Small and Medium Enterprises (SMEs), the backbone of Sri Lanka’s economy, are raising urgent concerns about inadequate support amid ongoing crises and policy failures.
Despite their significant contributions—52% of GDP and over 5 million jobs—the SME sector is struggling with high-interest rates, unaddressed debt restructuring needs, and the consequences of past government mismanagement.
The SME Alliance expressed dissatisfaction with the Central Bank’s circulars issued in September 2024 and January 2025, which offered no tangible relief. Although these circulars exempt SMEs from the CRIB when applying for loans, banks have disregarded this directive, leaving debts unrestructured.
The Alliance highlighted the impact of the country’s bankruptcy declaration in 2022, which triggered a 30-35% interest rate hike on pre-existing SME loans.
This has led to severe financial strain, with SMEs unable to manage inflated rates. The Alliance believes that restructuring debt without waiving accumulated interest since 2019 is ineffective.
They propose a capped interest rate of 10% for restructured debts, noting that the proposed 15-16% rate is excessively high compared to the 7% interest paid by banks on deposits.
In 2023 alone, over 1,400 properties were seized by banks due to loan defaults. This has resulted in widespread job losses, social issues, and emotional distress.
Many entrepreneurs have pledged their only properties for loans, leaving them unable to secure additional funds to grow their businesses. The Alliance urged the government to address this issue urgently.
Another challenge SMEs face is the mounting fines for unpaid Employee Provident Fund (EPF), Employee Trust Fund (ETF), income tax, and VAT arrears over the past five years, with penalties often doubling the original dues.
The Alliance has requested a system that allows SMEs to pay only the outstanding amounts, excluding punitive fines.
The SME Alliance further blamed financial crimes committed by the previous government for the sector’s current plight. They demanded legal action against the responsible officials and compensation for the affected SMEs.
In response, the government has announced a relief package to support struggling SMEs while maintaining banking sector stability.
Developed in collaboration with the Central Bank, banks, and SME representatives, the package targets SMEs with non-performing loans (NPLs) classified after April 1, 2019.
Eligible SMEs must initiate discussions with designated banking units by March 31, 2025, and provide necessary documentation.
The proposed relief measures are categorized based on the aggregate capital outstanding as of December 15, 2024. While these measures aim to offer long-term solutions, SMEs stress the need for immediate and meaningful reforms to prevent further economic and social fallout.
