Sri Lanka’s MSMEs challenge Central Bank over loan relief circular

• Say it is very unfortunate that Central Bank prematurely issued a circular without consulting stakeholders
• Question Banks’ Association’s authority to deny extensions on suspension of parate execution beyond March 31, 2025
• Reveal that over 263,000 MSMEs have collapsed since 2018, due to multiple crises

By Nishel Fernando

Sri Lanka’s micro, small and medium enterprises (MSMEs) have accused the Central Bank of undermining both the government assurances and industry pleas by issuing a controversial circular on loan relief, without adequate consultation.

The MSME Joint Alliance, comprising 10 key MSME organisations, held a press conference in Colombo last week, urging the Central Bank to withdraw the circular. They argued that it contradicts the earlier commitments made by the Finance Ministry to provide fair and effective solutions for struggling businesses.

“The Finance Ministry promised us very reasonable solutions to address the key problems we face. However, it is very unfortunate that the Central Bank prematurely issued a circular without consulting the stakeholders. We call on the government to intervene and find a balanced solution. Today, we stand united as one team to fight against the banking sector’s unfair practices,” said MSME Chamber of Sri Lanka President Sivarajah Thumilan.

The MSME Joint Alliance criticised the circular for failing to address their primary demands, including waiving the accumulated interest on loans taken between 2019 and 2024 and providing working capital loans at concessionary interest rates, to support the distressed businesses.

Ceylon Federation of MSMEs Vice President S.N. Raghvan accused the Central Bank and its governor of favouring the banking sector at the expense of the MSMEs, which contribute 52 percent of the country’s GDP. He also questioned the Banks’ Association’s authority to deny extensions on the suspension of parate execution beyond March 31, 2025, as outlined in the circular.

“Despite the suspension of the parate execution rights, the banking sector has recorded a 152 percent year-on-year increase in profits,” Raghvan stated, highlighting the perceived inequity.

National Construction Association Chairman Susantha Liyanaarachchi revealed that over 263,000 MSMEs have collapsed since 2018, due to multiple crises, which was beyond their control. The alliance is also urging the Central Bank to take measures to return the seized assets to help these businesses rebuild.

Thumilan also accused the bank-appointed valuers of deliberately undervaluing the MSME properties to profit from asset seizures. With the outstanding MSME loans amounting to approximately Rs.250 billion, out of the Rs.1.7 trillion total loan portfolio of the banking sector, the situation remains dire. Liyanaarachchi warned that 759,000 MSMEs are at risk of collapse without adequate relief.
Despite these challenges, the MSME sector remains hopeful. The alliance is pressing for the Central Bank to withdraw the contentious circular and issue a revised version, reflecting the government’s earlier promises.