Sri Lanka’s Micro Small and Medium scale Enterprises (MSMEs) are now facing additional pressure with the sudden disruption to their businesses during the rapid third wave of the COVID-19 contagion making them cashless to meet their bank loan repayment obligations. The debt moratorium granted to COVID-19 affected businesses and individuals (except tourism sector) ended on [...]

Business Times

Pandemic-battered SME’s small entrepreneurs struggle to stay alive

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Sri Lanka’s Micro Small and Medium scale Enterprises (MSMEs) are now facing additional pressure with the sudden disruption to their businesses during the rapid third wave of the COVID-19 contagion making them cashless to meet their bank loan repayment obligations.

The debt moratorium granted to COVID-19 affected businesses and individuals (except tourism sector) ended on April 1 and a large number MSMSE debtors to banks and finance companies complained that they cannot repay loan instalments.

The Government’s scheme for banks and non-bank financial institutions to provide special credit relief to MSMEs has been already affected on its credit profiles and the delay in the settlement of those loans and capital repayments will increase their non-performing loan (NPL) ratios, several bank CFOs warned.

The outstanding balance of credit granted to MSMEs was Rs. 743 billion as at end 2020, which was 11.1 per cent of total loans disbursed to the private sector by licenced banks, an official assessment report on the relief scheme revealed.

Most of the new lending granted to the MSME sector during recent months had been of short-term nature, whereas the stock of lending remained mostly balanced, in terms of the maturity structure.

This could mainly be due to the cash flow disruptions faced by the MSMEs amidst the pandemic, the report disclosed.

The survey findings also revealed varying MSME exposures of banks, reflecting the differences in business models.

Measures such as the introduction of broader credit guarantee schemes or the establishment of a permanent credit guarantee institution could be helpful in improving access to finance for MSMEs, which would address the longstanding issue of the lack of
acceptable collateral in the sector, it has suggested.

The new survey on bank lending to MSMEs reinforces with data that limited access to low-cost financing remains a major constraint in the MSME sector in Sri Lanka

The supply chains and cash-flows of MSMEs have been severely disrupted by COVID-19, Confederation of Micro, Small and Medium Industries (COSMI) President Nawaz Rajabdeen told the Business Times.

He disclosed that most of the MSMEs in rural and semi-urban areas are on the verge of bankruptcy and about to close down their businesses as these enterprises had been deprived of the government’s working capital loans at 4 per cent interest due to logistical disruptions.

He noted that the Central Bank has disbursed Rs. 150 million or more than under the Saubhagya (Prosperity) Loan Scheme but micro small and medium enterprises in rural areas have been left out of the scheme due to lack of proper implementation procedure.

Mr. Rajabdeen has suggested appointing a Task Force, or a Coordinating Body involving regional chambers as a public private partnership to assist the MSMEs who were left out of the scheme to revive businesses.

There are around 600,000 MSMEs in the country that are not registered, Mr. Rajabdeen said adding that COSMI’s aim is to help these industries to register and enable them to avail themselves of low cost funding to support their industries.

MSMEs play a vital role in the socio-economic development of the country contributing 52 per cent to the GDP. As per the Department of Census and Statistics, the number of establishments in the SME sector is 1.017 million providing livelihood to nearly 2.25 million persons in the non-agricultural sector.

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