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•    Formulates new rural credit plan
•    Urges banks, finance companies to lend more
•    Appoints new officers to carry out plan
•    Central Bank to underwrite loans

Sri Lanka’s Central Bank plans to pump credit into the provinces to ensure a more balanced economic growth going forward, a top official said.  

Central Bank Governor Arjuna Mahendran said the bank would be coming up with a comprehensive credit plan this month to disburse more credit into the regions.

“The Central Bank is going to talk to every bank and finance company in the provinces to extend more credit and we will give them targets,” Governor Mahendran said.

He added that the Central Bank would underwrite such loans with guarantees.  

Though it has gradually declined, the contribution of the Western Province to the country’s gross domestic product (GDP) still stands at over 40 percent. 
None of the other provincial economies are half as large as the Western Province, clearly showing the disparity in resource distribution. However, these lagging provinces offer immense economic potential with the right financing programmes in place. 

“We have some Central Bank facilities like Saubagya and PAMP (Poverty Alleviation Microfinance Project) refinanced by the Japanese, which we are planning to utilize for this,” Mahendran said.

He also said the Central Bank had appointed five new heads for the regions to successfully implement the credit plan. 

When queried as to why the Central Bank was going to reintroduce rural credit when it was identified as a key factor fuelling inflation in the past, Mahendran stressed, “inflation was a thing of the past as the war is no more”.

“Rural credit was being heaped on top of war financing and that’s why it was unsustainable.

But now we have to reach out and go back to the provinces.

It is not a case of reversal of policies but we are adjusting to the time.

We have money now and we can do it,” he said. 

In the 1980s the Central Bank didn’t pursue rural credit actively to arrest inflation. 

However, access to finance has been a major obstacle for Sri Lankan small and medium-sized businesses despite the country having one of the highest banking and finance sector penetration in the regions.

As a result, Sri Lanka has resorted to bizarre import habits. For example, the catering arm of SriLankan Airlines is importing most of its vegetables and fruits due to local market supply constraints.