Sri Lanka’s small and medium enterprise (SME) sector—responsible for 52 percent of GDP and employing nearly half the national workforce—has become the next decisive test of the country’s fragile economic recovery.

A proposal to establish a Rs. 300 billion “Bad Bank” to absorb distressed SME loans now places policymakers at a crossroads: act boldly to revive credit and growth, or risk entrenching stagnation in the real economy.

The Sri Lanka Chamber of Small and Medium Industries (SLCSMI) on Tuesday told journalists that they had unveiled a detailed blueprint aimed at restructuring an estimated Rs. 460 billion in non-performing loans (NPLs), much of it concentrated among SMEs battered by successive shocks—from the Easter Sunday attacks and the pandemic to sovereign default and climate-related disruptions such as Cyclone Ditwah.

While headline indicators suggest macroeconomic stabilisation, including lower inflation, improved reserves and a profitable banking sector, credit transmission to smaller enterprises remains severely constrained, Chambers think tank pointed out.

“This is not about rewarding defaulters,” said SLCSMI President Prof. Rohan De Silva. “It is about protecting the productive backbone of the economy. If SMEs collapse, the consequences will extend far beyond individual balance sheets.”

Despite strong liquidity and a return to profitability in the banking system, thousands of SMEs remain blacklisted at the Credit Information Bureau (CRIB), unable to access fresh working capital.

The Chamber argues that unless distressed assets are separated from viable enterprises, banks will remain structurally risk-averse, prolonging the paralysis in private sector credit growth.

The proposed “Bad Bank” would function as a specialised rehabilitation vehicle, purchasing or warehousing toxic SME loans and granting viable firms a five-to-ten-year restructuring window, shielded from parate execution, to rebuild cash flows. Senior Vice President Colvin Fernando described the initiative as an economic circuit-breaker rather than a bailout. “These are not failed enterprises,” Fernando said.

He added:”They are businesses hit by extraordinary external shocks. Unless we ring-fence these distressed loans, credit transmission will remain paralysed.”

The concept draws on international precedents where asset management companies were deployed after systemic crises. Yet such mechanisms succeed only when governed by strict asset valuation discipline, professional management and insulation from political interference. Without these safeguards, they risk becoming vehicles for concealed subsidies or fiscal leakage.

The most contentious element of the Chamber’s proposal lies in its funding model. It calls for a hybrid structure combining low-cost international financing, a levy on commercial bank profits and the utilisation of unutilised balances from the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF).

Prof. De Silva argues that the banking sector, having restored profitability partly through elevated interest margins during the crisis years, has both the capacity and systemic responsibility to contribute. “The banking system has returned to strong profitability,” he said. “A structured contribution toward SME rehabilitation is not punitive—it is an investment in systemic stability.”

The suggested mobilisation of pension fund balances, however, is likely to provoke scrutiny over governance and fiduciary safeguards, while a levy on bank profits may raise investor sensitivity in a sector that has only recently regained confidence.

Fernando acknowledged the risks, emphasising that transparency and strict eligibility criteria would be essential. “This must be professionally managed, transparent and focused strictly on viable enterprises. Without discipline and accountability, the entire purpose would be defeated,” he cautioned.

Adding urgency to the debate is the Government’s decision to lower the VAT registration threshold to Rs. 36 million annually from April 1, 2026, drawing more small firms into the tax net. The Chamber warns that tightening tax compliance while credit remains restricted could create a double squeeze. “You cannot increase tax burdens and restrict financing simultaneously without economic consequences,” Prof. De Silva observed, describing the timing as highly sensitive.

Immediate Past President Mohideen Cader underscored the scale of the stakes. With SMEs contributing 52 percent to GDP and already under severe strain, he warned that inaction would result in irreversible economic scarring.

The macroeconomic logic is clear: without restoring SME balance sheets, private investment and employment growth are unlikely to regain momentum. Yet the countervailing risk is equally apparent. A poorly designed vehicle could create moral hazard, transfer private losses onto public shoulders and introduce new contingent liabilities into an economy still emerging from sovereign default.

Sri Lanka’s IMF-backed reform programme has so far focused on fiscal consolidation and debt sustainability. The SME “Bad Bank” proposal introduces a more complex phase in the recovery narrative—one that shifts attention from stabilisation to growth. The question confronting policymakers is whether the economy can sustain recovery without unclogging the credit arteries that feed its most labour-intensive sector.

The Rs. 300 billion proposal is, in essence, a calculated gamble that repairing SME balance sheets will unlock lending, revive investment and restore economic momentum. If executed with rigour, transparency and independence, it could serve as a bridge from crisis management to expansion. If mishandled, it risks deepening vulnerabilities in a system that has only recently regained its footing. For an economy seeking to move beyond stabilisation, the stakes could hardly be higher.

By Ifham Nizam

Associated Motorways (Private) Limited (AMW), a stalwart of Sri Lanka’s automotive industry, officially unveiled the all-new Nissan Almera on February 7th, 2026. The launch, held at the Nissan Showroom in Union Place, signaled a bold step forward in providing ‘market-relevant mobility solutions’ to a dicerning local audience.

Addressing the gathering, Jawahar Ganesh, Group Managing Director of AMW, highlighted the strategic engineering behind the new model.

“The all-new Nissan Almera has been thoughtfully engineered to deliver what today’s Sri Lankan customer truly values: efficiency, safety, comfort, and intelligent design,” Ganesh stated.

He further emphasised that AMW’s leadership, backed by the global expertise of the Al-Futtaim Group, remains committed to bringing world-class standards to the local market.

Echoing this sentiment, Atul Aggarwal, Director Aftersales and South Asia Business Unit for Nissan Motor Corporation, noted that the Almera is designed to offer the ‘Nissan Peace of Mind.’ He expressed confidence that the sedan would replicate the massive market success recently seen by the Nissan Magnite.

The Almera is powered by the unique HRA0 1.0-litre Turbo engine, producing 100 hp and 152 Nm of torque. This ‘flat torque’ setup ensures responsive acceleration for city driving and confident overtaking on highways. To bolster fuel economy, it features an Idling Stop system.

Inside, the cabin prioritises the “human element” with:

Quole Modure Seats: Innovative materials that reflect heat, keeping the cabin cool in the tropical sun.

Zero Gravity Seats: Ergonomically designed to reduce fatigue during long commutes.

360-degree Safety Shield: A comprehensive suite including an Around View Monitor, Blind Spot Warning, and Lane Departure Warning.

With immediate stock availability and flexible financing via AMW Capital Leasing, the Almera is positioned as the premier choice for professionals and families seeking a smart, refined, and safe driving experience.

Although AMW did not announce pricing at the event, sources told The Island Financial Review that the new sedan will retail in the LKR 12.5–13 million range. Early birds are in for a win, too, with an encouraging discount reserved for the first 100 buyers.

Notably, the event was a departure from typically lengthy automotive launches, the Almera ceremony was a masterclass in simplicity. The entire event concluded in just twenty minutes – comprising a 15-minute preamble and speeches, followed by a five-minute ceremonial reveal as the Almera glided into the auditorium.

Participants described the event as ‘short and sweet,’ a sentiment that aligned perfectly with the ‘C-word’ emphasised by Jawahar Ganesh, Group Managing Director of AMW about the Nissan brand: Credibility.

By Sanath Nanayakkare

CSE trading started on a dull sentiment yesterday but later turned positive due to buying interest in certain stocks.

The All Share Price Index went up by 4.59 points, while the S and P SL20 rose by 4.46 points. Turnover stood at Rs 3.3 billion with 11 crossings.

Top seven crossings that mainly contributed to the turnover were: Samson International 350, 000 shares crossed to the tune of Rs 136.5 million; its shares traded at Rs 390,Melstacorp 245,000 shares crossed for Rs 44 million; its shares traded at Rs 180.50, Lanka Milk Food 500,000 shares crossed for Rs 36.25 million; its shares sold at Rs 72.50, Lanka IOC 250,000 shares crossed to the tune of Rs 35 million; its shares traded at Rs 141, Sunshine Holdings 1 million shares crossed to the tune of Rs 33.8 million; its shares traded at Rs 33.80, Distilleries 500,000 shares crossed to the tune of Rs 39.5 million; its shares sold at Rs 59 and Bahiraha Farm 315,763 shares crossed for Rs 25.6 million; its shares fetched Rs 81.

In the retail market top seven companies that mainly contributed to the turnover were; UB Finance Rs 172 million (53 million shares traded), Sierra Cables Rs 147 million (4.1 million shares traded), Lanka Credit and Business Finance Rs 119 million (13.1 million shares traded), LMF Rs 112 million (1.5 million shares traded), Colombo Dockyards Rs 111.7 million (758,000 shares traded), HNB Rs 105.4 million (245,000 shares traded) and ACL Cables Rs 96.9 million (975,000 shares traded). During the day 170.3 million share volumes changed hands in 23008 transactions.

It is said that manufacturing sector counters and financial counters performed well. Mixed interest was observed throughout the day.

Yesterday the rupee was quoted at Rs 309.35/38 to the US dollar in the spot market, from Rs  309.43/47 the previous day, dealers said, while bond yields were down significantly as the bullish sentiment continued amid elevated liquidity levels.

A bond maturing on 01.05.2027 was quoted at 8.35/45 percent.

A bond maturing on 15.02.2028 was quoted at 8.92/97 percent.

A bond maturing on 15.10.2028 was quoted at 9.00/05 percent.

A bond maturing on 15.12.2029 was quoted at 9.45/50 percent.

By Hiran H Senewiratne