Business Times

Kilinochchi businessmen limited credit due to lack of collateral

By Jagdish Hathiramani

KILINOCHCHI - Resettled small businessmen in Sri Lanka's northern town of Kilinochchi have been facing severe credit shortages over the last year as a result of a lack of verifiable collateral.
This is due to the loss or destruction of their legal documents pertaining to ownership of land, etc. and documents typically required as collateral to secure loans.

This limited access to credit resulting from the unavailability of legal documents proved to be the biggest point of contention during a discussion held last Monday between resettled villagers and Central Bank of Sri Lanka Governor Ajith Nivard Cabraal at the Kilinochchi branch of state-run Bank of Ceylon.

Other issues brought up by resettled villagers included too high interest rates for lending of capital and too low credit limits, both issues also traced back to a lack of supporting documents for collateral-based lending instruments. As such, small busiessmen only have access to personal borrowing, guarantee-backed lending necessitating a higher lending rate than small business or commercial loans due to the greater risk involved. Mr. Cabraal promised resettled villagers that a new framework would be identified and duly implemented for their benefit.

Mr. Cabraal, who visited the country's northern province last Monday and Tuesday on what can be best described as a whirlwind whistle-stop tour, opened five new bank branches in the towns of Paranthan, Kilinochchi, Vavuniya and Mankulam. These included three People's Bank branches in Paranthan, Kilinochchi and Mankulam; one Commercial Bank branch and one Seylan Bank branch in Kilinochchi; and one HDFC Bank branch in Vavuniya. This visit by Mr. Cabraal was his seventh to the North over the past 12 months.

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