May 30 2023
Government of Sri Lanka (GOSL) funded Schemes
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Government Loans in Sri Lanka: An In-depth Analysis
The Sri Lankan government, through the Central Bank of Sri Lanka (CBSL), has undertaken a critical mission to foster balanced growth and enhance financial inclusiveness across the country. It has established a broad spectrum of loan schemes designed to address a variety of socio-economic objectives. These programs aim to facilitate access to finance, stimulate regional growth, alleviate poverty, generate income and employment opportunities, foster skills development and training, and ensure food security and safety.
A Varied Portfolio of Government Loans
The CBSL administers an array of government loan schemes, encompassing refinance schemes, interest subsidy schemes, and credit guarantee schemes. These programs are primarily targeted towards key sectors, such as Agriculture, Animal Husbandry, and Micro, Small, and Medium scale Enterprises (MSMEs).
Government of Sri Lanka (GOSL) funded Schemes
The CBSL executes seven schemes financed by the GOSL, including four refinance loan schemes and three interest subsidy schemes. A prominent example is the "Sarusara" - New Comprehensive Rural Credit Scheme (NCRCS), which functions both as an interest subsidy scheme and a credit guarantee scheme. This dual-purpose design showcases the innovative approach taken by the Sri Lankan government in crafting its lending schemes.
CBSL funded Schemes
The CBSL itself funds four primary schemes under its Rural Development Department (RDD). These include the Saubagya Loan Scheme, Credit Guarantee Scheme for MSME rice mill owners, Domestic Agriculture Development Programme (pilot phase), and Refinance Scheme for Covid-19 affected State-Owned Enterprises (SOEs). These programs reflect the CBSL's commitment to diverse sectors, from agriculture and small business to state enterprises in need of support.
Donor funded Schemes
International organizations also play a significant role in contributing to the government loan schemes in Sri Lanka. The International Fund for Agriculture Development (IFAD), for instance, has provided millions of rupees to support refinance loan components under the Smallholder Agri-business Partnership Programmes (SAPP). This international collaboration underscores the global recognition and support for Sri Lanka's socio-economic development efforts.
Eligibility and Terms: An Example
Each loan scheme comes with its specific eligibility criteria and terms. Let's delve into the Prosperity Loan Scheme (Saubagya) as an illustrative example:
- Purpose: This loan targets agriculture, livestock, micro, small and medium scale enterprises (MSMEs), and disaster-affected MSMEs.
- Maximum loan limit: Rs.25 million per sub-projects.
- Equity Contribution: Sub-borrowers are required to provide at least 15% of the estimated sub-project cost as equity, either in cash or in kind.
- Bank Loan: 85% of the total estimated project/enterprise cost.
- Refinance: The CBSL will refinance 100% of the loan amount disbursed by Participating Financial Institutions (PFIs) subject to the upper limits.
- Rate of interest on refinance loans to PFIs: 4% per annum.
- Rate of interest for sub-loans: 9% per annum.
- Grace period: Maximum of 6 months from the date of disbursement of the first installment, contingent upon the nature of the sub-project.
- Repayment period of sub-loans: Maximum of 5-year period, again depending on the nature of the sub-project.
Interest-Free Student Loan Scheme
The Ministry of Education in Sri Lanka implements an Interest-Free Student Loan Scheme (IFSLS) for Sri Lankan students who have passed the G.C.E (Advanced Level) Examination. The loans are granted to follow selected degree programs accredited and approved by the Ministry of Education at Non-State Higher Education Institutes. The scheme is designed to help students who otherwise might not have the opportunity to pursue higher education due to financial constraints.
The loan scheme offers financing for 3-year and 4-year degree programs, with maximum course fees of Rs. 600,000 and Rs. 800,000 respectively. Additionally, a stipend is paid to the students quarterly. The total loan period is 12 years, with repayment commencing after a one-year grace period following the study period.
Eligibility for this loan scheme includes having obtained simple passes for all three subjects in the G.C.E (Advanced Level) Examination in not more than three sittings, with a minimum of 30 marks for the Common General Test. The age of the candidates should be 25 years or below
What are the primary objectives of government loans in Sri Lanka?
The primary objectives of these loans include facilitating access to finance, stimulating regional growth, alleviating poverty, generating income and employment opportunities, promoting skills development and training, and ensuring food security and safety.
What are some examples of the government loan schemes available in Sri Lanka?
Examples include the "Sarusara" - New Comprehensive Rural Credit Scheme (NCRCS), the Saubagya Loan Scheme, and the Interest-Free Student Loan Scheme (IFSLS). The Sarusara and Saubagya schemes target sectors like agriculture and SMEs, while the IFSLS is designed to assist Sri Lankan students pursuing higher education.
How are these loan schemes funded?
The Central Bank of Sri Lanka (CBSL) and the Government of Sri Lanka (GOSL) fund several loan schemes. Additionally, international organizations like the International Fund for Agriculture Development (IFAD) contribute to some schemes.
What is the role of the CBSL in these government loan schemes?
The CBSL administers and manages a variety of these schemes. It is responsible for implementing loan policies and guidelines, ensuring funds' correct utilization, and providing refinancing to Participating Financial Institutions (PFIs).
What is the eligibility criteria for the Prosperity Loan Scheme (Saubagya)?
This loan targets sectors such as agriculture, livestock, and SMEs, and disaster-affected MSMEs. Sub-borrowers are required to provide at least 15% of the estimated sub-project cost as equity, either in cash or in kind. Other specifics, such as loan limits, interest rates, grace periods, and repayment periods, are clearly defined for this scheme.
What is the Interest-Free Student Loan Scheme (IFSLS)?
The IFSLS is a government initiative for Sri Lankan students who have passed the G.C.E (Advanced Level) Examination but might not have the opportunity to pursue higher education due to financial constraints. It offers financing for 3-year and 4-year degree programs at Non-State Higher Education Institutes, approved by the Ministry of Education.
Who is eligible for the IFSLS?
Eligibility for this loan scheme includes having obtained simple passes for all three subjects in the G.C.E (Advanced Level) Examination in not more than three sittings, with a minimum of 30 marks for the Common General Test. Additionally, candidates should be 25 years or below.