Sri Lankan Micro, Small, and Medium Enterprises (MSMEs) are experiencing adverse economic challenges, especially in financing, which has led to the bankruptcy of many enterprises. This situation highlights the urgent need for structured mechanisms to address the most pressing needs of MSMEs.
In light of these circumstances, President Ranil Wickremesinghe has introduced a new insolvency law to support MSMEs given that it is not feasible to indefinitely maintain the temporarily suspended parate law. The proposed bill is to include provisions for restructuring loans taken by MSMEs.
The President has also announced the establishment of Enterprise Sri Lanka – an agency dedicated to empowering and providing essential assistance to MSMEs and focusing on boosting exports. While these programmes represent a proactive step towards revitalising the MSME sector, there is controversy among industry stakeholders regarding their potential implications and effectiveness.
During the 2015-2019 Government, a credit programme named ‘Enterprise Sri Lanka’ was introduced to facilitate established private sector enterprises, micro-enterprises, the self-employed, and young entrepreneurs, led by the then Finance Minister. The programme was expected to address economic challenges of the time, including access to affordable financing, lack of collateral, limited technology, and market opportunities.
However, many of these concerns remain unresolved and have even intensified over the time. Therefore, the question remains whether the new Enterprise Sri Lanka initiative will deliver the anticipated benefits.
Govt. measures
Speaking to The Sunday Morning, Treasury Deputy Secretary R.M.P. Rathnayake highlighted that supporting Small and Medium-sized Enterprises (SMEs) had always been a priority of the Government, even during the Covid period, as this sector had been the most affected.
“Numerous requests were made for special requirements in this sector, extending beyond market-based interventions. We have developed subsidy loan schemes arranged by the Department of Development Finance to provide subsidy capital to SMEs for a limited period of time, as we can’t interfere with market activities. But this is a sector that requires special support at the moment.
“SMEs are the main drivers of economic transformation. In addition to the local finance programmes, we have received foreign financing, specially from the Asian Development Bank (ADB), to continue facilitating SMEs, focusing particularly on woman-led SMEs.”
Rathnayake added that the Government had also established a National Credit Guarantee Institution (NCGI) to address the core issues faced by SMEs, such as the lack of sufficient collateral to access capital. New SMEs often do not have the necessary level of collateral and the NCGI will provide a guarantee for SME loans, enabling them to access low-cost financing for their capital requirements.
“On the basis of these assurances provided by the Government, SMEs can approach banks with revised business plans. Most of these banks have now adopted the business revival concept. For instance, the Bank of Ceylon (BOC) has a separate division for business revival beyond normal lending to facilitate these businesses based on mutually agreed action plans. The Central Bank has also issued guidelines to facilitate this.”
For political gain?
When The Sunday Morning spoke to various industry stakeholders regarding their thoughts on Enterprise Sri Lanka, which has been proposed to empower MSMEs, they questioned whether this would be a mere political slogan or whether it would be implemented properly.
Immediate Past Chairman of the Ceylon National Chamber of Industries (CNCI) and Indexpo Certification Ltd. Chairman Canisius Fernando expressed concern that the initiative may only function for a brief period unless the President was reelected, and raised the possibility that it could be a political agenda driven by pressure from SMEs and chambers.
“If MSMEs want to restart their businesses it will cost them significantly. That is a serious concern, because no one is going to start unless there is a concrete hope that they can continue without problems. Therefore, this initiative is not really encouraging given the approaching election.
“This has been a longstanding issue. We started the negotiations on the issues faced by MSMEs two-and-a-half years ago. However, they were never properly addressed. When it is being addressed now, there are doubts whether it is for political gain. Since we are uncertain whether this will turn out to be a long-term plan, we can’t comment on whether this decision is right for MSMEs.”
It is crucial to address the pressing issues currently facing MSMEs in order to offer effective assistance. Fernando highlighted that the loans obtained by many businesses had now become a significant burden for MSMEs.
He noted that if the interest component at least could be waived for a certain duration, it would greatly help their ability to repay these loans. Banks might not fully ignore the lendings, but removing the interest component will provide some relief to restart operations.
Additionally, a grace period of 3-5 months to commence loan repayments will be beneficial, since otherwise, businesses risk facing severe consequences under the parate law, which can lead to the acquisition of their properties. While this law is currently inactive, once it resumes, it will have a negative impact on businesses.
Unlikely to give relief
Speaking to The Sunday Morning, National Construction Association of Sri Lanka Chairman and MSME Chamber of Sri Lanka Media Secretary Susantha Liyanaarachchi expressed his scepticism of Enterprise Sri Lanka.
“Enterprise Sri Lanka was introduced in the past as a programme but was not properly implemented. It’s difficult to believe what the political leaders say at a time when an election is approaching. As business owners, we are sceptical about the President’s statements. These are mere slogans based on political agendas.”
Liyanaarachchi noted that at a meeting held to address the issue of bankruptcy of enterprises, assisting MSMEs through ADB funds and the removal from the Credit Information Bureau of Sri Lanka (CRIB) score had been proposed. However, he stated that these proposals required discussions with the International Monetary Fund (IMF).
Considering such challenges in the implementation of proposals, he noted that there was a lack of assurance regarding the effectiveness of programmes such as Enterprise Sri Lanka as well.
“It shows that even under ‘Enterprise Sri Lanka,’ there is no relief to entrepreneurs in Sri Lanka. We believe this is political and not a successful proposal.”
He added that the Government was weakened economically due to debts, primarily due to the decline of MSMEs. This has contributed to the collapse of the production-based economy. Liyanaarachchi emphasised that Sri Lanka should prioritise supporting and empowering enterprises, as many other countries did, and implement concrete processes to foster a production-oriented economy.
“You can’t work towards building up enterprises without paying attention to the other economic complications in the country. Currently, the country’s economic path is disappointing as there is no proper plan. Therefore, as enterprises, we can’t trust Enterprise Sri Lanka,” he added.
Both pros and cons
Meanwhile, National Chamber of Exporters (NCE) President Jayantha Karunaratne said that while he believed this was a good initiative, it was somewhat overdue and needed to be implemented properly, since despite the crucial contribution of MSMEs to the economy, they were largely overlooked.
Karunaratne also pointed out that the impact of these initiatives on the export sector would only become evident in the medium to long term, as results would take time to materialise.
“MSMEs face many issues such as high production costs, various direct and indirect expenses, and lengthy approval processes. There should be swift action to reduce these costs. Further, expediting lengthy approval processes will also be beneficial. It’s important to solve their issues because then they can focus on their operations.”
Colombo Chamber of Commerce (CCC) President Saranga Wijeyarathne too noted that there were both positives and negatives to the initiative: “I’m happy that the President himself has accepted that the MSME sector is the most affected by the economic crisis, starting from the time of the Easter Sunday attacks. In principle, he accepts that significant assistance is required.
“I don’t have many issues with the concept he has explained, but concepts, titles, and slogans alone will not support this sector. There should be a well-planned policy, a package, and proper implementation of what has been drafted in order to generate productive results.”
Wijeyarathne added that with Sri Lanka heading towards an election, many such new concepts had started emerging. While he acknowledged that there had been a similar project previously, given the country’s past experiences with election promises, he noted that the MSME sector retained certain doubts regarding initiatives launched close to elections.
“The biggest issue for this sector is the loans taken prior to 2019, due to which a fair percentage of people are still suffering, with no sign of recovery. While businesses would prefer to repay their loans, certain debts have now doubled from the original amounts borrowed. The circumstances are beyond their control. How can this be addressed? There has to be a proper solution.
“It has also been mentioned that certain State institutions need to be restructured. We welcome this since it is required. These institutions are not contributing despite trying their best; they need to operate with a common objective and not in isolation.”
Wijeyarathne pointed to the need for a solid plan and a shared objective among all parties involved, as institutions supporting this initiative should have their objectives clearly set in order to align with the country’s main goals.
While acknowledging that the initiative had certain positives as a concept, he said: “However, there are significant doubts as to whether it will genuinely benefit the sector.”