MSMEs seek urgent financing reforms as loan debt relief measures expire

• Urge govt. to roll out fundamental changes in MSME financing within next 60 days
• Request comes as suspension of parate execution by bankers is set to expire on December 15

By Nishel Fernando

Sri Lanka’s micro, small and medium enterprises (MSMEs) have called on the new administration to implement key reforms in MSME financing within the next 60 days, including waivers on interest for the struggling businesses. 

The appeal follows the impending expiration of the temporary relief provided by the suspension of parate execution, which is set to end on December 15, placing many MSMEs in a precarious situation.

Ceylon Federation of MSMEs President Mahendra Perera urged the government to offer relief by “waiving the accumulated interest on loans taken between 2019 and 2024”, to support the distressed businesses. 

“They should be provided with long-term repayment options at a low interest rate of no more than 10 percent. Additionally, limits should be set, so that the total interest paid does not exceed 50 percent of the original loan amount,” he said during a briefing in Colombo yesterday.

The federation estimates that the outstanding loans to the MSMEs amount to approximately Rs.250 billion, with 60 percent of these now classified as non-performing. The interest component of these loans is believed to be Rs.60-70 billion. 

Perera also called for reforms to the 33-year-old parate execution law, urging a temporary suspension of the law for one year, until the revisions can be made to better reflect the current economic realities. He further suggested that the properties auctioned under the law should be returned to their original owners, allowing them to repay their debts and the proposed restructuring of the Credit Information Bureau to allow the defaulters and guarantors to access loans again, based on their performance before 2019.

Meanwhile, the federation’s Vice President S.N. Raghvan stressed the need for a “fundamental transformation” in MSME financing. 

“The finances of the MSMEs are crucial and require a fundamental transformation. The approach to MSME financing must change significantly,” he said, while highlighting that although the banks have posted record profits over the last two years, the MSMEs have suffered, with their contribution to GDP shrinking from 52 percent to 38 percent, as many are now classified as non-performing.

Raghvan proposed offering financial relief to the MSMEs by using the security guarantees from the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF), similar to how the banks were supported during the domestic debt restructuring process. 

“Why not give the security for the NPLs from the EPF and ETF? It’s a fundamental change that needs to happen quickly. We need a fundamental change within 60 days,” he added.

Looking ahead to Sri Lanka’s external debt repayments beginning in 2028, Raghvan asserted the need for a strong MSME sector to avoid another default. 

“When we reach 2028, the MSMEs need to be stronger and prepared to handle the payments we have agreed to start repaying. Give them the platform and financial support they need, so they can be ready for what’s ahead,” he said.