### 📈 SME Lending: The Risks of Market Intervention

Recent headlines suggesting banks are thriving at the expense of struggling SMEs have sparked calls for statutory interventions. However, economic analysis warns that artificial interference in credit markets could undermine Sri Lanka's recovery. • The SME Context Small and medium enterprises have faced a "perfect storm" of external shocks: the Easter Sunday attacks, Covid-19 lockdowns, the economic crisis (currency collapse and interest rate volatility), and recent climate disruptions like Cyclone Ditwah. While these events were beyond their control, their resulting inability to service debt has fueled the narrative for a "fairness probe" into credit enforcement. • Systemic Risks of Intervention Market experts argue that intervening in lending frameworks—such as imposing interest rate ceilings or altering parate execution (asset recovery) laws—poses significant risks: Financial Instability: Banks act as custodians; if credit mechanisms fail, the savings of the entire nation are at risk. Credit Contraction: Intervention can shrink the pool of loanable funds, leading to financial exclusion where even credible first-time borrowers are denied credit. Informal Markets: Distorting formal credit pricing often pushes businesses toward high-risk illegal lending. • Current Economic Outlook National Context: The CBSL Governor, Dr. Nandalal Weerasinghe, emphasized that maintaining the banking system's integrity is vital for national stability. Sector Support: Instead of price controls, the focus remains on targeted assistance. For 2026, the government has introduced the RE-MSME Plus scheme, offering 3% concessionary loans to disaster-hit businesses. Diversification: Strengthening credit markets is seen as the only sustainable path to investment-led growth and employment. _Note: Summary based on news reports and provisional economic commentary as of January 2026._ ---