Small and Medium-sized Enterprises (SMEs) are the lifeblood of Sri Lanka’s economy, accounting for over 75% of businesses and contributing more than half of the country’s GDP. Recognizing the challenges SMEs face in accessing financing, the government has implemented a two-pronged approach with the support of the Asian Development Bank (ADB).
One key initiative is the establishment of the National Credit Guarantee Institution (NCGI) as a public limited company. This institution aims to provide partial credit guarantees for SMEs, addressing a major hurdle they face – perceived credit risk and collateral requirements. By offering these guarantees, the NCGI can make loans more accessible and affordable for SMEs, fostering sustainable growth.
The ADB is also playing a crucial role by providing a USD 100 million loan to finance the “Enhancing Small and Medium-sized Enterprises (SME) Finance Project.” This project is part of the government’s comprehensive economic reform strategy and signifies the importance placed on SME revitalization for Sri Lanka’s economic recovery.
Negotiations for this loan and technical assistance began in 2022, reflecting the government’s proactive approach in tackling the financial constraints faced by SMEs, especially in the wake of the COVID-19 pandemic and the resulting economic crisis. With USD 50 million of the ADB loan being allocated as an initial capital infusion for the NCGI, this project demonstrates a collaborative effort to strengthen the financial ecosystem for SMEs.
This initiative is a positive step towards empowering Sri Lanka’s SME sector. By facilitating easier access to credit and mitigating credit risk, the NCGI and the ADB loan can unlock growth potential for SMEs, contributing significantly to the nation’s economic recovery and overall prosperity.