Over the past few days, we have witnessed a ‘small miracle’ on our little island. A leading private bank announces an internal fraud of Rs 13.2 billion – not million, billion – and then calmly assures the country that depositors are safe, operations are normal, and the bank can “absorb” the loss thanks to its strong financial position. The Central Bank backs this up, saying capital and liquidity ratios remain above the minimum and depositors need not worry. One is tempted to ask: if a bank can gulp down Rs 13.2 billion without a hiccup, why does it choke on a Rs 1 or 2 million overdraft request from a genuine entrepreneur in Kurunegala, Matara or Dambulla?
We are told the fraudulent transactions at the bank were in neat little parcels of around Rs 5 million, repeated over time. Imagine, for a moment, a micro or small business defaulting on a single Rs 5 million facility from the same bank – a small tea factory in Galle, a tourism guesthouse in Ella, a garage in Gampaha, or a spice exporter in Matale. Will we see the same relaxed language about “absorbing the loss”? Or will the familiar machinery of Parate execution start to grind – auction notices on village gates, family property under the hammer, and a lifelong stigma attached to the borrower?
This is the heart of the matter. In Sri Lanka’s financial culture, risk is not just a number on a spreadsheet. It has a face and a class. For the bluechip conglomerate, the politically connected ‘lokka’s or wellconnected borrower’s, risk is ‘manageable,’ ‘re-structurable’ and always ‘temporary.’ For the MSME owner – the small garment workshop in Panadura, the logistics operator in JaEla, the rice miller in Polonnaruwa, the IT startup in Colombo suburbs – risk is a permanent label that justifies every delay, every humiliation and every refusal.
The irony is that MSMEs are not sideshows. They are the backbone of the real economy. Government statistics and studies repeatedly tell us that micro, small and medium enterprises account for more than half of Sri Lanka’s GDP, represent the vast majority of nonagricultural enterprises and provide a huge share of employment. Yet the Central Bank itself has admitted that the share of formal bank credit flowing to MSMEs remains relatively low, and that lack of access to finance is one of the main brakes on their growth. In simple terms, the sector carrying the economy on its shoulders is still asked to stand in the queue outside the bank door.
Small timers’ agony
Anyone who has tried to obtain a small business facility from a local commercial bank knows the script. The MSME entrepreneur walks into a branch with years of account history, regular deposits, tax files in order and collateral carefully gathered from family land or a house in some distant village. It may be the owner of a small hotel in Hikkaduwa, a poultry farmer in Kuliyapitiya, or a print shop in Kandy. The response is a familiar cocktail: endless forms, repeated document requests, curt replies at the counter, and a patronising tone from junior and senior staff alike. The customer is made to feel like a suspect asking for a favour, not a client of a service industry.
When the request is for a modest overdraft to honour a cheque, the answer is often: “We don’t have appetite for this segment, Sir,” or “Head Office does not approve the facility” If the entrepreneur falls behind for a few months during a crisis – a pandemic that wipes out tourist bookings, a crop failure that hits a vegetable supplier in Nuwara Eliya, a construction slowdown that hurts a small contractor in Hambantota – the system moves swiftly: reminder calls, legal notices, and eventually, parate action. Collateral is not a last resort; it is the first line of attack.
Big timers’ comfort
Now place this everyday reality next to the world of big borrowers. Even before this fraud, regulators were worried about credit concentration and single borrower limits, and had to tighten rules to curb excessive exposure to a few names. Yet we all know how this game is played in Colombo. Single borrower limits become flexible concepts; exposures are spread across group entities; favoured clients enjoy multiple products and rollovers. While the small business owner in Vavuniya or Ratnapura hears the words “risk appetite” and “sector cap,” the big player hears, “Don’t worry, we’ll see what we can do.”
Central Bank documents politely remind us that the share of MSME credit in total bank lending is still modest, and that lending rates to MSMEs tend to be higher than the average. In other words, the backbone of the economy pays more, waits longer, and is treated worse – and still receives a smaller slice of the credit pie.
The episode that brutally exposes this moral imbalance
Here is a bank where internal controls failed so thoroughly that a stafflinked scheme could allegedly move billions of rupees, in repeated Rs 5 million tranches, without anyone effectively stopping it. The board, risk committee, audit committee, internal audit, external audit and regulator all existed on paper. Yet the system slept. Now, we are told, the bank will tighten controls, cooperate with investigations, try to recover funds, and – crucially – “absorb” the loss.
The bank’s single largest shareholders include governmentlinked institutions – public funds, state entities, and pension money. That means a significant share of any erosion in capital or profits ultimately lands on the shoulders of citizens, directly or indirectly. In effect, a private fraud risks becoming a public burden. Meanwhile, the small entrepreneur who cannot service a Rs 5 million facility because of a temporary shock is told there is no room for sentiment: the bank must protect depositors, recover public money aggressively and demonstrate discipline.
At this point, the Central Bank of Sri Lanka must also face the mirror. Though, it has rushed to reassure depositors and to order investigations, issued Circulars on single borrower limits, related party lending and concentration risks, the availability of special refinance schemes and concessional MSME credit lines, has it done enough to ensure financial justice across all stakeholders – not just safety for depositors and comfort for big institutions, but fair access and fair treatment for MSMEs and ordinary entrepreneurs who do not know anyone on the top floor?
Financial stability is not only about neat ratios, international ratings and carefully worded press releases. Behind the averages are human stories: whose loans get quietly restructured, and whose loans become immediate Court cases; whose mistakes are treated as “system failures,” and whose are moral failures deserving maximum punishment.
This Rs 13.2 billion fraud should not be treated as one bank’s shameful moment that we will soon forget. It should be a turning point. A chance to ask why our financial system is so generous to those already sitting at the top table, and so suspicious, cold and often disrespectful towards those who actually create jobs and value on the ground – the small tourism operator, the food processor, the lightengineering workshop, the ICT startup, the retail trader.
If a bank in Sri Lanka can claim that it is strong enough to absorb a loss of Rs 13.2 billion due to its own internal failure, can it really say that it cannot take measured, wellstructured risks on bona fide MSMEs who keep this economy alive? If we can mobilise public support, regulatory forbearance and institutional goodwill to cushion a bank after such a scandal, why can we not mobilise the same energy to build a banking culture that serves the many, not just the usual few?
Sri Lanka will not be rebuilt by a handful of bluechip counters on the stock exchange alone. It will be rebuilt by thousands of small and medium entrepreneurs – the owner of the small hotel, the exporter with a few containers a year, the workshop that employs a dozen youth, the woman running a food processing business from her hometown. The recent saga is more than a story of fraud. It is a reminder that unless we demand financial justice, our banks will continue to absorb the sins of the powerful while demanding perfection from the powerless.
Source
We are told the fraudulent transactions at the bank were in neat little parcels of around Rs 5 million, repeated over time. Imagine, for a moment, a micro or small business defaulting on a single Rs 5 million facility from the same bank – a small tea factory in Galle, a tourism guesthouse in Ella, a garage in Gampaha, or a spice exporter in Matale. Will we see the same relaxed language about “absorbing the loss”? Or will the familiar machinery of Parate execution start to grind – auction notices on village gates, family property under the hammer, and a lifelong stigma attached to the borrower?
This is the heart of the matter. In Sri Lanka’s financial culture, risk is not just a number on a spreadsheet. It has a face and a class. For the bluechip conglomerate, the politically connected ‘lokka’s or wellconnected borrower’s, risk is ‘manageable,’ ‘re-structurable’ and always ‘temporary.’ For the MSME owner – the small garment workshop in Panadura, the logistics operator in JaEla, the rice miller in Polonnaruwa, the IT startup in Colombo suburbs – risk is a permanent label that justifies every delay, every humiliation and every refusal.
The irony is that MSMEs are not sideshows. They are the backbone of the real economy. Government statistics and studies repeatedly tell us that micro, small and medium enterprises account for more than half of Sri Lanka’s GDP, represent the vast majority of nonagricultural enterprises and provide a huge share of employment. Yet the Central Bank itself has admitted that the share of formal bank credit flowing to MSMEs remains relatively low, and that lack of access to finance is one of the main brakes on their growth. In simple terms, the sector carrying the economy on its shoulders is still asked to stand in the queue outside the bank door.
Small timers’ agony
Anyone who has tried to obtain a small business facility from a local commercial bank knows the script. The MSME entrepreneur walks into a branch with years of account history, regular deposits, tax files in order and collateral carefully gathered from family land or a house in some distant village. It may be the owner of a small hotel in Hikkaduwa, a poultry farmer in Kuliyapitiya, or a print shop in Kandy. The response is a familiar cocktail: endless forms, repeated document requests, curt replies at the counter, and a patronising tone from junior and senior staff alike. The customer is made to feel like a suspect asking for a favour, not a client of a service industry.
When the request is for a modest overdraft to honour a cheque, the answer is often: “We don’t have appetite for this segment, Sir,” or “Head Office does not approve the facility” If the entrepreneur falls behind for a few months during a crisis – a pandemic that wipes out tourist bookings, a crop failure that hits a vegetable supplier in Nuwara Eliya, a construction slowdown that hurts a small contractor in Hambantota – the system moves swiftly: reminder calls, legal notices, and eventually, parate action. Collateral is not a last resort; it is the first line of attack.
Big timers’ comfort
Now place this everyday reality next to the world of big borrowers. Even before this fraud, regulators were worried about credit concentration and single borrower limits, and had to tighten rules to curb excessive exposure to a few names. Yet we all know how this game is played in Colombo. Single borrower limits become flexible concepts; exposures are spread across group entities; favoured clients enjoy multiple products and rollovers. While the small business owner in Vavuniya or Ratnapura hears the words “risk appetite” and “sector cap,” the big player hears, “Don’t worry, we’ll see what we can do.”
Central Bank documents politely remind us that the share of MSME credit in total bank lending is still modest, and that lending rates to MSMEs tend to be higher than the average. In other words, the backbone of the economy pays more, waits longer, and is treated worse – and still receives a smaller slice of the credit pie.
The episode that brutally exposes this moral imbalance
Here is a bank where internal controls failed so thoroughly that a stafflinked scheme could allegedly move billions of rupees, in repeated Rs 5 million tranches, without anyone effectively stopping it. The board, risk committee, audit committee, internal audit, external audit and regulator all existed on paper. Yet the system slept. Now, we are told, the bank will tighten controls, cooperate with investigations, try to recover funds, and – crucially – “absorb” the loss.
The bank’s single largest shareholders include governmentlinked institutions – public funds, state entities, and pension money. That means a significant share of any erosion in capital or profits ultimately lands on the shoulders of citizens, directly or indirectly. In effect, a private fraud risks becoming a public burden. Meanwhile, the small entrepreneur who cannot service a Rs 5 million facility because of a temporary shock is told there is no room for sentiment: the bank must protect depositors, recover public money aggressively and demonstrate discipline.
At this point, the Central Bank of Sri Lanka must also face the mirror. Though, it has rushed to reassure depositors and to order investigations, issued Circulars on single borrower limits, related party lending and concentration risks, the availability of special refinance schemes and concessional MSME credit lines, has it done enough to ensure financial justice across all stakeholders – not just safety for depositors and comfort for big institutions, but fair access and fair treatment for MSMEs and ordinary entrepreneurs who do not know anyone on the top floor?
Financial stability is not only about neat ratios, international ratings and carefully worded press releases. Behind the averages are human stories: whose loans get quietly restructured, and whose loans become immediate Court cases; whose mistakes are treated as “system failures,” and whose are moral failures deserving maximum punishment.
This Rs 13.2 billion fraud should not be treated as one bank’s shameful moment that we will soon forget. It should be a turning point. A chance to ask why our financial system is so generous to those already sitting at the top table, and so suspicious, cold and often disrespectful towards those who actually create jobs and value on the ground – the small tourism operator, the food processor, the lightengineering workshop, the ICT startup, the retail trader.
If a bank in Sri Lanka can claim that it is strong enough to absorb a loss of Rs 13.2 billion due to its own internal failure, can it really say that it cannot take measured, wellstructured risks on bona fide MSMEs who keep this economy alive? If we can mobilise public support, regulatory forbearance and institutional goodwill to cushion a bank after such a scandal, why can we not mobilise the same energy to build a banking culture that serves the many, not just the usual few?
Sri Lanka will not be rebuilt by a handful of bluechip counters on the stock exchange alone. It will be rebuilt by thousands of small and medium entrepreneurs – the owner of the small hotel, the exporter with a few containers a year, the workshop that employs a dozen youth, the woman running a food processing business from her hometown. The recent saga is more than a story of fraud. It is a reminder that unless we demand financial justice, our banks will continue to absorb the sins of the powerful while demanding perfection from the powerless.
Source
