SMEs given two more weeks to apply for loan relief, credit support programme

The small and medium-sized enterprises (SMEs) have been given time till January 31 to apply for the government-proposed loan moratorium under its credit support programme but such requests should come in writing and some should come with credible business plans. 

The instructions came early this week from the Central Bank in a circular released to all licensed banks, which contained the details of the eligibility criteria and how the banks should go about in making avail the facility across the performing and non-performing clients. 

After protracted negotiations with the Central Bank and the economic team of the new government, banks last December agreed to offer the moratorium on capital for a period of 12 months, for loans up to Rs.300 million in aggregate, by an SME.

Hence, during the period from January 1, 2020 to December 31, 2020, the eligible borrowers are required to service only the interest on loans and any failure will strip such borrower of the scheme. 

According to the circular, the SMEs with an annual turnover between Rs.16 million and Rs.750 million for the year ended December 31, 2019, in manufacturing, services, agriculture and construction, can make themselves avail for the credit support programme. 

“For the avoidance of doubt, import facilities for imports other than importation of machinery and equipment are excluded from the scheme. Facilities for importation of vehicles shall not be permitted,” the Central Bank circular said. Under the instructions, the facilities, which will qualify for the moratorium, will be business term loans, leasing facilities, overdrafts and trade finance loans, denominated in rupees.

The administration of President Gotabaya Rajapaksa launched the credit support scheme, which includes the loan moratorium for SMEs, in a bid to provide stimulus to such businesses, which account for the lion’s share of the economy. The SMEs, whose annual turnover does not exceed Rs.300 million, were also freed from the need to pay the Value-Added Tax (VAT) and for the rest, the VAT rate was reduced to 8 percent, from 15 percent. The 2.0 percent Nation Building Tax (NBT) was also abolished. 

Meanwhile, in a further incentive for the SMEs, the Central Bank said the licensed banks may also grant an additional loan or a new facility, not exceeding Rs.300 million per bank, per borrower, provided that the borrower submits a credible business plan along with fulfilling certain other conditions. 

However, this is only available for the performing customers, provided the new facility’s tenure is five years and the rate is equal to the prime lending rate. 

Meanwhile, the non-performing customers can also write to their banks seeking a waiver of the total penal component of the interest accrued and unpaid on such loans. Further, a rescheduling scheme of such NPL facilities was also provided by the Central Bank based on the extent to which the repayment has been made from the total loan thus far. 

The banks shall also grant a new working capital loan with a six-month tenure for such NPL customers, to revive the business with a capital moratorium on such a loan during the first three months. Such a loan should not be priced exceeding 2 percent plus the Standing Lending Facility Rate, the Central Bank said.