Sri Lanka is negotiating with the Asian Development Bank to establish an SME VC fund that would widen access to affordable, venture-style capital for the island’s small and medium enterprises, a senior finance ministry official said.
Officials and ADB discuss an SME VC fund to expand affordable finance for Sri Lanka’s small and medium enterprises
Sri Lankan authorities have opened initial discussions with the Asian Development Bank (ADB) to create a venture capital vehicle aimed at improving finance access for the country’s small and medium enterprise sector. Manjula Hettiarachchi, Director General of the Department of Development Finance at the Ministry of Finance, said the talks are at an early stage but, if successful, the SME VC fund could be operational from next year.
Hettiarachchi told reporters that access to finance remains a persistent obstacle for SMEs, with some commercial banks reluctant to extend credit to smaller businesses. The government has developed several schemes to address the shortfall, but officials believe a dedicated fund—backed by multilateral partners—would provide a more sustainable solution by offering cheaper, longer-term capital and investment-ready support.
Sri Lanka’s SME sector is central to the national economy. According to the Ministry of Industry, SMEs account for more than 75% of businesses, generate over 45% of employment, and contribute roughly 52% of GDP. Despite that role, many enterprises struggle with limited formal financial records, inadequate collateral, and incomplete credit histories—factors that deter traditional lenders. High interest rates and complex loan procedures have further restricted borrowing capacity, particularly among rural entrepreneurs and women-led ventures.
The economic crisis of 2022 and subsequent tightening of monetary policy have exacerbated liquidity constraints, reducing lending and delaying disbursements. As a result, thousands of SMEs remain underinvested and unable to modernize equipment, adopt new technologies, or scale into export markets. Officials argue that an SME VC fund structured with concessional terms and technical assistance could help break that cycle by de-risking early-stage investment and supporting long-term growth.
While specifics of the proposed vehicle—such as target size, governance, and co-financiers—have not been finalized, the involvement of the ADB signals interest from international development lenders in combining capital with capacity building. If realized, the fund could mobilize private sector co-investment, improve creditworthiness of portfolio firms, and catalyze broader reforms in SME financing practices across the banking sector.
For policymakers, the priority is to design the fund to be both commercially viable and development-oriented, ensuring it reaches geographically dispersed businesses and underrepresented founders. Hettiarachchi emphasized the ministry’s goal is practical: to deliver accessible financing that supports job creation, technological adoption and resilience among small businesses—outcomes that would strengthen inclusive growth across Sri Lanka.
As discussions progress, market participants and SME stakeholders will be watching for details on eligibility, sector focus, and the level of technical support tied to investments. A well-designed SME VC fund could become a pivotal tool in restoring momentum to the SME ecosystem and helping the sector meet its potential as a driver of employment and economic diversification.