Tuesday Oct 15, 2024
Tuesday Oct 15, 2024
Tuesday, 15 October 2024 03:40 - - {{hitsCtrl.values.hits}}
By Charumini de Silva
With the clock ticking on the temporary suspension of the Parate execution law, the Ceylon Federation of Micro, Small and Medium Enterprises (MSMEs) issued a strong appeal yesterday, calling on the newly elected President Anura Kumara Dissanayake to deliver urgent attention and solutions to restructure existing debts amounting to Rs. 250 billion.
Addressing the media, Ceylon Federation of MSMEs President Mahendra Perera outlined the dire situation of the country’s entrepreneurs, whilst listing five critical areas where intervention is needed before the Parate law suspension ends in 60 days from now on 15 December 2024.
Suspend Parate law, write-off interest rates, debt restructuring plan, delayed disbursement of Rs. 5 million intended for non-performing loan (NPL) categories, and lack of comprehensive policy framework to boost MSMEs were highlighted as five key areas that need immediate intervention by the new administration.
“The MSMEs took the brunt of the multiple crises during the past five years from the 2019 Easter Sunday attacks. The most pressing threat now is the potential reinstatement of the Parate law, which allows banks to seize properties in cases of default.
Entrepreneurs who have managed to survive these past five years are now losing their properties and the consequences for jobs and livelihoods are devastating,” he said, noting that over 1,400 properties had already been acquired by banks last year, leading to the collapse of many family-run enterprises.
Perera said the Federation is collectively calling for a permanent solution to the Parate law and an overhaul to better align it with current economic conditions.
He said the situation has been exacerbated by a steep rise in interest rates introduced by the Central Bank in 2022, with some MSMEs facing rates upwards of 35% on their loans. Perera criticised the Central Bank’s aggressive rate hikes, implemented to curb inflation following the country’s debt default, as having disproportionately harmed small businesses, particularly in the manufacturing, construction, and tourism sectors, while banks reported soaring profits in the past two years.
Perera also revealed that 263,000 MSMEs shut down completely without any resolution during the height of the economic crisis, whilst putting over 60% of them into a state of NPL.
“With an estimated 60% of MSMEs now classified as NPLs, we need a clear distinction between fraudulent defaulters and those genuinely struggling due to external factors,” he said.
The Federation has called for a debt restructuring plan that would allow these entrepreneurs to access fresh working capital, which could enable a revival of their businesses.
He also claimed that despite funding being allocated in September to provide up to Rs. 5 million to those in the NPL category, both State and private banks have refused to release these funds.
“Of the 1,000 entrepreneurs, 400 with approved letters are being turned away with no explanation. This is unacceptable and the Government must step in to ensure these credit facilities are disbursed to give some breathing space for the MSMEs,” he added.
He also underscored the prolonged issue – the lack of a comprehensive policy framework for domestic MSMEs. “Without a framework, businesses face monitoring uncertainty and distress. To resolve this, we proposed the creation of a National Policy for MSMEs, developed in collaboration with financial institutions and Government bodies,” he stressed.
Noting that the challenges faced by the MSMEs could have far-reaching consequences for the economy as a whole, he said while the Government wrestles with its debt restructuring plan, the fate of small businesses, which is the backbone of the economy, will likely be a key factor in determining the broader recovery.
“The window for action is rapidly closing, thus we urge President Dissanayake to immediately provide us with an appointment to discuss the five key factors,” Perera said.
Ceylon Federation of MSMEs Vice President S.N. Raghavan called for decisive Government intervention ahead of the country’s scheduled external debt repayments beginning in 2028.
He stressed the urgent need for financial relief to safeguard the 1.5 million MSMEs and their 4.5 million employees, warning that without support, the crisis could spill over onto the streets.
He urged the President to prioritise the needs of the MSMEs, highlighting that their recovery is crucial for the broader economy. “The President is fighting over the political war; the economic war is bigger and should be given priority,” Raghavan said.
He outlined key requests, including a re-evaluation of the current high interest rates that have left many MSMEs struggling to repay loans.
Drawing a comparison to the relief granted to domestic banks through the Employee Provident Fund (EPF) and Employee Trust Fund (ETF) haircuts, he urged the Government to extend similar concessions to MSMEs.
“We do not need more loans, but rather relief from crushing interest burdens, proposing either an interest freeze or forgiveness with a plan to repay outstanding loans over 5-7 years,” he stressed.
He criticised the Central Bank for its failure to establish Business Revival Units, which were meant to assist the MSMEs in recovering from the multiple economic setbacks.
He also raised concerns about the lack of transparency from banks regarding the Rs. 5 million loan facilities that were supposed to be provided. “Banks have not provided an accurate count of how many loans were disbursed, which raises questions about the effectiveness of this program,” he claimed.
Ceylon Federation of MSMEs Vice President Gamini Kannangara said the success or the failure of the MSMEs could determine the country’s ability to navigate its broader economic challenges.
“For an entrepreneur to come to a build and reach a stable status requires at least 20-25 years and their failure will have a ripple effect on the overall economy. Considering this serious impact MSMEs have on the economy, we urge the President to appoint a dedicated group of officials representing the Treasury, the Central Bank, financial institutions, and struggling MSMEs to have a meaningful dialogue to craft solutions,” he said.
Kannangara disclosed that they have requested for an immediate appointment with the President to outline the challenges faced by the sector and present their suggestions.
He also said it was not the MSMEs that caused the bankruptcy of the country, blaming that it was the mismanagement of the successive Governments from 2016 onwards.
“There are no textbook solutions for these challenges and we urge the Government not to limit our concerns only to the political stage topic and provide immediate attention to our woes before 15 December. Entrepreneurship and the entrepreneur is an asset of a country and not a liability. Thus, safeguarding and nurturing entrepreneurs is critical for economic growth,” he said.
Treasurer Shohan Wijesinghe echoed similar concerns but also noted that MSMEs are willing to make sacrifices if the Government guarantees support in overcoming their existing financial burdens.
“We are not wilful defaulters or evaders,” he stressed, urging the Central Bank to distinguish between genuine defaulters and those engaging in fraud.
Wijesinghe urged the Government to avoid populist decisions that could destabilise the economy further, pointing to the disastrous consequences of the 2019 tax cuts. “Maintain stable policies that are already in place; provide urgent support to the MSMEs in distress to shape solutions to ensure assistance needed to contribute to the economic revival.”
