November 06, Colombo (LNW): The Micro, Small, and Medium Enterprises (MSME) Chamber of Sri Lanka has urged President Anura Kumara Dissanayake to implement significant reforms to the country’s debt recovery systems, particularly focusing on the Recovery of Loans by Banks (Special Provisions) Act No. 04 of 1990.
In a letter addressed to the President, the Chamber highlighted the severe financial pressures faced by MSMEs, exacerbated by economic crises and aggressive debt recovery practices. These challenges threaten the survival of businesses that form the backbone of Sri Lanka’s economy.
The Chamber expressed concern over the rising number of MSMEs pushed to the brink of collapse, with businesses unable to recover due to outdated and harsh debt recovery mechanisms.
They called for urgent reforms to support these enterprises and promote broader economic stability. By treating MSMEs as key drivers of resilience, the government could strengthen the economy and attract investment, helping businesses recover and thrive.
The letter details a series of challenges faced by MSMEs over the past few years, which have compounded their financial struggles:
Ethnic Violence (2018): Anti-Muslim riots disrupted businesses, particularly those owned by the affected communities, causing significant financial losses and long-term damage to consumer confidence.
Political Instability (2018): A 52-day political crisis led to governance paralysis, undermining investor confidence and stalling business operations.
Easter Sunday Attacks (2019): The bombings devastated the tourism sector, severely impacting businesses like hotels and restaurants reliant on international visitors.
COVID-19 Pandemic (2020-2021): The pandemic caused widespread business closures, with MSMEs struggling to pivot to digital solutions or other alternatives.
Economic Crisis (2022): The collapse of Sri Lanka’s financial system in 2022 intensified the challenges for MSMEs, with aggressive debt recovery measures threatening their survival.
In response, the MSME Chamber proposed several reforms to the debt recovery process:
Temporary Suspension of Debt Execution: A two-year moratorium on aggressive debt recovery would allow businesses time to stabilize and reorganize.
Loan Restructuring: Banks should adjust loan terms based on current cash flows rather than outdated credit assessments, acknowledging the economic disruptions caused by recent crises.
Asset Valuation Reforms: Fairer asset valuation practices should be enforced to ensure that MSMEs are not unfairly penalized during recovery.
Clearer Default Definitions: Definitions of “wilful” and “non-wilful” defaults should be revised to accommodate the impact of unforeseen events like natural disasters or economic downturns.
Equitable Asset Acquisition: The government should mandate that banks pay stamp duty based on the current market value of properties acquired during debt recovery.
Return of Surplus Balances: Surplus funds from asset acquisitions should be returned to the owner promptly, ensuring fair financial practices.
Advisory Committee: An expert committee should be established to help design and monitor reforms tailored to the needs of MSMEs.
The Chamber also called for long-term structural reforms, such as enhanced borrower rights, protection of essential business assets, and sector-specific safeguards for industries like agriculture and manufacturing.
They proposed looking at successful global debt restructuring models, such as Australia’s voluntary administration and safe harbour protections, as potential frameworks for Sri Lanka’s debt recovery process.
By reforming the debt recovery system, the Chamber believes that the government can foster a more resilient economy. Effective reforms will not only support MSMEs but also help attract investment and ensure the country’s economic recovery and growth in the face of ongoing challenges.
