Sri Lanka’s startup ecosystem is set to receive a fresh boost as the Asian Development Bank (ADB) announced yesterday that it has identified this sector for future support.
This initiative aligns with ADB’s efforts to facilitate the growth of Micro, Small, and Medium Enterprises (MSMEs).
“Going forward, we hope to support the microfinance sector and strengthen the regulatory framework governing the SME sector. We are also considering supporting startups,” said ADB Country Director for Sri Lanka, Takafumi Kadono.
However, he noted that this initiative is still in the early stages, while addressing the MSME Development Summit hosted by CMA Sri Lanka.
The ADB is also looking to enhance the recently established National Credit Guarantee Institution (NCGI), which is set to start issuing credit guarantees to SMEs with little or no collateral by the end of the year.
Last March, the bank approved a $100 million loan to improve SME access to finance and support the government’s equity contribution through NCGI.
“We very much hope that the NCGI will transform the lending landscape, and we have additional financing on our horizon once we can confirm the effectiveness of the NCGI,” Kadono said.
The Country Director highlighted several key challenges faced by growth-oriented MSMEs, despite their pivotal contribution to the nation’s fiscal stability. These challenges include inadequate technical knowledge of entrepreneurs, lack of research and development funding, limited market information, and weak digital literacy.
He urged financial institutions to improve their understanding of lending to SMEs on a cash flow basis, particularly for informal and women-led SMEs.
“Most MSMEs serve small domestic markets. Many are engaged in distributive trade and informal businesses. Cash dominates their business model, and there are little incentives or opportunities for them to grow. Especially women-led SMEs tend to lack collateral since female land and asset ownership is low in Sri Lanka. Financial institutions play an instrumental role not just in providing financing but in helping them build their capacities,” Kadono said.
SMEs account for more than 45% of employment, 52% of gross domestic product, and 20% of exports, while comprising more than 75% of Sri Lanka’s enterprises.
