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Industries and Health Minister Dr. Ramesh Pathirana and Justice Minister Dr. Wijeyadasa Rajapakshe
Two leading Ministers Dr. Ramesh Pathirana and Dr. Wijeyadasa Rajapakshe on Sunday lambasted the banking sector for half-hearted support to the struggling Micro, Small and Medium Entrepreneurs (MSMEs) thereby endangering a quicker recovery in the economy following multiple crises.
Industries and Health Minister Dr. Ramesh Pathirana on Sunday urged enterprises to stand against unfair banking practices and to continue lobbying for their interests regardless of political affiliations.
Speaking at an awareness conference organised by the Ceylon Federation of MSMEs on ‘Business debt and finance management’ on the side-lines of the Industry Expo 2024, Pathirana insisted the need for businesses to create conversations and pressure policymakers to address their concerns.
Dr. Pathirana warned that banks might channel most of the funds from international credit lines to their wealthy clients, calling for vigilance and protest against such practices.
“We learn that banks are trying to pull the usual pattern of getting the most of the funding facilities to their already rich clients from the loans extended by the international agencies like the World Bank and the Asian Development Bank,” the Industries Minister alleged.
He also pointed out that promoting fair banking practices are essential to drive economic development in Sri Lanka.
Separately at the same conference, in a scathing critique of the banking system, Justice Minister Dr.Wijeyadasa Rajapakshe criticised the policymakers for their failure to establish a credible economic policy to support enterprises and entrepreneurs.
Ministerial...
He attributed Sri Lanka’s economic downturn to the absence of a robust economic policy and a supporting legal framework.
“Banks are established to support industries, entrepreneurs and people, not to flaunt their large balance sheets and profits. State banks, in particular, were created to expand the economy by supporting agriculture and industrial development, rather than solely providing credit facilities to the wealthy,” he said.
He criticised the economic transformations post 1977, noting that these changes have had detrimental effects on the overall growth of Sri Lanka.
“Prior to the open economy, the Bank of Ceylon was established to assist farmers, with over 300 branches set up countrywide through Agricultural Service Centres under Prime Minister Sirimavo Bandaranaike. The People’s Bank was also directed to support enterprises. Unfortunately, the overnight privatisation of the National Development Bank (NDB) and the profit-driven focus of the two State banks — Bank of Ceylon and People’s Bank, have deviated from their original missions,” he elaborated.
Highlighting the proliferation of finance companies, Dr. Rajapakshe pointed out the public’s confusion over the country’s economic state. He accused microfinance institutions of exploiting the public, leaving a quarter of the population as victims of financial scams.
The Justice Minister also revealed troubling practices in the banking sector, where loans are often granted based on personal connections and political influence rather than proper evaluations and compliance.
He claimed that the two State banks have over Rs. 620 billion in non-performing loans (NPLs), asserting that at least half of this amount will likely be written off eventually, as the banks did not secure any collateral or guarantees.
He firmly said: “It is not the poor who default, but the rich. Poor people never default on their debt.”
The Justice Minister called on the public to stand against the exploitative banking system, drawing comparisons with other countries where citizens hold banks accountable.
“Our people mistakenly believe that a profitable bank is a good bank, not realising it is the same institution that has taken their wealth, leaving them poor,” he said.
Dr. Rajapakshe insisted that it is time for customers to rethink their bank choices. “You need to consider whether your bank grew by exploiting you or by helping its customers prosper,” he added.
Recalling that many banks were privatised in the 1980s, he said the Bar Association of Sri Lanka opposed the parate execution by private banks, which State banks did not use against customers.
“Private banks misused the powers of the parate law. They used it as a tool to undermine enterprises, disregarding the adverse impacts on entrepreneurs and their dependents,” he said, attributing this to the post-economic crisis situation the MSMEs faced.
The Minister highlighted the need for collective effort to build a system that allows banks and industries to coexist harmoniously. “There are two possible solutions: abolishing the parate law or providing distressed customers with an alternative to restructure their credit lines. Similar to railway tracks, both are necessary to keep the train on course,” he pointed out.
Dr. Rajapakshe also noted that the Central Bank’s claim of wilful defaulters remains unproven. “Even if such cases exist, they should be addressed with solutions that support entrepreneurship. But so far none of these claims were proven by the Central Bank,” he stressed.
He highlighted the significant contributions of enterprises to economic development through employment, investments, technology and related economic activity boost.
“Entrepreneurs are called the backbone of the economy for a reason. Developed countries achieved their status through industrial and entrepreneurial growth. Sri Lanka failed to give the due recognition and assistance to our enterprises and hence we still remain as a developing country,” he claimed.
Dr. Rajapakshe proposed two solutions to balance the relationship between banks and industries: abolishing the parate law and providing opportunities for distressed customers to restructure their credit lines.
He also pointed out that enterprises struggle to predict their future due to policy inconsistency and frequent changes in tax structures, which discourage investment compared to other countries.
The Minister criticised successive governments for failing to manage fiscal policy, noting that external debt has risen dramatically from Rs. 2,160 billion in 2005 under Mahinda Rajapaksa to over Rs. 20,000 billion today.
He also stressed the need for policy consistency to encourage investment and predictability for enterprises.
Justice Minister highlighted the mismanagement of fiscal policy by successive governments, noting the alarming increase in debt from Rs. 2,160 billion in 2005 to over Rs. 20,000 billion today. “The lack of a consistent tax policy and the failure to manage fiscal policy significantly hindered economic growth,” he concluded.
Dr. Rajapakshe called for substantial reforms to support Sri Lanka’s industrial and entrepreneurial growth, whilst noting there has been some improvement post IMF agreement.
“We must acknowledge that there are some good conditions. Particularly, improvements in the economy after we entered into an agreement with the IMF such as fiscal policy controls, corruption and bribery,” he said, whilst noting that he was not in agreement with some conditions selling or privatising the State-owned enterprises (SOEs).
The Minister outlined some of the previous such projects where he led legal battles to regain assets and SOEs like Sri Lanka Insurance Corporation, Lanka Hospital, Sri Lanka Port Authority’s lands worth over billion rupees.
Fresh Rs. 20 b funding support to MSMEs
Industries Minister Dr. Ramesh Pathirana during his address also announced that the Government has initiated four new loan schemes, offering a total of Rs. 20,000 million in credit facilities to revive micro, small and medium-scale industries and businesses. These loans will be provided at very low interest rates and under simple conditions, in a program jointly organised by the Finance Ministry and the Industries Ministry. Two of the schemes will be implemented through 16 leading banks.
“These initiatives aim to rejuvenate collapsed industries and support small-scale enterprises,” he added.
The manufacturing and industrial enterprises with fewer than 200 employees can receive up to Rs. 15 million at a 7% interest rate, with a 10-year repayment period and a one-year grace period. A total of 16 banks will participate, with Rs. 750 million allocated to one bank.
Small and medium-scale entrepreneurs approved by the Sri Lanka Credit Information Bureau (CRIB) can obtain up to Rs. 5 million at an 8% interest rate, with a five-year repayment period and a three-year grace period. Two additional schemes, Smile and E-Pend, provide funds to small and medium-scale farmers. Rs. 30 million is available for environment-friendly projects at a 6.5% interest rate, with a 10-year repayment period and a two-year grace period. Up to Rs. 1 million is available for small business development, with a 10-year repayment period,” he explained.
Highlighting the collective efforts of industrialists, Dr. Pathirana praised their perseverance in advancing the industry despite numerous obstacles.
He cited the temporary halt of the parate execution law till December 2024 as a significant achievement resulting from these efforts.
The Minister announced the Government’s commitment to establishing a new development bank aimed at providing financial support for an anticipated industrial boom in Sri Lanka.
He said the initiative is part of a broader strategy to stimulate economic growth and support the nation’s industrial sector.
“We are currently exploring the establishment of a development bank to facilitate the required funding for this initiative,” Dr. Pathirana stated.
He recalled the successful establishment of the DFCC Bank in 1960 and the NDB Bank in 1980, both of which have since become major commercial entities following their privatisation.
“It is never too late to do the right thing,” he added, underscoring the urgency and importance of this new endeavour.
Dr. Pathirana also noted the potential for economic growth in South Asia, noting that other regions, such as Europe, South America, Africa and the Middle East, have experienced significant development.
He expressed confidence that Sri Lanka could benefit immensely from a similar phase of growth.
Reflecting on the policies of late Prime Minister Sirimavo Bandaranaike, Dr. Pathirana acknowledged the long-term vision and difficulty of her industrial development policies.
He criticised the tendency to favour short-term, superficially appealing policies over more challenging but beneficial ones, attributing current economic struggles to past misguided decisions.
