By: Staff Writer
February 05, Colombo (LNW): Micro, Small, and Medium-sized Enterprises (MSMEs) form the backbone of Sri Lanka’s economy, contributing significantly to employment and economic growth. However, many of these businesses face severe financial constraints, particularly in loan repayments.
The implementation of the Parate Law—a provision that allows banks to seize collateral without court intervention—has raised concerns about its impact on MSMEs struggling with debt. To mitigate these challenges, the government has initiated key reforms aimed at striking a balance between financial stability and business sustainability.
Formation of an Advisory Committee
The Finance Ministry has announced the formation of a special advisory committee to address the difficulties faced by MSMEs in the enforcement of the Parate Law.
This committee will develop sustainable solutions and formulate policy guidelines to ensure a more balanced approach to loan recovery while supporting business continuity. It will operate under the Ministry of Finance, Planning, and Economic Development in collaboration with the Industry and Entrepreneurship Development Ministry, incorporating insights from both public and private sector representatives.
Comprising 14 members, the committee will include seven government officials and seven experts in MSME development, nominated by the Industry and Entrepreneurship Development Ministry. Their objective will be to ensure practical and effective interventions that facilitate comprehensive policymaking.
Enhancing MSME Access to Finance
Recognizing the financing difficulties MSMEs face, the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and other professional accountancy bodies are working on introducing a credit scorecard and rating mechanism.
This initiative aims to improve MSME access to credit by providing a transparent assessment of creditworthiness. Additionally, the National Credit Guarantee Institute Ltd. (NCGIL) will play a critical role in offering loan guarantees to ease financial burdens on small enterprises.
Relief Measures for Financially Distressed MSMEs
A relief package has been introduced to assist businesses that secured loans from licensed banks and have been classified under the Stage 3 (non-performing) loan (NPL) category after April 1, 2019. The measures include:
Postponement of Parate Law enforcement through a structured approach to delay implementation.
Grace periods for loan repayments:
12 months for loans below Rs. 25 million
9 months for loans between Rs. 25 million and Rs. 50 million
6 months for loans above Rs. 50 million
Loan interest relief: Unpaid interest for loans ranging from Rs. 5 million to Rs. 25 million may be written off based on repayment timelines.
Extended repayment period: Borrowers may now be granted a maximum 10-year repayment term if their original loan agreement did not provide for it.
Fair property valuation: A formal dispute resolution mechanism will be introduced to ensure that borrower properties receive the highest possible valuation during auctions.
Working capital loans: Eligible MSMEs can access working capital loans, provided they submit a business revival plan.
Concessional Banking Unit: A dedicated banking unit will be established to facilitate loan restructuring, making financial assistance more accessible.
With these measures, the government aims to create a more supportive financial environment for MSMEs, ensuring that businesses can recover while financial institutions maintain stability. These reforms reflect a concerted effort to strike a balance between financial recovery and sustainable business growth.
