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Sri Lanka MSMEs get new stimulus with Rs 20 billion loan relief package

June 29, Colombo (LNW): Sri Lanka’s Micro, Small and Medium Enterprises (MSMEs) hit by the economic downturn will receive a new impetus with the introduction of Rs 20  billion new loan relief package proposed in the budget 2024 , finance ministry sources confirmed.

The micro, small, and medium enterprise (MSME) sector in Sri Lanka accounts for 90 percent of all businesses in the country, provides 45percent of employment, and contributes 52percent to the GDP.

A recent ILO study revealed that 79.8 percent of the one million MSMEs that operated in 2018 were still in operation Among the 20.2 percent businesses either permanently or temporarily closed, 8.3percent of closures were reported to be due to economic crisis while 11.9percent were due to reasons other than economic crisis.

The move aims to provide concessionary credit to eligible MSMEs via selected Participatory Financial Institutions (PFIs), helping these businesses survive, recover and expand, as well as providing seed capital for new ventures.

The package includes a Rs. 15 billion funds for investment category with a 7% lending rate, repayable over 10 years, including a maximum one-year grace period. PFIs can receive up to Rs. 750 million initially, with the possibility of an additional Rs. 500 million after utilising 80% of their allocation. 

Additionally, Rs. 5 billion is allocated to support MSMEs in the Non-Performing Loan (NPL) category, with an 8% interest rate and a 5-year repayment period, including a six-month grace period.

Eligible sectors for this scheme include manufacturing, construction, export-oriented businesses, tourism, apparel, fisheries, animal husbandry, agriculture, and agro-based industries.

 Activities eligible for funding include purchasing assets for business expansion, implementing cost reduction initiatives, upgrading technology, and refurbishing or expanding facilities. Ineligible activities include trading, leasing, renting businesses, and vehicle purchases, unless for land vehicles in the hotel or tourism sectors.

The finance ministry in collaboration with ministry of industries will provide credit facilities of Rs 5 million each to 1000 selected existing MSMEs for further expansion and recovery of their businesses via licensed commercial banks and licensed specialised banks at concessional interest rates.

Another special loan scheme amounting to Rs.3 billion will be implemented with support from the Asian Development Bank (ADB) in addition to the 2024 budgetary support.

The government is also considering the possibility of upgrading the Sri Lanka Savings Bank a subsidiary of the National Savings Bank to a MSME Bank or to set up a special purpose vehicle (SPV) to disburse loans easing the burden on the banking sector.

MSMEs must meet certain criteria to qualify, including a turnover below Rs. 1 billion and fewer than 200 employees. The enterprise must be registered, and each registered entity can obtain only one loan. Additionally, at least 51% of women-led enterprises must be controlled by women.

Participating credit institutions include Bank of Ceylon, People’s Bank, Regional Development Bank, Hatton National Bank, NDB Bank, DFCC Bank, Sampath Bank, Commercial Bank, Seylan Bank, Sanasa Development Bank, Cargill’s Bank PLC, State Mortgage and Investment Bank, Pan Asia Banking Corporation PLC, Union Bank of Colombo, Nations Trust Bank PLC and Housing Development Finance Corporation.

The Government also introduced the SMILE III Revolving Fund Loan Scheme and the E-Friend II Revolving Fund Loan Scheme to further support the MSME sector. 

These schemes offer various financial assistance options with different interest rates, loan amounts, and repayment periods, targeting specific needs such as technical transfers and environmental compliance.

The initiatives aim to promote stable and balanced economic growth, empower MSMEs and strengthen the institutional capabilities of intermediary financial institutions.

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