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MSMEs breath sigh of relief following the freeze of parate action till Dec 15

By: Staff Writer

February 28, Colombo (LNW): The struggling Micro, Small and Medium Enterprises (MSMEs) and individuals are now breathing sigh of relief with the Cabinet of Ministers yesterday at its meeting agreeing to temporarily suspend highly contentious parate action till 15 December, 2024.

The Cabinet meeting chaired by President Ranil Wickremesinghe approved a proposal to this effect submitted by Justice Minister Dr. Wijeyadasa Rajapakshe PC along with Industries and Health Minister Dr. Ramesh Pathirana.

The Cabinet decision to temporarily halt parate action also comes despite warning by the Central Bank Governor Nandalal Weerasinghe that such a move will not help MSMEs and would be at the cost of banking system stability.

However the Cabinet move follows widespread demand for urgent “breathing space” for MSMEs and several political leaders backing the same.

The Government opted for temporary relief whilst the Asian Development Bank and other multilateral donor agencies are working to establish a credit guarantee fund.

To qualify for the temporary parate suspension, the MSMEs must show a proper restructuring plan for debt and operations.

Such a restructuring plan must show cash generation 20% over all expenses and debt servicing; an internal rate of return 15 to 25% and a feasibility of the restructuring plan must be documented and verified by an independent finance professional.

According to CBSL Governor MSMEs had been supported extensively since 2019. He revealed that the value of loans which got relief/restructured was Rs. 5.8 trillion.

He said in 2023 the number of actions were only 557 involving loans worth Rs. 38 billion which was 0.4% of total credit and 2.7% of impaired loans.

With banks asked to set up business revival units, he said over 2,500 enterprises with Rs. 85 billion in debt had been supported via this initiative.

Anti-parate activists who have now formed into a grouping called MSME Chamber of Sri Lanka claim that the number of parate actions was much higher and thousands of MSMEs have collapsed leading to job losses.

Economic expert Dr Harsha de Silva, MP, emphasised the urgent need for comprehensive measures to address the mounting challenges faced by these enterprises, which are crucial to the country’s economy and employment landscape.

To provide immediate relief to the struggling sector, he called for a two-year suspension of parate execution for non-willful defaulters and the introduction of insolvency legislation to support MSMEs.

MP Harsha said proposing “investor-equity eco-system model” as an alternative to collateral loans or venture capital, which would generate localised economic growth and provide investment opportunities for MSMEs.

According to the gazette notification issued by the government, informed that from January 2023 to the end of January 2024, 1410 property acquisitions have been made under parate law, they disclosed pointing out deflation of data by Central Bank.

National Trade Protection Council President Mahendra Perera said, the Government will have to consider MSMEs which went into default due to multiple crises caused by failure of political leadership and factors beyond the control of the private sector.

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