Sri Lanka’s startup ecosystem is likely to receive a fresh boost in future as the Asian Development Bank (ADB) yesterday announced that the segment is among those that have been identified for support.

The initiative will be in line with ADB’s efforts to facilitate the growth of Micro, Small and Medium Enterprises (MSMEs).

“Going forward, we hope to support the micro finance sector and strengthen the regulatory framework governing the SME sector. We are also considering supporting startups,” ADB Country Director for Sri Lanka Takafumi Kadono said.

However, this is still in the early stages, he added while addressing a MSME Development Summit hosted by CMA Sri Lanka.  

The ADB is also in the lookout to further 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 US$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 do have on our horizon, additional financing slated once we are able to confirm the effectiveness of the NCGI,” Kadono said.  

The Country Director went on to point out 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 went on urge financial institutions to improve their understanding of lending to SMEs on a cash flow basis, particularly to 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 collaterals, since female land and asset ownership is low in Sri Lanka. So financial institutions play an instrumental role in not just providing financing but helping them build their capacities,” Kaduno said. 

SMEs account for more than 45 percent of employment, 52 percent of gross domestic product, and 20 percent of exports while comprising more than 75 percent of Sri Lanka’s enterprises.