MSME body accuses banks of usury, complains to CBSL

Saturday, 20 December 2025 00:31 - - {{hitsCtrl.values.hits}}

In letter to CBSL, Ceylon Federation of MSMEs flags excessive bank lending spreads despite policy rate cuts
Says interest rate transmission broke down during and after 2022 crisis
Notes AWPLR stayed elevated even as policy rates declined
Cites sharp rise in bank profits during 2022-2024 period
Urges stronger regulatory intervention to protect MSMEs and return excess interest charged by banks

Sri Lanka’s Micro, Small and Medium Enterprise (MSME) sector has raised concerns over what it describes as excessive lending rates charged by licenced commercial and specialised banks, arguing that reductions in policy interest rates were not passed on proportionately to borrowers.

In a detailed submission to financial authorities, the Ceylon Federation of MSMEs said the interest-rate transmission mechanism had remained distorted well after the peak of the 2022 economic crisis, placing a sustained cost burden on businesses already weakened by the downturn.

The Federation pointed to the sharp tightening of monetary policy in 2022, when the Central Bank of Sri Lanka (CBSL) raised its Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) to historic highs as part of crisis stabilisation measures. While acknowledging the necessity of those actions at the time, it said subsequent policy easing had not been reflected adequately in retail lending rates

Even when the Average Weighted Prime Lending Rate (AWPLR) had peaked at 29.67% in September 2022, the policy rate was 15.50%. While policy rates have since decreased, market rates continue to trail much higher. According to the submission, by 5 December, the Overnight Policy Rate (OPR) stood at 7.75%, while the AWPLR remained significantly higher at 8.74%, indicating a persistent gap between policy intent and market outcomes.

The Federation argued that this divergence disproportionately affected MSMEs, which rely heavily on bank credit and have limited pricing power to absorb higher financing costs. It said elevated borrowing rates constrained recovery, investment, and employment at a time when economic normalisation was expected to support growth

To underline its case, the submission included profit-after-tax figures of several licenced commercial banks for the 2022-2024 period, showing a marked improvement in earnings during the same years when MSMEs faced elevated interest expenses.

The Federation called on regulators to make fuller use of existing legal and supervisory powers to ensure fair transmission of monetary policy and prevent what it described as unjustified widening of lending spreads. It warned that failure to address the issue could undermine broader economic recovery and weaken confidence among small and medium-scale entrepreneurs. It called on the CBSL to ensure that the banking system paid back the excess interest charged on MSME borrowers.