CB to introduce new strategies to help pandemic-hit MSMEs

By Charumini de Silva

Central Bank Governor Ajith Nivard Cabraal yesterday said new strategies to address the hardships faced by the Micro, Small and Medium Enterprises (MSMEs) owing to the COVID-19 pandemic will be introduced shortly.

Acknowledging the letter sent by Industries Minister Wimal Weerawansa to this effect, the Governor said that the Central Bank would frame relevant new strategies to help MSMEs to function properly in the new normal.

In a letter to the Central Bank Governor, Weerawansa underscored the instability of the industrial sector as a result of the pandemic, which he said had enabled financial institutions to progress by making “unlimited profits”.

Although the banking sector has provided loans to industries in 2020/2021, Weerawansa noted that the majority of those were extended to large-scale and buying and selling (trade) businesses.

He thereby proposed that the Central Bank extend the financial moratorium by commercial banks and reschedule the debt of all industrialists in a more relaxed manner.

“We are working on it, and it will be announced soon,” Cabraal told the Daily FT.

A recent survey by the Industrial Development Board (IDB) has revealed that the pandemic has caused a major dip in the MSME manufacturing sector. As a result, the value-added industry contribution to the Gross Domestic Product (GDP) is likely to decline. This was due to the disruptions caused by the pandemic and especially due to the inability to supply inputs (machinery and raw materials) for MSME manufacturing industries, as well as the drop in capacity utilisation in those industries due to declining demand for finished goods. This has resulted in production going into liquidation.

“Bank lending to MSMEs in Asian and SAARC countries is over 50%. However, in Sri Lanka, it is less than 15% with high interest rates,” Minister Weerawansa claimed.

Following the onset of the pandemic in March last year, the Government and the Central Bank had extended a debt moratorium worth Rs. 780 billion to all impacted enterprises and individuals; both capital and interest recovery were suspended. 

The moratorium implemented from July 2020 onwards has been extended multiple times and is slated to expire on 31 December. Under the CBSL-supported COVID-19 Saubhagya Refinance Scheme, the banking sector extended Rs. 165.5 billion (1.1% of GDP) as concessionary working capital at a 7% interest rate. 

Speaking recently at the unveiling of the short-term Road Map, the Governor said that moratoria would be phased out gradually and long-term plans to support businesses affected by the pandemic-related lockdown devised.