Monday Aug 18, 2025
Monday Aug 18, 2025
Monday, 18 August 2025 01:56 - - {{hitsCtrl.values.hits}}
Industry and Entrepreneurship Development Deputy Minister Chathuranga Abeysinghe recently charged that banks showed little enthusiasm in extending credit to Small and Medium Enterprises (SMEs), despite the availability of State-backed facilities designed to reduce risk.
Speaking at the launch of Ceylon United Business Alliance (CUBA) International, an initiative to connect SMEs to global markets, he said two major schemes introduced by the Ministry remained largely unused.
The first, a Rs. 6 billion concessional loan pool at 8%, has seen only Rs. 2.5 billion requested and Rs. 458 million disbursed as of July 2025. “That’s a problem,” he said.
The second, the recently introduced credit guarantee scheme worth Rs. 15 billion which allows SMEs to borrow without collateral, has fared no better. “We’ve launched a credit guarantee system, in which you can borrow with the credit guarantee that you don’t have to put collateral and you will never go bankrupt. But only Rs. 1 billion is utilised from that out of Rs. 15 billion,” he said.
Abeysinghe argued this reflected a deeper failure by banks to embrace development banking. “If every bank believed in development banking, you should have allocated a portion of your portfolio for long-term lending and low-cost lending. But no, the banks always waited for the Government to give a soft loan so that the banks could give it away.”
With banks unwilling or unable to take on more risk, he said equity financing was the only viable option to rescue distressed SMEs. “Most SME balance sheets I saw—whoever came to my Ministry to restructure—they had zero equity in their balance sheet.”
He said some businesses needed as little as Rs. 1 million, while others required up to Rs. 1 billion in equity to recover. While a handful of banks had begun granting concessions, most struggling firms remained beyond restructuring. “Every week, we are fighting for it. Every week, I am hearing positive news that the banks have given some concession and they are able to restructure.”
The Deputy Minister linked these financing problems to longstanding policy failures. He noted progress on some fronts, including the expected enactment of an insolvency law this year, a new framework for development banking, an Anti-Dumping and Countervailing Act, and a tariff policy to reduce taxes on raw materials.
Taxation remains a heavy burden for SMEs. Abeysinghe acknowledged that the 30% tax rate on SMEs and the higher Value-Added Tax (VAT) rate were hurting businesses but said they could not be avoided.
“While we know the VAT is hurting you, it has to be charged. While we know the VAT is going to reduce consumption, we have to charge. While we know a 30% tax for SMEs is not enabling, we have to charge. So, it’s not that we don’t know the policy reforms that need to happen, but we have to go through the pain that we created, our parents created for us.”
He pointed to Sri Lanka’s history of low tax collection. “We are in a country that was not able to collect its due taxes for three decades. Our tax collection was as low as 8.5% of GDP by 2019. When we took the Government, it was at 13.9% of the GDP, and we are expected to reach 15.1%. Where do we get taxes from? We are now thriving on indirect taxes, which is not going to enable any SME. But we need to increase our tax base. I can tell you there are 1.3 million individuals in this country not paying tax. And that is what the Government is up against.”
The Government, he said, was expanding digitalisation and reforming tax policy to widen the direct tax base, with the goal of eventually reducing reliance on indirect taxation. “As much as we increase the direct tax collection, we should be able to bring down the indirect taxes. So, that is a journey that we are in.”
Abeysinghe also announced that Sri Lanka’s first SME policy framework would be launched later this year, alongside a new industrial policy. It will include an SME database, lifecycle-based support, divisional-level assistance, start-up incubators, and mechanisms to open both physical and digital markets.
“We have to create both physical and digital markets, and we will ensure that the Government provides you with the right insights, research, and data so that you are driven,” he said. He added that Ministry development officers would be converted into relationship officers to make Government support more accessible.
He criticised large retailers for practices that burden SMEs. “Now we see that large retailers are not enabling you all; asking for three months’ credit and adding 30% on top of your product. These practices do not enable SMEs.”
Looking to the future, he said SMEs must prepare for gradual market liberalisation. “We do have this mindset of protection. Why? Because we never had an enabling environment; we are scared. But slowly, we have to open the markets. Not immediately, but slowly. There is not going to be protection forever. But we will ensure the trade is fair. We will ensure that the borders are controlled and ensure that we have the ability to compete.”
