Sri Lanka has launched a fresh support mechanism to rescue struggling small and medium enterprises (SMEs), amid mounting pressure from parate executions and loan defaults that threaten to cripple the sector—the backbone of the island’s economy.
In response to increasing financial distress faced by SMEs due to high interest rates, declining demand, and cash flow constraints, the Ministry of Industries and Enterprise Development unveiled a strategic programme to offer grassroots-level assistance to affected businesses.
The new initiative involves the transformation of existing Development Officers (DOs) and Enterprise Development Training Officers (EDTOs) into a dynamic cadre of ‘Relationship Officers’ under the Small Enterprise Development Division (SEDD). These officers will act as field-level business advisors capable of delivering hands-on support to revive and restructure SME operations.
The first phase of the programme, launched on July 29 at the Sri Lanka Foundation Institute, covers 53 officers from the Western Province. These officers will undergo a capacity-building programme designed around experiential learning principles—‘Learn by Doing’. The focus is on equipping them with essential skills, entrepreneurial mindsets, and strategic know-how to support financially distressed SMEs.
The initiative is a joint effort between the Ministry and the Sri Lanka Institute of Marketing (SLIM), which has pledged Rs. 100 million towards the programme. SLIM has already allocated Rs. 40 million for the pilot phase, with its academic faculty providing services on a voluntary basis.
This effort comes at a critical time. According to Central Bank data, over 30% of the SME loan portfolio in Sri Lanka is currently classified as non-performing. Banks, under mounting pressure to clean up balance sheets, have resumed parate executions—legal actions that allow financial institutions to auction mortgaged properties without court proceedings.
This has caused widespread alarm across the SME sector, especially among small manufacturers, traders, and service providers who were battered by the pandemic and the 2022 economic crisis.
The Central Bank of Sri Lanka (CBSL) has acknowledged the rising SME debt distress and has taken steps to ease the burden.
These include encouraging banks to offer restructuring and rescheduling facilities, as well as pushing for more inclusive credit evaluation models that consider alternative data for loan appraisals.
A credit guarantee scheme and partial risk-sharing facility are also under consideration to incentivize lending to high-risk but viable SME ventures.
However, industry associations argue that these measures must be accompanied by a moratorium on parate executions and more aggressive debt restructuring mechanisms. “The SME sector is not just a loan portfolio; it’s the engine of employment, innovation, and regional development,” a senior official at the National Chamber of Commerce stated.
The government’s deployment of Relationship Officers marks a shift towards proactive and decentralised enterprise development. By bridging the information and advisory gap between policymakers and entrepreneurs on the ground, the move aims to prevent further erosion of the SME base, which accounts for over 75% of all businesses and nearly 45% of employment in Sri Lanka.
With financial institutions tightening credit and legal actions on the rise, the success of this hands-on advisory network could determine the survival and revival of thousands of small businesses in the coming months.
