SMEs get further reprieve on parate law execution

Parate law gets suspended through December 2025, with interim expiry dates based on loan quantum 

The small and medium enterprises (SMEs) in the country received a further reprieve on the execution of the so-called parate law execution, as the government decided to provide further relief on the borrowers, who have been affected by the repeated crises.

To this end, the Finance Ministry extended the suspension, which was there on the parate law execution through the end of the year.

However, the latest relief under the suspension of the parate law will exclusively be available for those SMEs that had initiated discussions with the banks, prior to the expiry date of the previous extension on March 31.

The suspension of the law, which has been in effect for little over a year since March of 2024, after constant urging by the SMEs who became victims of repeated crises since the pandemic, would become a welcome move by those borrowers in difficulty.

Parate is a law, which gives the bank or provider of finance the legal right for claim of the property under collateral of the borrower, as the last resort, after exhausting all other options to recover the facility.

Despite the nine-month extension this year, it comes with different time periods for their expiry, based on the quantum of the loan in question.

For instance, the SMEs with loans below Rs.25.0 million will get the longest relief through December 31, 2025, under the suspension of the parate law.

For those with the loan value between Rs.25.0 million and 50.0 million will see their relief under the scheme available up to September 30.

For the others, with loans above Rs.50.0 million, will get time till June 30.

The Finance Ministry, in a statement, said while some have still not approached the banks seeking relief, those who engaged with the banks secured relief benefits, which included interest reductions and extensions to the repayment periods.

“Even though the wilful defaulters may not reach the banks, the banks are hopeful that despite the parate extension being expired, many SMEs will come forward within the next few days to secure the benefits offered by the relief mechanism,” the Finance Ministry said.

In the recently presented budget for 2025, the government allocated Rs.20.0 billion as investment and working capital financing for SMEs. This includes Rs.15.0 billion for performing and non-defaulting SMEs and Rs.5.0 billion for defaulting SMEs with potential for revival.

Additionally, the Finance Ministry announced additional measures in January to ensure the sustainability of the SMEs, for which an advisory committee has already been established in the following month.

Meanwhile, in order to disburse the Rs.5.0 billion allocation, a scorecard system developed by CA Sri Lanka is expected to be used by both the Industry and Entrepreneurship Development Ministry and banks.