Rs. 4 billion for SMEs Rs. 1 billion for startups

Interest rates as low as 12.0- 12.5% over 5 years 5% below market rates

By Sanath Nanayakkare

The Bank of Ceylon (BOC) yesterday called a press conference at a short notice to break good news for Sri Lanka’s SME sector, women-led businesses and startups hungry for capital to give impetus to their growth plans after Sri Lanka has gone through a tough cycle of crises.

The Bank has just rolled out an SME fund of Rs. 5 billion at 12.0 -12.5% interest rates which the Bank said would certainly increase if there is more demand from the businesses to take their businesses to the next level.

BOC Chairman, President’s Counsel Ronald C. Perera addressing the media at BOC head office said,” As you know the past few years have been a huge challenge for the whole country including the banking sector. The interest rates went up sky-high and now after the domestic debt optimization (DDO) interest rates have started coming down. We are hopeful it will kick off the business sector so that entrepreneurs will be able to borrow funds at reasonable rates to carry out their commercial activities.

We at the Bank of Ceylon have especially thought about the Small and Medium Enterprise sector (SMEs) not only in the western province but also in all other provinces because they are the backbone of the economy of the country. Before the DDO was announced, interest rates hovered around 25-28%, and by August 9, 2023 it had come down to 16.9%. Now we have worked out a special SME loan scheme totaling Rs. 5 billion to be disbursed at 12% which is 5% below the market rate. Each qualifying SME in this loan scheme can seek a loan up Rs. 25 million. If they have collateral, they will get their loan at 12% and those without collateral will get it at 12.5%. According to the demand, we will certainly increase the SME loan volume beyond Rs. 5 billion. Let’s first see how things would turn out in the initial phase.”

“Further, there is another loan scheme to support the startups with up to Rs. 2 million rupees at the same interest rates. Both these loans are given for 5-year periods. We are looking to give priority to young entrepreneurs and businesses headed by women. We have allocated 4 billion rupees for SME loans and 1 billion rupees for the startups. This means a total of Rs. 5 billion will be disbursed in this exercise. We hope it will help drive SMEs catering to the local market as well as export-oriented SMEs and startups that need financing to grow into the next phase. The fund allocation will be implemented in a first-come first-served basis. One customer can get only one loan under this category.

This financing is provided for new businesses and not for settlements or re-pricing of existing businesses. We will abide by the normal banking practices stipulated by the Central Bank such as getting CRIB reports of borrowers and guarantors. The applicants must demonstrate that they have necessary qualifications and experience in the relevant field and have a valid business registration. They need to be able to produce environmental compliance reports etc., in case it would be required.

The borrowers would be required to provide 25% equity of their respective projects. We will not permit the purchase of land or vehicles under this scheme, but the funds can be used to put up infrastructure with the approval and due diligence by the Bank. The applicants have to come up with a business plan to show how he or she will maintain the operational activities of the business and the cashflow in a stable manner.”

“These loan schemes have just rolled out this week. Actually this was initiated after the government and the Central Bank asking us to reduce interest rates and support the economic recovery as the time is right to do so. In fact, we have gone beyond the desired levels and are offering these loans 5% below the market rate.”

“There are already a number of other SME financing facilities given at concessionary interest rates which had started earlier. In addition to that, we provide non-financial assistance to SMEs under the BOC SME Circle. It gives them the know-how to operate their businesses successfully and to expand their businesses,” BOC Chairman said.

BOC General Manager/CEO Russel Fonseka said that the Bank was able to safeguard their customers during the multiple crises and when the interest rates shot up to very high levels, because they didn’t shift that burden on to their customers, but absorbed that loss into the Bank and provided a cushion for the troubled businesses.”

“That was how BOC able to keep its customers battling the economic crisis to survive and to keep our non-performing loans (NPLs) at a very low level. We have always stayed true to our core value of ‘thin margins, high volumes’ which has worked for the benefit of the Bank, its customer base and the overall economy,” the GM said.