Local MSMEs on the brink of collapse, banks thrive
Micro, Small, and Medium Enterprises (MSMEs) the backbone of the country’s economy, which comprises over a million businesses, as well as more than half of Sri Lanka’s GDP is on the brink of collapse due to unprecedented pressure from climate devastation, the aftershocks of the COVID-19 pandemic, as well as a credit squeeze of which many of them cannot benefit.
MSME leaders are now making four urgent demands: refund excess interest charged by banks between May 2022 and November 2024 for pre-crisis loans; issue tax credits to banks to cover the cost over five years; suspend adverse non-performing loans (NPL) listings tied to crisis periods.
They urged the Finance Ministry coming under President Anura Kumara Dissanyake to enact binding legislation to enforce these measures.
Particularly, the combined effect of the recent cyclones and flooding, coupled with the impact of the economic crunch caused by the coronavirus, has been felt across different major towns, as seen in the destruction of property and the undermining of capital.
“The small business sector has been left to drown in one crisis after another,” said Mahendra Perera, President of the Ceylon Federation of MSME at a media conference in Colombo on Thursday. “We survived the pandemic and inflation. Now, climate shocks and credit denial are pushing our members out of business.”
The main cause of today’s financial crisis was the intense interest rate hikes of 2022, due to the Central Bank’s raising of policy rates in an attempt to tackle inflation.
For the hundreds of thousands of MSMEs that had borrowed before these hikes, the sudden tripling of interest costs triggered a cascade of defaults and closures, MSMEs representatives claimed.
However while small enterprises have suffered under these financial burdens, Sri Lanka’s banking sector recorded extraordinary gains.
In the 2023-2024 financial year, total banking sector profits before tax have recorded an estimated Rs. 762 billion, while the sector contributed Rs. 295 billion in taxes to the national treasury, data that MSME advocates say proves liquidity exists for relief but is being withheld.
“This isn’t a shortage of funds; it’s a redistribution of funds,” said S.N. Ragavan, Vice President of the Ceylon Federation of MSME. “Banks and government coffers are flush, while MSMEs struggle to get basic working capital.”
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