You’ve recently increased your pledge up to 15% of Dilmah’s pretax profits for your foundation. What will it focus on?

I established a charitable foundation called the MJF Charitable Foundation which contributes 15% of all our companies’ profits before tax, and the foundation earns a very generous amount of money which is spent in changing thousands of lives.

We have in Moratuwa, a MJF centre where we treat children with Down’s Syndrome, autistic children, abused children, and another one in Rajagiriya that helps children with Cerebral Palsy. If you go there, you will give away all your wealth to those people. We have several other centres in the country and a big one in Kalkudah in the East on 22 acres of land, entirely devoted to the welfare of underprivileged children and others.

So the lesson I learned from this business is a great one; a lesson for all other business people. That is, when I started sharing my profits in the in the first year itself, in a small way, it got bigger and bigger and my business grew.

Today, many of my employees’ children have benefited from my Foundation’s scholarships and have become doctors, lawyers, and architects. The MJF Foundation has a broad education programme which includes scholarships for children at Ordinary and Advanced Levels, thereafter for University, and vocational training.

Plantation tea picker’s children today are doctors, lawyers, and judges, and have achieved amazing success. So this proves that a little bit of help to the poorest child in our country can make them all grow to what you and I can become.

Your foundation the MJF foundation has long been heavily involved in making life better both for people and planet. What kind of a better world do you envision through it?

I learned a lot from this exercise and I’m happy we give away so much. My children are following in my example; my grandchildren are following in my example, so I’m sure that the good Lord directed me all the way. All my success is owed to Jesus Christ, who leads me, shows me the way, and teaches me to help those who need help.

Everyone, every consumer helps me to help the poor and I sincerely hope that the success of my business; the moment it started flowing towards the poor and the needy, will continue to become a method of human service.

I appeal to all other successful businesses to share a tiny bit of their earnings to make other people happy, or poor people happy; the sick and needy to be comfortable, and their businesses will thrive and grow beyond their belief.

Finally, when I say we come to this world with nothing, we go with nothing. The wealth some of us acquire it with the help of so many others. Therefore let us learn to share that wealth with the community and the world will be a far better place than it is now.

Dilmah has been at the forefront of value addition, with a host of new products including Tea Beer as well. How have they been received?

We do everything with tea, and we have opened tea centres and tLounges all over the country, and in other countries also there are a lot of people asking for them. We do amazing things with tea. We are totally committed and dedicated to tea. Airlines from Australia, Air New Zealand and leading Middle Eastern airlines carry only Dilmah,

Emirates, works closely with us for training through our School of Tea, and tea inspired innovation that enhances the guest experience in-flight and in their lounges globally. Six or seven out of ten five star hotels will have Dilmah Tea. That’s what we earned, because we served absolutely spotless quality, fresh with my heart and soul in that tea. Nothing has changed and nothing will change.

For your information, if you see the export earnings of this country, Dilmah Tea earns Rs.2,000 to Rs.2,200 per kilo. A few others earn over Rs.1,000 but the majority earn Rs.800 or below. This is because our governments and institutions do not do anything about marketing, and they will not know how to support marketing, how to encourage value addition. There is much talk, but little action in terms of effective promotion, adequate incentives for value addition and enforcement of the standards we need in the industry.

How can Sri Lanka take advantage of its many resources and products through value addition?

We have products with high potential such as our tea, our coconut products, and spices. Our spices are a gold mine. The government must recognise the need to add value. The world has changed dramatically, especially in 2020, and to help the tea and spice growers, as well as the exporters and our national economy, we need expertise and focused effort.

They must identify people who are successful in branding, marketing, advertising and promotion. Government servants can’t do this. Government officials, however clever they may be, can never handle these aspects. It is impossible for a regulator to also assume the role of marketer. There are successful marketers in Sri Lanka. If five or six people should get together and tell them now work for your country, and retain all the value addition of our bulk tea exports, that used to enrich other traders, for the benefit of the country. Then it will be done.

However, if I go and tell them how to sell tea or how to brand it, and market it like I have done, they will say “very good” but they don’t know how to do it. They will get government officials to do it but they don’t have a clue. So the implementation is lacking.

Now our president is very keen on value addition, and he has referred to Dilmah several times, and I can give all the ideas, but who will implement them? Government servants can’t do it. If our value added exports are shipped as value added branded products, the income from our exports will immediately double, and in three or four years’ time they will be selling at three times the price. I know exactly what I’m talking about, and I do believe that it is the case.

Your legacy in the tea world is beyond comparison; however what is your future vision for Ceylon tea?

Well I’m surprised that our government and our plantation community have virtually written off the tea industry. It is an herbal product. It is the world’s most popular natural beverage, but we have written it off. In the correct hands, it will grow and grow and be more and more successful if it is handled well.

Now we are talking about COVID-19. The Chinese say they steam inhale four times a day, and drink four cups of tea a day. So we do not know how to cash in on those things. We do not know what effective advertising and promotion is. The people in charge of those things haven’t a clue about marketing, so that is our fate.

I’m not criticising anybody, I’m just saying the opportunities are there, but we do not know how to seize them and take advantage of them and turn those opportunities into cash. However, there are people who can do it and help the government, if they’re given the proper incentives and are allowed to do this without interference.

What kind of stumbling blocks did you have to face at the start?

When I started, even the government was against it, and not aware of what I was going to do. All the multinational companies had their representatives here. The big companies and multinationals at the time used their clout to tell the government that if my company starts exporting tea bags and value added teas, they will stop buying Ceylon Tea. So I was told this by Treasury officials, so I explained to them that the multinationals have already reduced their Ceylon Tea purchases, and they will progressively reduce Ceylon Tea in their packs.

For example, they were buying about 80 million pounds of tea in the 1970s and 80s. Today they buy about 20 million pounds when the prices drop, nothing more. So that was the trend. I saw it coming. The government officials also said, you can’t do this, because this may happen. I said, no, that will not happen and I fought my way through and I got it.

All our exporters turned against me. They published articles in the newspaper condemning me and at the end of it all, I gave the government ideas on how to add value and promote and advertise. I served on the Tea Board for some time and gave all the benefits and advantages, but as soon as I left they reversed all those things.

We are sitting on a gold mine with our produce, but we are not able to take advantage of what they offer. I have no doubt the President is working very hard towards value addition in our products. Yet he needs people with the knowledge and commitment to implement his vision.


What advice would you give to upcoming entrepreneurs?

An entrepreneur is someone who creates something out of nothing, but his vision and the commitment must be there. We have a programme in the MJF Charitable Foundation, the Small Entrepreneur Program, where we don’t fund anybody but we buy all the tools and machinery that they want even if its Rs.15 or Rs.20 million. You will not believe how those entrepreneurs have risen and developed their businesses, because the first thing is a young entrepreneur goes to a bank or development banks and asks for a Rs.1 million loan. For this, the bank asks for collateral. What can he mortgage? He has nothing to mortgage, so he doesn’t get the money and all that talent withers.

What I believe is that government should launch a fund managed by successful entrepreneurs. They will be able to identify viable business after talking to 10 people and provide the necessary support. That is the kind of support that is needed. I tell young entrepreneurs, aspiring entrepreneurs, whatever you do have 100% commitment. If you have no money, go to a bank or some other source, go to a friend or relative and make you case. Offer a shareholding in the company.

I could have never have grown the way I did in my initial stages the way I did, but luckily I met the Managing Director of National Grindlays Bank Mr. Glen Gash, he gave me millions of rupees without any security and guarantee. Never did he refuse to give me an overdraft. My first overdraft was Rs.400,000, then it went up to several millions. I was fortunate enough to get bankers who trusted me. I never provided a mortgage.

Therefore I started saving money, and in the last 25 years I have not borrowed a single cent from any bank. All my businesses are funded from our own capital. That is carefully planning for the future. I wish there was a body of four or five entrepreneurs, who can advise people, spend their time, teach others to start businesses and how to grow. Our business people are generally content with what they do.

“Made in Sri Lanka” 0 1496

Ever watch the movie, Rocky? I mean, any of those would suffice. But mainly, the original. In fact, if you know anything about Stallone’s life itself, you’ll know that he’s probably one of the biggest success stories in history. Now, there are plenty of famous people who failed but never gave up on their dreams. You can find them all throughout history. There sagas are powerful enough to make you second guess ever giving up in life.

Does the common idea of geniuses having an eccentric ideas and behaviors bear any truth? Here is a story of eccentric entrepreneur for you to decide.

People waste searching endlessly for magic, whereas to Lawrence Perera life itself is a magic. “I didn’t grow up around incredible cars or at a time where there was luxury. Few of my earliest and fondest memories involve automobiles. My story begins as kid who broke every toy car received just so that I could see how it was made. My mother noticed my passion for cars and decided that I should get into automobile engineering field and made me enter the German tech without waiting to go to the university, she was keen to see me making a career in the automobile industry’’ says Dr. Lawrence with a sense of gratitude, by starting his conversation with BiZnomics. “Just as we have moments in time crystallized by places, music or movies that imprint upon us, the automobile left an indelible impression on my experience and who I became”.

Now an Automobile Engineer by profession with over 40 years’ experience in the Automobile Engineering Industry both locally and overseas, Dr.Perera is a diploma holder in Automobile Engineering at the CGTTI, and Institute of Motor Industry of UK. He is also a certified automobile engineer in the Institute of Motor Industry and a fellow member of the Institute of Motor Industry – UK (FIMI).

‘’I know from very hard won experience that start-ups are enormously difficult and risky and chances are you might not succeed” says Dr. Lawrence Perera, Leading entrepreneur, Chairman and CEO of Micro Holdings and Micro Cars Ltd. Dr. Lawrence’s “ hard won experience’’ is based on manufacturing the car “Micro” the first designed , developed and manufactured car in Sri Lanka.

He has received extensive training with BMW, Volkswagen – Germany and Peugeot – France. Dr. Perera described his daily sightings of stranded people on the roads due to the chaotic situation of public transport and realized the crying need for a reliable alternative. ‘’I thought that if people had a reliable, economical, decent, comfortable and affordable car that would take them to the place they want to go, the problem would be solved and many man-hours would be saved. I then set to design and develop a small car with every household in mind – and that’s where MICRO started’’ he said.

Describing his product further he states: ‘’It was the tuk-tuk that influenced me to create a small car. The Morris Minor was the smallest at the time and the dimensions of my drawing were smaller. My product which was patented in 1999 was an 80% local manufacture. As far the brand name, I decided on micro mini and finally named it MICRO’’.

Dr. Lawrence Perera had been skeptical of the success of his product at the time it was launched at the price of LKR 300,000. ‘’ At that time local products were thought to be inferior but MICRO turned out to be acceptable and most bought it because it was economically priced’’. Marketing local brands had been very competitive as it was difficult to challenge and compete with international giants in the market.

The Micro was fitted with safety standards such as air bags and seat belts. Yet, Lawrence had to stop production mainly due to complicated manufacturing process and cost of production increasing.

The garment industry in Sri Lanka has made a big contribution to change people’s mentality in buying ‘made in Sri Lanka goods’. Garments sewn in Sri Lanka have earned in international reputation and Sri Lankan consumers are well aware of this fact. The government should encourage local products, and especially an industry such as automobile requires a certain tax relief for composite material used for making cars. Adding to this, He criticizes the industrial policy and taxation systems prevailing as not being friendly and conducive to local industrialist and manufactures. The Micro brand of which Sri Lanka could be proud of became well known the world over, even in countries such as Germany, China and Korea. But I could not develop Micro because support for the automobile industry is almost zero. For one thing vehicle importers were against local manufacture since their imports business would take a downward turn. And next, the industrial policy of the country and the taxation system does not provide any impetus at all. Although a normal car is not a luxury, but a necessity”. He claims that during the last four years, the company run with losses, and that the financing aspect has been terrible. The bank loan interest rate has shot up from 6.5% to 14.5%. p.a. “Business has been thrown into a quagmire”, he says and adds, “We have to pay much more than we earn”

Dr. Lawrence opines, that Sri Lanka has been in a miasma of uncertainty for a while, and that the combined effects of numerous policy changes have thrown many enterprises including the motor vehicle industry into turmoil, insists that the country should have strong decision-taking and unwavering leaders who will dispel personal gains and crack the whip to drive away corruption while instilling discipline in all sectors, in order that the country could emerge from one of its lowest phases in recent history with a record decline in business.

Dr. Lawrence Perera’s view is that gasoline engines will gradually go out of the market. He states that with the introduction of hybrid vehicles, gasoline engines changed, but that hybrids will survive only with combustion engines. ‘’whereas Japan went for the hybrid, China jumped into electric engines which will last for another 100 years. We should also adopt the electric car. With sunshine around all throughout the year, car solar batteries fitted to electric engines can be charged at no cost and what a saving on fuel that will be! Anyway, gasoline engines will gradually make its way out of the market, in not too distant future.

With the influx of hybrid and electronic cars an eco-environment challenge will be the lack of adequate provisions to dispose of used bittern such vehicles in the future. The lack of regulators for strict recycling and safe disposal of batteries will lead to them ending in garbage dumps. Another area that needs attention to curb pollution and improve and conserve of quantity is to adopt a long-term vision or polices of emission standards. The lack of the stable policy outlook may associate Sri Lanka with volatility and high risk.

Adding to his many innovative ‘firsts’, Dr. Lawrence Perera was the first to design an economical rail solution for the Sri Lanka Railway, in 2004, the first in Sri Lanka to assemble 4×4 SUVs under the technology transfer agreement with the Korean Ssang Yong motor company, with Mercedes technology in 2006, and the first to manufacture a luxury double decker bus with the latest technology complete with fully aluminium low floor monocaqne design for public transport in 2007. Commenting on his economical rail solution Dr. Perera says: “In 2004 I designed an economical rail solution termed ‘Lanka Econo Rail’ for mass transport to replace the car in the megapolis. My proposal was to build carriages using scrapped steel, with automatic doors, good seating and all comfort. My proposal envisaged buses at relevant stations to transport the passengers to their destination like the monorail or metro in foreign countries. It was a light-rail concept place of the heavy locomotive system which has been in operation for the past 164 years. However, this was blocked by railway officers who want the steel to be sold at dirt price by the kilo, as obsolete.

Dr.Perera attributes his success to his family – wife and two daughters who had been very supportive, without their support he wouldn’t have achieved so much. Dr.Perera is determined to showcase Sri Lanka’s potential in the international car industry.

By : T V Perera

Image Curtsey : Eranga Pilimatalawwe