Finance Ministry sets up special committee to address MSME challenges

• Committee aims to ensure balanced loan recovery while supporting business continuity
• Operates under Finance and Industry Ministries, with public and private sector participation 
• Comprises 14 members with equal representation of Govt. officials and MSME experts
• CA Sri Lanka to introduce credit scorecard to improve MSME access to financing
• National Credit Guarantee Institute to provide loan guarantees, easing financial strain on MSMEs
• Introduces relief package for MSMEs with NPLs post 1 April 2019

The Finance Ministry yesterday announced that it has initiated the formation of a special advisory committee to address challenges faced by Micro, Small and Medium-sized Enterprises (MSMEs) in implementing the Parate law, a legal provision that allows banks to seize collateral from loan drafters without Court intervention.

The Ministry said the committee aims to provide sustainable solutions and develop policy guidelines for MSMEs, ensuring a more balanced approach to loan recovery, while supporting business continuity. The committee will function under the Finance, Planning and Economic Development Ministry and the Industry and Entrepreneurship Development Ministry, with participation from both the public and private sectors.

The committee will consist of 14 members, including seven representatives from key Government institutions and seven experts specialising in MSME development.

Accordingly, the committee will comprise:

1. Three representatives from the Finance, Planning and Economic Development Ministry:

• Director General, Department of Public Finance Policy (Policy formulation on taxes and fees)
• Director General, Department of Trade and Investment Policy (Policy recommendations on tariffs)
• Director General, Department of Development Finance (Strategies to improve MSME access to finance)

2.  One representative from the Industry and Entrepreneurship Development Ministry 
3. One representative from the Trade, Commerce, Food Security, and Cooperative Development Ministry (Focus on market access for MSMEs)
4.  Two representatives from the Central Bank:

• Department of Banking Supervision – Enhancing MSME financing through regulated banking practices
• Department of Regional Development – Promoting sustainable financial solutions for MSMEs

5. The Industry and Entrepreneurship Development Ministry will nominate seven experts specialising in MSME development to ensure practical interventions and comprehensive policymaking.

The Finance Ministry noted that the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka), in collaboration with other professional accountancy bodies, is expected to introduce a credit scorecard/rating mechanism to enhance MSME access to financing.

Additionally, the National Credit Guarantee Institute Ltd., (NCGIL) will play a pivotal role in offering loan guarantees, further easing the financial burden on small businesses.

In addition, recognising the financial hardships faced by MSMEs, a relief package has been introduced for businesses that obtained loans from licenced banks and were classified under the Stage 3 (non-performing) loan (NPL) category after 1 April 2019. 

The measures include:

1. Postponement of Parate Law implementation via a structured approach to delay enforcement
2.  Grace periods for loan repayments:

• 12 months for loans below Rs. 25 million
• 9 months for loans between Rs. 25 million and Rs. 50 million
• 6 months for loans above Rs. 50 million

3. Unpaid interest for loans ranging from Rs. 5 million to Rs. 25 million may be written off based on repayment timelines
4. If the original loan agreement does not provide for a 10-year repayment period, borrowers may now be granted a maximum 10-year term
5. A formal dispute resolution mechanism will be introduced to ensure borrower properties receive the highest possible valuation during auctions
6. Working Capital Loans for eligible MSMEs will be available but it requires a business revival plan to qualify for it
7. Implementation of the Concessional Banking Unit, where a dedicated banking unit will be introduced to facilitate loan restructuring.