CB directs banks to relax LTV requirements on mini-taxis

The Central Bank has issued a new directive to all licensed banks asking them to facilitate easy loans and leases for mini-taxis under the government’s concessionary loan programme Enterprise Sri Lanka (ESL). 

According to the directive dated June 28, the Central Bank has allowed an 80 percent loan-to-value (LTV) ratio on unregistered non-electric motorcars (Class B), which are purchased under the ‘Mini-Taxi’ concessionary loan scheme of ESL.

A previous Finance Ministry statement said that under ESL, the existing three-wheel owners under the age of 35 can apply for loans up to Rs.2 million, with the government bearing 75 percent of the interest cost. 

It is unclear whether the government’s national economic policy is to turn the people in their prime working age to taxi drivers toiling the congested roads day and night, when almost all sectors in the economy suffer from scarcity of labour. 

The latest directive on LTV and the government’s loan schemes are also at odds with its policy promoting a greener economy, where electric vehicles are encouraged. 

In fact, an earlier Central Bank directive issued in May on the same topic gave up to 90 percent LTV for electric vehicles of all categories, including the electric three-wheelers.
It appears that the government lacks vision and is backtracking on its earlier pledges when closing in on elections. 

Critics of the government’s policy has branded ESL as nothing but a programme to dole out money via the country’s banking sector at heavily subsidised rates to different sectors of the economy in return to win votes at the forthcoming elections, at the expense of the taxpayer. 

However, the Finance Ministry maintains that ESL is aimed at empowering the small and mid-sized entrepreneurs, who have limited access to finance to grow their businesses. 

However, to the surprise of many, is the role the country’s Central Bank is playing, providing easy passage to the government’s fiscal excesses, when in fact it should be cautious and stand ready to resist the artificial demand created by the government policies, specially through unproductive election-oriented spending.