CBSL implements a Credit Guarantee and Interest Subsidy Scheme for Businesses affected by the COVID-19 Pandemic

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The Monetary Board of the Central Bank of Sri Lanka, has decided to implement a Credit Guarantee and Interest Subsidy Scheme to accelerate lending by banks to businesses adversely affected by the COVID-19 pandemic.

The decision was reached at its meeting held on 26th June.

This scheme, which will be launched on 1st July 2020, will operate in parallel with the “Saubagya COVID-19 Renaissance Facility”, the Central Bank of Sri Lanka said on Sunday (June 28).

According to CBSL, the new facility was approved by the Monetary Board under Section 83 of the Monetary Law Act, within the already announced threshold of Rs. 150 billion.

Under this Scheme, the Central Bank will provide a credit guarantee to banks, ranging from 80% for smaller loans to 50% for relatively large loans, enabling banks to grant loans to address working capital requirements of the affected businesses.

The CBSL statement further noted, “with the Central Bank absorbing a significantly higher percentage of the credit risk, banks can extend their lending to vulnerable businesses focusing on the viability and cash-flows of such businesses rather than collateral.”

“Banks are expected to use their own funds, particularly the additional liquidity of close to Rs. 180 billion provided by the Central Bank through the cumulative reduction in the Statutory Reserve Ratio (SRR) of 300 basis points thus far during the pandemic period, to grant loans at 4% to businesses,” the CBSL statement read.

The Central Bank will provide an interest subsidy of 5% to cover the cost of funds of banks.