Presidential support for MSMEs with extended suspension of Parate law

President Anura Kumara Dissanayake

• Cabinet approves proposal by President AKD to extend suspension of Parate law till 31 March 2025
• Decision follows recommendations from Economic Council experts, appeals from MSME lobby groups
• Proposes multi-dimensional mechanism involving CBSL, private and State banks, other relevant institutions to devise sustainable action plan to recover Rs. 250 b loans

By Charumini de Silva

President Anura Kumara Dissanayake has offered the much needed support for micro, small and medium enterprises (MSMEs) grappling with the economic fallout of recent years by extending the suspension of the Parate law till 31 March 2025.

The move for three months extension was approved by the Cabinet of Ministers at their meeting on Monday, based on a proposal submitted the President who also holds the Finance, Planning and Economic Development portfolio, following recommendations by the Economic Council experts and multiple appeals from MSME lobby groups.

On 29 November, the Daily FT exclusively reported that the Government has decided to extend the freeze on Parate law from the original expiry slated for 15 December 2024 (https://www.ft.lk/top-story/Govt-informs-MSMEs-freeze-on-parate-action-will-be-extended/26-769880).

The decision aims to address the mounting challenges faced by MSMEs in settling bank loans and preventing the auctioning of their properties of their properties due to defaults.

The Parate law outlines in the Banks; Debt Recovery (Special Provisions) Act of 1990, allows banks to auction properties of defaulting borrowers. 

In addition, the Government has proposed a multi-dimensional mechanism involving the Central Bank, public and private banks and other relevant institutions to devise a sustainable action plan for loan repayment.

“MSMEs are an integral part of the economy and their activities reflect tremendously on the GDP. We hope they will take this extended time period to rebuild their businesses and address the broader systemic issues in the sector,” Cabinet Spokesman and Minister Dr. Nalinda Jayatissa said.

Speaking at the weekly post-Cabinet meeting media briefing yesterday, he said the proposed mechanism will enable MSMEs to repay their loans through structured plans, thus preventing the loss of vital assets and supporting long-term business recovery.

Over the past four years, the multiple challenges starting from Easter Sunday attacks in 2019 to the economic downturn in 2022 has disproportionately affected 1.5 million MSMEs and their 4.5 million employees, which form the backbone of the economy. Many entrepreneurs have struggled to service their loans, leading to repossession and auctioning of properties by banks and financial institutions.

In 2023 alone, over 1,400 properties were acquired by banks and financial institutions, whilst forcing the closure of many family-run enterprises. Around 263,000 MSMEs closed down during the height of the economic crisis, leaving over 60% of businesses in non-performing loan (NPL) status. The existing debt amount to around Rs. 250 billion.

Dr. Jayatissa said as the new deadline approaches, the multi-stakeholder mechanism will be instrumental in ensuring both borrowers and lenders achieve positive outcomes, paving the way for a stronger and stable MSME ecosystem in the country.

“The Government aims to create a supportive environment for SME recovery and resilience,” he added.