A majority of Sri Lankan SMEs are unable to access post-Ditwah loan facilities due to their non-performing loan (NPL) and Credit Information Bureau (CRIB) listed status, the Ceylon Federation of MSMEs President Mahendra Perera told The Daily Morning Business.
“Whatever loans the Government has offered, SMEs cannot access that capital because most of us are in CRIB and in NPL status,” Perera said, noting the significant amount of interest accumulated since six years ago, when Sri Lanka faced economic destabilisation during the Easter Sunday attacks.
“From the Easter attack, then the Covid-19 pandemic, and the bankruptcy period in 2022 onwards, most SMEs, around 70-80% were listed by the CRIB, which has come down to 60%, but a majority are still in the CRIB.”
Up until April of 2022, when Sri Lanka declared itself officially bankrupt, the Average Weighted Prime Lending Rate (AWPLR) had remained at a stable 10%. In the same month, the Central Bank of Sri Lanka resorted to combating hyperinflation and currency instability by increasing its interest rates by over 100%.
Within the same year, the AWPLR reached 30%, up from 10%, causing MSMEs with existing loans to see their interest obligations triple. This tripling of financial costs triggered a massive wave of defaults and business closures, as noted by the Ceylon Federation of MSMEs.
“Unfortunately, SMEs had to bear an additional burden of 20-25%, though the segment was unable to. That was the main reason SMEs collapsed during that period,” Perera said.
In December last year, Sri Lanka began identifying and compensating MSMEs that had been impacted by Cyclone Ditwah, which caused physical damage to production plants, machinery and temporarily halted MSME operations islandwide.
The Government had begun offering a loan subsidy of Rs. 200,000 at an 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.
In an announcement made in January by the Department of Development Finance under the Ministry of Finance, it was stated that Sri Lanka’s micro, small and medium enterprises (MSMEs) are to be allocated an additional Rs. 95 billion for subsidised loans by the Government this year, in order to incentivise more businesses, aid expansion, and support technology investments. This programme is carried out separately from loan facilities meant for SMEs that have been affected by Cyclone Ditwah.
In January, joining three State banks that had been offering cyclone-impacted SMEs concessionary loans, 13 more local banks expressed their willingness to offer capital loans to enable restarting of MSMEs that had been impacted by Cyclone Ditwah, with the involvement of the Ministry of Finance, Planning and Economic Development, which is to facilitate funds for MSMEs at a 3% interest rate, for loans up to Rs. 25 million.
However, according to Perera, the significant rise in interest rates that has hindered SMEs from recovering from NPL and CRIB status continues to exclude a majority of SMEs from availing themselves of support.
“Because of this, they are unable to benefit from any facilities from banks or other institutions offering loans.”
“Due to the Covid and moratorium period, the interest portion accumulated since then is huge. With that huge interest and the capital, in the next five to ten years we can expect to experience inabilities in making these monthly repayments.”
“We have initiated discussions with banks on concessional measures, as the factors that impacted the segment were not within our control. Some SMEs, due to parate execution measures, are losing their properties, factories, housing etc. In 2024, around 1,400 SMEs had been gazetted for parate action.”
Sri Lanka’s grace period granted to small and medium-sized enterprises (SMEs) under the Parate Execution Law, (Recovery of Loans by Banks (Special Provisions) Act, No. 4 of 1990) introduced in February of 2024 ended for SMEs with loans exceeding Rs. 50 million in June of 2025.
SMEs with loans between Rs. 25 million and Rs. 50 million saw the relief measure removed in September of 2025.
Perera said that solutions to the long-running structural issue had been discussed during its meeting with the Committee of Public Finance (COPF) recently, however, there had been no guarantee that the proposed policies would be implemented soon enough
“During the last COPF meeting we attended, policy changes that could alleviate SMEs from this were discussed, but we are not sure how many months to years it may take for this to be implemented.”
“The COPF suggested bad banking as a method, where banking debts are to be resolved by a separate institution, which will help SMEs restructure their debts; provide them with feasibility reports and long-term plans on repaying debts, at concessionary rates.”