An agreement was signed between the Government of Sri Lanka (GOSL), KfW Bankengruppe (KfW) headquartered in Frankfurt am Main, Germany and DFCC Bank (DFCC) on the 14th of July 2005, which will provide DFCC access to a long-term credit line of EURO 20.1 Million (LKR 2.4 Billion). The signing took place at the Ministry of Finance and Planning in Colombo. Dr P B Jayasundara, Secretary to the Treasury signed on behalf of the Government of Sri Lanka while Mr Uwe Ohls, Director South and Central Asia and Mr Reinhard Dalchow Director of the KfW office in Colombo signed on behalf of KfW. Mr Nihal Fonseka, Chief Executive Officer signed on behalf of DFCC.

The Loan is to be used for the purpose of granting sub-loans and leases by DFCC to finance medium and long-term investments in fixed assets, primarily relating to imported capital goods, by private sector enterprises in Sri Lanka. Wherever possible the Loan proceeds shall be utilized for financing of capital goods and sourced from Germany. However, the sub loans can also be used to finance the cost of machinery purchased from other countries or locally, construction cost and initial working capital related to the eligible projects.

The overall objectives of this credit line is to contribute to the creation of additional jobs, safeguard existing jobs and to enhance private sector economic activity.

Only projects, which support Sri Lanka´s socio-economic development and do not endanger the environment, may be funded from the Loan. In any case, investments in enterprises producing or processing asbestos or other hazardous substances and investments promoting the use of ozone layer depleting substances (CFCs) are not eligible for funding. DFCC will ensure that all projects to be funded adhere to the environmental rules and regulations imposed by the relevant authorities.

KfW Bankengruppe has been supporting the development of Sri Lanka since 1961. And it has provided financial support to many important development projects such as the development of the port of Colombo, the construction of the cement factory in Kankasanthurai and in the construction of Randenigala and Ratambe dam hydropower projects. The funds are provided by KfW within the framework of German Financial Cooperation on behalf of the German Ministry of Economic Cooperation and Development. Over the years, KfW has made available to Sri Lanka more than EUR 830 million of which around EUR 700 million has been disbursed.

DFCC Bank and KfW Bankengruppe have partnered each other for more than a decade and KfW has previously extended three credit lines to DFCC Bank.

DFCC, which commenced operations in 1956 is Sri Lanka's pioneer development bank and continues to play a key role in providing long-term capital asset funding to viable projects as a Development Finance Institute (DFI) with total assets of LKR 41 billion. In the year ended March 2005, DFCC disbursed Rs 10 billion in term loans and leases.

This credit line will further strengthen the resource base of DFCC to meet the medium and long-term Rupee credit requirements of the private sector. Further, with the wide sector focus of the credit line and the relatively liberal eligibility criteria, DFCC Bank will be able to offer credit facilities on competitive terms to a wide range of borrowers.