Business

Good Intentions, Bad Economics

Published

2 days ago

2026/01/14

The Risks of Intervening in Small and Medium Enterprise Lending Decisions

In the past weeks, newspaper headlines have brought to the forefront a growing narrative that banks are prospering while SMEs are struggling. This outcome has largely been attributed to banks overlooking the impact of external shocks on SMEs and to the current lending frameworks that govern credit markets. Such headlines call for independent statutory mechanisms to probe the fairness of cases leading to credit enforcement. Whilst such concerns are understandable on moral and ethical grounds, urging for artificial interventions in credit markets risks promoting policies that undermine the very mechanisms that enable growth, particularly at a time when economic recovery is urgently needed.

Credit is an avenue available for SMEs to fund their current economic activity based on expected future outcomes. It can be used for investment, as working capital, and to smooth out cash flow volatility. Increased access to credit plays a critical role in stimulating aggregate demand and supporting businesses, especially during periods of recovery.

Many of these sources argue that SMEs were viable before being subject to repeated external shocks in the Sri Lankan economy, such as the Easter Sunday attacks, shutdowns as a result of the Covid-19 pandemic, the economic crisis, which led to the collapse of the currency, and extreme interest rate volatility, as well as repeated climate related disruptions (for instance Cyclone Ditwah). Thus, their inability to service loans has not been attributed to poor entrepreneurship but the repeated exposure to such events beyond their control. While this claim carries weight, calling for the intervention in market mechanisms that govern financial and credit markets could potentially have an effect of worsening the very problems such interventions aim to resolve.

This is because credit inherently involves an element of risk. Repayment is uncertain, and therefore default is always a possibility. Risk varies by borrower, sector, and timing. Credit exists precisely because uncertainty exists. As a result, lending decisions are based on expected cash flows, collateral, sector risk, and macroeconomic conditions. Moreover, exogenous shocks to the economy are systematically taken into consideration. Interest rates and parate execution laws, and asset recovery mechanisms exist to balance risk and return. The higher the risk, the higher the price of the loan. This is necessary because if loans fail, it is ultimately the depositors and by extension the financial system that is compromised. Painting banks as villainous actors can have the opposite of the intended effect. Laws are in place to regulate the conduct of financial institutions for the benefit of all.

Sri Lanka is currently emerging from one of its major economic crises, and therefore, in such a precarious environment, banks cannot simply ignore risk without threatening their own survival and, by extension, the stability of the nation’s financial system. As the Governor of the Central bank, Dr Nandalal Weerasinghe stated, “The banking system is the custodian of this money. If something happens to the system, the savings of the entire country could be lost”. He made these comments at a seminar held on the 20th of December at Kandy City Centre, which was aimed at educating the SMEs in the Central Province on the assistance available from state and private banks to rebuild businesses damaged by national disasters.

Financial Repression Theory, developed by McKinnon (1973) and Shaw (1973), argues that government intervention in financial markets hampers economic growth in developing countries. Government policies such as interest rate ceilings, interference with market pricing of risk and directed credit, distort credit allocation. In this instance, interventions that are supported by such newspaper narratives risk reducing the pool of loanable funds in the market, thus reducing the amount of credit that is available for productive investment. This could also expand the informal sector in a country’s economy and increase illegal lending practices. Other potential drawbacks include an increase in financial exclusion, resulting in credible borrowers and first-time borrowers being unable to secure loan approvals, thus reducing both the quantity and quality of investment, ultimately stifling economic growth.

As the fourth pillar in a democratic society, a country’s media should definitely hold institutions accountable for malpractice. However, it should be noted that credit markets do not function on morality alone and that they function based on economic incentives. Framing one side as a villain in one’s narrative maybe rhetorically effective but when interventions in capital markets are encouraged, this opens the door to further distortions and in the long run, it is often the most vulnerable who bears the costs of these changes. Moreover, banks and financial institutions that are absorbing the risks of such ventures should not be discouraged, especially in the current context of an economy such as Sri Lanka that urgently needs investment-led economic growth. Therefore, we must ensure that public discourse supports and not undermines the delicate balance that credit markets depend upon.

Advocata spokespersons are available for live and pre-recorded broadcast interviews via 0755477522

CONTACT:

Name of the sender

The Advocata Institute

Phone: +94775080256| Email: dhananath@advocata.org

All News Advertisement

Business

JAT Holdings celebrates the 6th Pintharu Abhiman Convocation, uplifting over 800 painters through NVQ certification

Published

2 hours ago

2026/01/16

Thilina Walpola

JAT Holdings PLC marked a significant milestone with the successful conclusion of the 6th JAT Pintharu Abhiman Convocation, recognising more than 800 painters who have earned their NVQ Level 3 qualification, an internationally recognised professional certification delivered in partnership with the National Apprentice and Industrial Training Authority (NAITA).

JAT Pintharu Abhiman was established to uplift Sri Lanka’s painter community through structured skills development, professional recognition and stronger earning potential. This year’s graduating cohort reflects the programme’s expanding reach and the tangible changes it continues to deliver for individuals, families and communities.JAT in collaboration with NAITA has streamlined the certification process such that what would traditionally take up to six months has been refined into an efficient and high-impact three-day assessment model. This approach ensures painters can obtain their qualification without sacrificing extended periods of work, while JAT fully absorbs the certification cost, removing financial barriers and enabling wider access to formal recognition.

Research conducted amongst NVQ qualified participants shows meaningful improvements in livelihoods, with 90 percent reporting increased personal confidence and 76 percent noting an improvement in their overall standard of living. This uplift demonstrates the long-term value of industry-aligned professional training.

A noteworthy moment at this year’s convocation was the recognition of four female painters who received their NVQ certifications. Their achievement marks an important step in broadening female participation in a field that has historically been male dominated, reinforcing JAT Holdings’ commitment to creating inclusive pathways for technical development and sustainable employment.

Speaking at the ceremony, Mr. Wasantha Gunaratne, Director Sales and Technical (South Asia) of JAT Holdings PLC, said:

“Pintharu Abhiman is fundamentally about development, giving painters the knowledge, structure and recognition they need to progress in their careers. By equipping over 800 painters with an internationally recognised NVQ qualification, we are not only strengthening the technical standards of the industry but also creating real pathways for entrepreneurship and financial independence. It is especially encouraging to see that one in five certified painters have already begun building their own businesses. These are the outcomes that matter because they show that when we invest in skills, we unlock opportunity. JAT remains committed to expanding these avenues so every painter has the chance to grow, lead and build a sustainable future.”

The 6th JAT Pintharu Abhiman Convocation underscores JAT’s continued dedication to uplifting the painter community, enhancing industry standards and supporting national skills development through accessible, professionally recognised qualifications.

Business

Industry bodies flag gaps in Draft National Electricity Policy

Published

2 hours ago

2026/01/16

Thilina Walpola

The Ceylon Chamber of Commerce, together with the American Chamber of Commerce, Exporters Association of Sri Lanka, Federation of Renewable Energy Developers, Joint Apparel Association Forum, National Chamber of Commerce of Sri Lanka and Sri Lanka Association for Software and Services Companies, has submitted joint observations on the Draft National Electricity Policy, highlighting that several key issues have not been adequately addressed.

Whilst recognizing the need for reform in the electricity sector, the submission flags several gaps in the draft policy that require closer attention. Key areas such as affordability, decarbonisation commitments, incentives for renewable energy, competition, and the long-term financial health of the sector are either missing or not addressed in sufficient depth.

The proposed tariff revisions outlined in the draft energy policy raise concerns, particularly regarding the removal of cross-subsidies and the proposal to restrict subsidies exclusively to households consuming less than 30 kWh per month. Without detailed analysis, these measures could weaken access to sustainable and affordable energy and potentially lead to fiscal risks.

The provisions allowing uncompensated curtailment, removing feed-in tariffs, and imposing mandatory time-of-use tariffs on rooftop solar users could make renewable energy projects un-bankable for international lenders, thereby increasing the cost of capital for Sri Lanka.

Calling for a more future-focused approach, the submission stresses the need for a policy that reflects modern electricity systems, including planning for the energy transition, energy storage, market competition, cross-border electricity trading, and emerging technologies.

The Chambers and Associations request a comprehensive revision of the Draft National Electricity Policy, alignment with the Electricity Act, and resubmission following substantive consultation, and reiterate support to engage constructively with policymakers to shape a policy that supports affordability, investment confidence, and Sri Lanka’s long-term energy security.

Business

Bank of Ceylon partners with 36th APB Sri Lanka Convention

Published

2 hours ago

2026/01/16

Thilina Walpola

Bank of Ceylon (BOC) partnered with the 36th Annual Convention of the Association of Professional Bankers (APB) Sri Lanka, reaffirming its commitment to promoting professional excellence and knowledge sharing within the banking sector. The partnership was officially handed over by Sameera D. Liyanage, Chief Marketing Officer of Bank of Ceylon and M. R. N. Rohana Kumara, Deputy General Manager Business Revival Unit of Bank of Ceylon, reflecting BOC’s focus on empowering banking professionals and supporting the sustainable growth of Sri Lanka’s financial services industry.