1183 SMEs lose their assets so far this year under parate execution by banks
Business operation of 89 per cent of the Micro, Small and Medium Enterprise (MSME) sector in Sri Lanka is worsening following stringent legal actions taken by banks to recover their loans, a leading MSME association said.
1183 SME assets had been taken over by banks and auctioned to prospective bidders under parate execution during the past 11 months this year, official data shows.
70 per cent of around 1.3 million SMEs with 2.2 million employees contributing to more than 50 per cent of the country’s GDP are now in more debt than any time before.
MSMEs hit by COVID -19 and the economic crisis are currently struggling for survival while many others have shut down altogether as a result of parate execution of banks, President of the National Trade Protection Council (NTPC) Mahendra Perera told the Business Times.
He noted that MSME’s have been compelled to take collateral loans from banks at low 7 per cent interest loans taken in 2022 when interest rates were kept down by authorities during the economic crisis period.
After the expiry of the Central Bank’s moratorium given to repay the bank loans, these entrepreneurs had no option other than default as they are required to pay the capital and accumulated arrears plus interest on interest resulting in the banks’ action to seize their assets under the Parate Execution Act, he disclosed.
These entrepreneurs have now closed down their enterprises following the liquidation process as they have become victims of the economic crisis.
These businesses have been shattered with increasing inflationary conditions, high costs of production difficult administrative operational challenges, and excessive cost of finance resulting in high interest rates.
State Finance Minister Shehan Semasinghe noted that the government has considered the present plight of MSME’s in providing some relief for them via the 2024 budget proposal.
Outlining the rationale behind the Rs. 50 billion budgetary allocation, he disclosed that its focus was to support MSMEs, which constitute over 50 per cent of the country’s economy.
A sum of Rs. 30 billion has been earmarked for their rehabilitation, divided into two segments. A facilitating institution, responsible for issuing guarantees, is set to be established in January under the Ministry of Finance.
An estimated expenditure of Rs. 50 million is allocated for this purpose, alongside an additional Rs. 50 million designated for providing financial facilities at subsidised interest rates.
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