Financial Assistance for Purchase of Large
Fishing Vessels
By
FRANK KURUKULADDITIYA* and YASALAL DE SILVA**
We are gathered here today to discuss a vital aspect for development of off-shore and deep-sea
fishing in Sri Lanka, namely, the manner in which the state-owned banks can assist the fishing industry,
to finance the purchase of fishing vessels, fishing gear and other capital inputs. In other words, the·
manner in which the People's Bank and the Bank of Ceylon can help the private sector fishing industry
to seek wider horizons by investing in larger fishing vessels to exploit morefully the recently enlarged
200 mile economic zone surrounding Sri Lanka.
As you are aware, traditional fishing craft like teppams, vallams, catamarans and the {'.-Omm.on
28' to 32' class mechanized fishing craft deployed round the shores of this Island, adequately exploit
the fish resources of the sea within a distance of 15 to 20 miles from shore. The fish resources i~
off-shore waters beyond this range and faHing within our economic zone as well as the deep-sea beyond,
are more or less left unexploited. This harvest from the sea is often reaped by vessels beJonging to
other nations.
In recent times, the fish resources in the economic zone have been identified as a national
resource capable of being exploited ·substantiaUy and quickly for national development by using
existing or slightly expanded technology. Development of this resource would increase food
production and help reduce protein deficiency in the people's diet.
It is in this context, that the present government seeks to improve off-shore and deep-sea fishing
by introducing more sophisticated and larger fishing vessels to Sri Lanka waters, together with the;
offer of subsidies, tax holidays and other concessions to those who seek to operate such fishing vessels.
As a first step in this direction, the Department of Fisheries proposes to introduce with the
assistance of the Asian Development Bank under the Sri Lanka Fisheries Development Project, thirty
3&' class :fi~hing vessels capable of exploiting the hitherto unexploited cr under exploited fish resources
in the sea within a distance of 20 to 60 miles from shore.
It will be seen tbat tbe Government now proposes to take a big step forvvard in the history of
commercial fishing in this country by the introduction of these larger fishing vessels. Besides these
38' class fishing vessels, the project also envisages the introduction of 200 fibre-glass 28' class fishing
vessels through 10 primary fishermen's co-operatives situated a]ong the south-west coast of Sri
Lanka, so that ultimately, fish production in this countl-y will be increased by 8,000 to 10,000 tons
per annum.
While the requisite variety and quantity of fishing gear is supplied with the :fishing vessels under
this Project, the operators of these vessels will be given further assistance to either export or market
their catches locally by providing them witb insulated fish transport vans, jeeps with trailers,
crushed-ice plants, fish storage cabinets and adequate spares fo:r at least the next few years.
A significant feature in the implementation of this project is that the two state-owned banks
namely, the People's Bank and the Bank of Ceylon have agreed, and also financed the enterprises or
individuals who are eligible to obtain project goods.
*Branch Manager, Credit Department, Bank of Ceylon, York Street, Co1Dmbo 1.
**Finance Officer, People's Bank, 75, Sir Chlttampa1am A. Gardiner Mawatha, Colombo 2.
113
114 SYMPOSIUM
With the current empb.asis in these two banks to move away from security oriented lending to
more purposive and productive development lending, they have between them financed approximately
105, 28' class fishing vessels to the co-operative sector with encouraging results.
Ofthe 30 38' class larger fishing vessels, 6 have already been financed for 3 firms by the People's
Bank. You would have already gathered from our discussions this morning, the potential profitability
of operating this tyve of fishing vessel. The People's Bank and the Bank of Ceylon have, therefore,
agreed to provide liberal credit terms to those individuals and enterprises desirous of purchasing and
~perating 38' class larger fishing vessels on the basis of a specm.l scheme.
The credit terms offered are as follows :
75% of the net cost of the fishing vessel (i. e. after applying subsidy received) as two separate loans
repayable over periods of 3 and 10 years respectively. The short-term loan will cover the cost of
fishing gear, spares and incidental expenses and the long-term one of 10 years will cover the cost of
hull and engine. The rate of interest charged will be 10!% p. a.
For security, a mortgage over the fishing vessel will be obtained, in addition to guarantees or
other securities acceptable to the bank, which the bank may seek at its own discretion. The fishing
vessel should also be insured and the policy assigned to the bank
The present cost oi a boat is computed as follows :-
B.s.
HuH and engine 596,000
Fishing gear 137,500
Spares and incidental expenses 23,100
756,600
las : FEECs refund 48,\JOO
Subsidy (35% of the cost cf htlll. and engine) 208,600
---- 256,600
500,000
To be financed as follows-Bank Finance :
Short-term loan (3 years) (being the net cost of fishing gear,
spares and incidental expenses) 112,600
Long-term loan (10 years) 262,400
Investment by purchaser 125,000
500,000
The short-term loan would be repayable in 35 instalments of Rs. 3,127/- each and a final
instalment of Rs. 3,155j-. Likewise a monthly instalment in respect of the long~term loan would
amount to Rs. 2,191/- with a final instalment of Rs. 2,271/-.
This would mean that the banks expect a monthly repayment of Rs. 5,31~/- in respect of both
bans in addition to the interest. If an individual or enterprise proposes to invest in more than one
38' class fishing vessel, especially with the intention of exporting tu.TI2. fish which will form a substantial
"!;'Jroportion of the catch from these vessels, then the banks ·will be prepared to negotiate with such
Jnvestor? 8. lesser ini.Hal investment ror the second and vessels on a sliding scale,
FRA~'K KURUKULADDITIYA A:N"D YASALAL DE SILVA 115
There may be a few in this audience who are interested in purchasing fishing vessels that are
still larger in size, lllllinly trawlers and tuna fishing boats. Due to the differences in the cost of
these vessels, their operating costs, useful life of the vessel, etc., it is difficult to lay down a specific
credit scheme to cover all these types of vessels. However, we can assure you that the two state owned
banks are prepared to negotiate on each proposal separately on the basis of viability, capacity, etc"•
in order to assist such enterprise obtain the best credit terms possible under the circumstances. It
is also possible for the Bank of Ceylon if satisfied with the potential viability of a project to participate
in the equity of a company by purchasing redeemable preference shares speciaUy where the capital
.commitment of a project is fairly large.
The banks are also prepared to assist any export-oriented enterprise by providing pre-shipment
finance facilities, Joans and hire purchase fac.ilities as foUows :
Pre-shipment Finance
This type of financing is available to those engaged in exporting sea-food as weH as other commodities.
advances will be made in the form of packing credit loans and overdrafts against letters of
<:redit or confirmed orders from buyers of standing acceptable to the bank A percentage of the
amount ultimately receivable on completion of the export transaction (generaUy between 50 to 90
percent) wiH be advanced for the purpose of building up of exporc stocks in the coldrooms of accept& b]e
warehousmg agents either under the control of the borrower or the bank. The rate of advance can
be negotiated with the Bank on the basis of security provided.
The general form of security acceptable to the Banks for this type of facility is the relative
letter of credit with the underlying goods under borrower/banks control, together with any guarantees
or other forms of collateral security.
The rate of interest charged is gmeraUy Bt% p.a. for packing credit loans and 14% p.a. for
packing credit overdrafts.
Loans ami Hire Purchase Finance
Loans are granted by the .Bank for purchase of vehicles and other equipment such as ice making
plant, fish-holding cabinets. etc.
The security obtained for such loans is generally a mortgage of the goods itself, together with
guarantees and other forms of acceptable security.
The rate of interest usually charged is 14% p.a. but this levy as well as the percentage
-of the actual cost of goods advanced will depend on the value and nature of the security offered for
the loan or overdraft.
Hire purchase finance is also made available by the .Bank of Ceylon on the following basis :
In the case of new motor lorries, vans, tractors,movable agricultural and industrial machinery,
the prospective hire will have to make an initial deposit of 25% of the value. The balance win be
payable over a period of 3 years or 36 monthly instalments together with finance charges in the form
of hires.
116 SYMPOSIUM
The :finance charges payable will be as follows : -
Motor Vehicles (New commercial vehicles)
Finance charge 12% p.a. flat
Service charge 1% once and for all
Other Agricultural/Industrial Machinery
Finance charge 8% p.a. fut
Service charge 1% once and for all
It should be noted that a hire purchase transaction is not a money lending transaction, and is,.
therefore, different from the usual bank advances such as loans, overdrafts, etc. In a hire-purchase
transaction, the Bank will purchase the motor vehicle or the item of machinery at the request of the
bank's customer, or otherwise and will deliver the article to a person who agrees to make periodical
payments by way of hire, with an option either to return the article and terminate the hiring, or to
purchase the article after the stated hire instalments have been paid. The hirer is under no obligation
to buy the article until he has exercised the option to buy. In the case of motor vehicles registered
under the Motor Traffic Act the bank will be the" absolute owner" and the hirer, the" registered
owner".
The bank will enter into hire purchase transactions only in the case of new motor vehicles
and/or movable items of agricultural/industrial machin~;;ry.
If motor vehicles or agricultural/industrial machinery already owned by the bank's customers
are offered as security for any advances, they will be taken as security for loans or overdrafts only
against a mortgage over the article.
To enter into a hire purchase trasaction with the bank a special proposal torm has to be
completed by the bank's customer, the guarantor, and the vendor and submitted to the bank. If an
additional guarantor is offered by the proposer or required by the bank, a second proposal form
should be completed by the second guarantor and the proposer.
It should be mentioned here that what we have narrated so far are general guidelines with regard
to our loan policies procedures and methodology of lending. They are more suggestive than
exhaustive, and it will be seen from the matters raised that the two state-owned Banks are always ready
and willing to enter into a profitable partnership with the Private Sector to fall in line with Government
policy for the progressive improvement of the off-shore and deep-sea fishing industry of Sri Lanka.
DISCUSSION
Mr. Livera Asked how long the dialogue with the Insurance Corp. will last to
bring down the cost of insurance of boats.
Chairman Said some progress has been made in this aspect.
Mr. Kurukuladithya Stated that so far they had had no facts of operation and actual
figures of operation, etc., to furnish to the Insurance Corp. Now
these figures for last years operation are available and he expects
settlement soon.
FRANK KURUKULADDITIYA AND YASALAL DE SILVA 117
Mr. Liven1 Said that he had insured a yatch of his for 2% with Lloyds and
inquired whether negotiations be stated out with the Lloyds in respect
of insurance of these boats.
Mr. Forbes Stated that in fairness to the Insurance Corp. that so far they had
no guides-lines on which to act, but now it should be possible to
negotiate as guide-lines can be given.
Mr. Nandasiri Silva Asked whether financing could be extended to 28' vessels.
Mr. Kurukuladithya Stated that up to now they had had no data but now that the data
is available financing can be extended to the 28' vessels but for
certain restraints. Payments have to be in instalments to the
Department. With prices changing it is therefore not possible to
decide on an exact amount of loan to be given. The finances can
be arranged for the boat without fishing gear. 2 guarantors are
required.
Mr. Godwin Fernando Asked why the same terms cannot be extended to 38' vessels.
Mr. Kurukuladithya Pointed out that the subject under discussion was financing of 38'
vessels, they were digressing from the subject.
Mr. Forbes Stated that the financing of the project 28' vessels and 38' vessels
was under a special scheme. Hence it may not be possible to extend
the same terms to financing of other vessels outside the project.
Mr. Godwin Fernando Stated that it took 6 months at least to get finance for boats from the
bank.
Mr. Yasalal de Silva Explained that in the past financing of boats had failed and the
banks had to take this into account and therefore loans cannot be
had over the counter.
Mr. Elvin Amarasinghe Pointed out that in Jaffna the People's Bank was financing up to
Rs. 25,000 for 17' vessel.
Mr. Kurukuladithya Stated that the banks are willing to grant loans on individual basis.
