Small business loans go at around 10.0% to boost economic activity

Sri Lanka’s small businesses are now getting their loans mostly at around 10.0 percent on average, a level they finally had in early 2022, right before the economy came crashing down, sending the interest rates through the roof when the Central Bank over-reacted by raising the rates by unprecedented levels.

In what is called the compilation of monthly Micro, Small and Medium Enterprise (MSME) lending rates, the Central Bank showed that these businesses received the loans at an average rate of 10.79 percent by the end of August 2025, coming off from an extremely high of over 27.5 percent around November and December 2022, during the final stages of the economic crisis. This rate which is called the Average Weighted New SME rate or the AWNSR is the average of all the new rupee loans granted by the licensed banks in a given month to the MSMEs.  

In contrast, the mostly watched the Average Weighted Prime Lending Rate or the AWPLR measures the average rate on loans granted to big corporates by the banks. As of the end of last week, the average prime rate was at 8.10 percent, up 5 basis points from a week ago. There is always a higher margin on the small business loans considering the difference between the risk profiles between the small and big businesses as the latter is mostly considered with less credit risk and are more susceptible for economic shocks.

In any case, this was the first time the Central Bank started compiling and publishing the small business loan rates which they have collected the data from July 2020 when the rates were coming down fast in the middle of the pandemic to provide relief to the businesses at the time. The current small business loan rate, despite low, is still above the less than 10.0 percent levels seen during most of 2020 and 2021. At the time, the rates were cut to rock bottom levels by the Central Bank and made liquidity flushed to provide backstop for the businesses who were struggling to stay afloat due to the pandemic induced business disruptions.

The loans were even offered at rates as low as 4.0 percent for two years to help businesses with the moneys that they needed.

And then a year later in 2022, a large majority of those who took such loans and others who were benefited from low rates went after those who gave such low priced loans, to take their lives after getting indoctrinated by the Colombo based think tanks’ talking heads and some digital news websites eponymous for offering what happens in the economy next.