Sri Lanka’s Micro, Small and Medium Enterprises (MSMEs), already weakened by years of economic turmoil, are now trapped in a slow-moving recovery following Cyclone Ditwah and the floods that followed in late 2025 and early 2026. While the government announced substantial financial assistance and concessional loan schemes, the actual disbursement of funds has been painfully slow, exposing deep coordination failures between ministries, financial institutions, regulators, and banks.
Initial government assessments revealed that nearly 14,000 businesses were directly affected across all 25 districts, with micro and small enterprises forming the bulk of the casualties. Many suffered extensive damage to machinery, production facilities, and inventories, forcing operations to shut down for weeks. For enterprises already struggling with weak cash flows and high borrowing costs, the disaster pushed them closer to collapse.
In response, authorities unveiled a 3 percent subsidised loan scheme and allocated Rs. 10 billion specifically for cyclone-affected enterprises, alongside a broader Rs. 95 billion MSME financing plan for 2026. On paper, the relief package appears generous. Micro enterprises were promised loans up to Rs. 250,000, small and medium firms up to Rs. 1 million, and larger enterprises as much as Rs. 25 million. Yet, weeks after the announcement, many eligible businesses report that funds have not reached them.
The core problem, according to industry representatives, is not a lack of policy intent but poor execution. Multiple agencies – including the Ministry of Finance, Ministry of Industries, the Central Bank, state banks, and private banks – operate in silos, each with different criteria, timelines, and documentation requirements. While state banks began limited disbursements in late December, private banks only moved towards signing memorandums of understanding in mid-January, delaying access for thousands of affected borrowers.
Compounding the issue is the legacy of non-performing loans. More than 60 percent of MSMEs were already classified as stressed borrowers following the economic crisis. Despite the Central Bank’s moratorium and loan restructuring options, banks remain cautious, slowing approvals and subjecting applicants to repeated scrutiny. For enterprises facing immediate working capital shortages, these delays are often fatal.
The economic cost of inaction is mounting. Losses to the MSME sector are estimated between Rs. 50 billion and Rs. 85 billion, while supply chain disruptions from damaged infrastructure continue to raise transport costs and threaten food price stability. Given that MSMEs account for over 90 percent of businesses and more than half of GDP, the sector’s stalled recovery poses systemic risks to the wider economy.
Experts argue that disaster relief cannot be treated as routine credit disbursement. Without a single coordinating authority, real-time data sharing, and clear accountability, well-publicised relief schemes risk becoming symbolic gestures. As weeks turn into months, Sri Lanka’s MSMEs are learning a hard lesson: announcements may come quickly, but relief moves at the speed of bureaucracy.
