• CFMSME demands comprehensive relief measures to revive MSMEs
• Govt. agrees to rework CBSL circular after MSME pushback
• Proposed reforms aim for loans under 10% interest, overdue interest waivers for SMEs

The Government has agreed to formulate a more viable package of incentives to revive the local Micro, Small, and Medium-sized Enterprises (MSME) sector considering the inadequacy of relief measures for Small and Medium-sized Enterprises (SME) announced recently by the Central Bank of Sri Lanka (CBSL), according to the Ceylon Federation of MSMEs (CFMSME).  

The CBSL by Circular No.4 of 2024 dated 19 December 2024 announced that the Sri Lanka Bankers’ Association (SLBA) had agreed to reschedule the impaired credit facilities and waive unpaid interest of eligible SME borrowers accumulated over the period between 1 April 2019 and 15 December 2024, subject to the restrictions specified therein.

Speaking to The Sunday Morning Business, CFMSME President Mahendra Perera stated that they were not satisfied with relief provided by the CBSL in Circular No.4 of 2024. 

He further claimed that it was insufficient to bring about the revival of the MSME sector that had been devastated by the effects of the Easter Sunday attacks, Covid-19 pandemic, and extraordinary macroeconomic conditions that prevailed during the recent past.

Perera also stated that the relief provided by the CBSL in the circular was not practical and that the Government had concurred when they had explained their position. 

According to him, the Government has agreed that in order to revive the MSME sector, a more comprehensive relief package addressing the specific needs of the sector will have to be provided. 

He further stated: “The circular did not contain any of the things we had requested. We raised this issue with the Government. We met Minister Sunil Handunneththi and Deputy Minister Chathuranga Abeysinghe and informed them that the circular did not contain any of the things we had discussed. 

“They agreed that the CBSL had not implemented what had been discussed and therefore they instructed the CBSL to reformulate a more complete package. They are yet to announce this package.”

According to Perera, the incentive package discussed will aim to provide MSMEs relief by enabling the restructuring of existing loans at a concessionary rate below 10%, granting new loans at a concessionary rate below 10% notwithstanding the existence of Non-Performing Loans (NPLs), and either fully waiving interest accrued on existing loans over the past five years or allowing for the Government to pay off 50% of the accrued interest with the banks to absorb the remainder.

However, speaking to The Sunday Morning Business, Coordinating Officer to the Deputy Minister of Industries and Entrepreneurship Development Ajith Dhammika Bandara clarified that the Government was considering instructing the CBSL to take steps to remove the names of suitable MSMEs from the Credit Information Bureau of Sri Lanka (CRIB) in order to facilitate the acquisition of new loans.

“We have issued instructions to remove the names of MSMEs from the CRIB and reschedule their loans. The restructuring process is separate from this process,” he stated.

He added that the Government had already provided relief to MSMEs in the form of facilitating the rescheduling of their existing loans and that MSMEs would have to deal directly with the respective banks in this regard.

The CBSL Circular No.4 of 2024 provides that relief provided therein will be made available only to SME borrowers whose credit facilities have been classified as Stage 3 on or after 1 April 2019 and who have commenced discussion on business revival with the business revival units of the respective banks by 31 March 2025.

Accordingly, the CBSL has provided that impaired loans of such eligible SME borrowers will be rescheduled considering their repayment capacity and submissions of an acceptable business revival plan, provided a rescheduling agreement is entered into with the respective bank before 15 June 2025.

Moreover, the repayment of the rescheduled loan must commence before 31 December 2025 if aggregate capital outstanding is below Rs. 25 million, before 30 September 2025 if the aggregate capital outstanding is between Rs. 25 million and 50 million, or before 30 June 2025 if the aggregate capital outstanding is above Rs. 50 million.

Furthermore, the CBSL has provided that a portion of the unpaid interest (excluding capitalised interest) accumulated over the period 1 April 2019 and 15 December 2024 may be waived. 

Accordingly, it has been provided that if the aggregate capital outstanding is above Rs. 5 million and below Rs. 10 million, 65% of the interest component will be waived if the unpaid interest is settled within six months, 50% of the interest component will be waived if the unpaid interest is settled within 12 months, and 40% of the interest component will be waived if the unpaid interest is settled within 12-60 months. 

Similarly, it has been provided that if the aggregate capital outstanding is above Rs. 10 million and below Rs. 25 million, 35% of the interest component will be waived if the unpaid interest is settled within six months, 25% of the interest component will be waived if the unpaid interest is settled within 12 months, and 20% of the interest component will be waived if the unpaid interest is settled within 12-60 months.