Govt. suspends parate execution to protect MSMEs
Bowing to pressure from many quarters, the government has suspended the imposition of the parate execution law against micro small and medium enterprises (MSMEs) but the move has drawn serious concerns from banks.
State Minister of Finance Ranjith Siyambalapitiya said that the Cabinet Paper will be submitted next week to the cabinet to suspend the powers of the law while protecting the banking sector as well.
Given the present socio economic challenges, the Government, Justice Ministry and the Monetary Authority have to coordinate/support each other more than ever before and act together to reinforce the collapsing MSMEs’, representatives from the manufacturing sector insisted.
Justice Minister Wijeyadasa Rajapakshe assured the entrepreneurs that he will take steps to introduce key reforms to the existing archaic parate law and bring a new and improved debt recovery act via Parliament. The Minister reiterated that the banking system should also be safeguarded.
This has raised strong concerns from the Central Bank whose Governor Nandalal Weerasinghe is of the view that parate execution is essential for debt recovery by banks as well as ensuring access to finance for MSMEs.
“Parate is used only as a last option to deal with wilful defaulters and bankrupt borrowers and it is the legal remedy for banks to recover defaulted loans,” he added.
Economic expert Dr. Harsha de Silva, MP, emphasised the urgent need for comprehensive measures to address the mounting challenges faced by these enterprises, which are crucial to the country's economy and employment landscape.
To provide immediate relief to the struggling sector, he called for a two-year suspension of parate execution for nonwillful defaulters and the introduction of insolvency legislation to support MSMEs.
He proposed an "investor-equity ecosystem model" as an alternative to collateral loans or venture capital, which would generate localised economic growth and provide investment opportunities for MSMEs.
Representatives of MSME associations are opposed to the views of the Central Bank claiming that business operation of 89 per cent of currently surviving MSME sector in Sri Lanka is worsening following stringent legal actions of banks to recover their loans overdue.
National Trade Protection Council President Mahendra Perera said the Government will have to consider MSMEs which went into default due to multiple crises caused by failure of political leadership and factors beyond the control of the private sector.