Central Bank implements new credit guarantee scheme for COVID-19 affected businesses

A new Credit Guarantee and Interest Subsidy Scheme to accelerate lending by Sri Lankan banks to businesses adversely affected by the COVID-19 pandemic has been announced by the Central Bank on the approval of the Monetary Board. 
This scheme, which will be launched on Wednesday July 1, will operate in tandem with the Saubagya COVID-19 Renaissance Facility within the already announced threshold of Rs. 150 billion. 
A media release issued by the banking regulator, said under this scheme, the Central Bank will provide a credit guarantee to banks, ranging from 80 per cent for smaller loans to 50 per cent for relatively large loans, enabling banks to grant loans to address working capital requirements of the affected businesses. 
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 per cent to businesses. 
The Central Bank will provide an interest subsidy of 5 per cent to cover the cost of funds of banks. Operating instructions on this scheme will be issued to banks in immediate due course, the release said.