Sri Lanka’s Central Bank may have to undertake the burden of the gap between an interest rate cap for the Micro, Small and Medium Enterprises (MSMEs) and market rates, if it is to introduce a cap on MSME interest rates, CBSL Assistant Governor W.A. Dilrukshini said, speaking on the Committee on Public Finance (COPF) recently.
“If we are saying the interest rates are high, we know that we do not have a ceiling rate. We know it is not capped for SMEs, what we follow is the market rates,” Dilrukshini said during a discussion held between the COPF and representatives of the MSME sector.
Representing MSMEs, several industry persons raised the inability for MSMEs to meet the current interest payments that have been accumulating, most notably from the terror attacks and pandemic 5 years ago. In 2022 lending rates tripled, with the Average Weighted Prime Lending Rate (AWPLR) increasing from a stable 10% to 30%.
“If we are to cap the rate, someone would have to take the burden of the gap of the market and capped rate. Who’s going to take that burden? If the Government is to cover that, they would need fiscal support,” Dilrukshini said. She however added that if the CBSL is to pursue introducing a cap, the Sri Lankan government may even avail of donor funding, if not utilising its own fiscal space.
“This can be undertaken through fiscal support. Otherwise, there should be donor funded credit.” According to Sri Lanka Chamber of Small and Medium Industries (SLCSMI) President Rohan de Silva who was present during the discussion, in 2025, 163,279 SME loans totalling to Rs.1 trillion was disbursed through state and private banks to support sector recovery, post-cyclone Ditwah.
This disbursement was part of the Government’s loan subsidy programme which offered of Rs. 200,000 at a concessionary interest rate of 3% for MSMEs, with micro-entrepreneurs eligible for up to Rs. 250,000, small- to medium-scale entrepreneurs offered up to Rs. 1 million, and medium- to large-scale entrepreneurs offered up to Rs. 25 million.
The Ministry of Industry and Entrepreneurship Development noted that of the 29,649 businesses that had registered themselves on the national database for compensation, 5,639 businesses were micro enterprises, 4,636 were small businesses, and 2,986 were medium-scale firms.
However, according to the Ceylon Federation of MSMEs, which was also present at the COPF meeting, there are a significant amount of Sri Lankan SMEs who are unable to access post-Ditwah loan facilities due to their non-performing loan (NPL) and Credit Information Bureau (CRIB) listed status.
“There were discussions on the need to avail of venture capital,” Dilrukshini said, referring to the alternative means by which SMEs may find capital to sustain themselves and be able to pay their rescheduled debts. “If there’s anyone interested, please look at how Singapore is doing this. What they do is nurture SMEs to the point of taking them to international markets. They are given targeted facilities.”
“If we look at the SME total loan portfolio, from banks there is a 11% contribution. Within this, there are 18% of Non-Performing Loans. Here we did not talk about the Non-Banking Financial Institutions (NBFIs). If you look at non-banking finance companies, around 60-64% of the total loan portfolio has been contributed to SMEs. However, on that end, there is only an NPL value of 6.1%,” she said.
“We all know that finance companies deal with the most risky borrowers, at the grassroots. But the NPL is low in that sector.”
Dilrukshini further pointed out that aside from the business revival units, the CBSL with the Sri Lanka Bankers Association (SLBA), have created a Credit Counseling Centre, which oversees the rescheduling of at least 150 MSME’s on a monthly basis, engaging with banks for the rescheduling of their loans, and providing them with necessary advice.
As per the latest available information as of 31 December, of the 6741 businesses that were restructured under the business revival units, 57% were MSMEs and 43% were corporates.