IFC Boosts Sri Lanka’s Growth through Financial Market Innovations
July 3, 2013 -- For Thilakerathne Basnayake a loan was crucial to expand his rubber processing business. In 2007, he lacked capital, and had to rent a factory for his operations. Through loans from IFC client Commercial Bank of Ceylon, he managed to buy a factory and new machinery in just two years. His workforce grew from eight to 18 by 2012, and his sales doubled.
Access to finance is a key constraint for the growth of MSMEs in Sri Lanka. However, financial institutions are expanding their portfolio to offer flexible, affordable financing options to cater to small businesses.
Innovations for Growth IFC’s FM portfolio in Sri Lanka has grown rapidly too – from approximately $50 million in FY10 to almost $200 million in FY13. Annual commitments have tripled to reach over $111 million this year.
Innovation is at the heart of this growth. Over the years, IFC has brought in new investors and structured unique transactions, helping to overcome conventional barriers to long-term finance and developed the nascent capital markets.
IFC’s first diversified payments rights transaction in Asia with Commercial Bank of Ceylon is helping expand the bank’s SME portfolio through a funding structure that uses the bank's future flows of inward remittances as security. Another investment with this bank, IFC’s first AMC signing in South Asia, highlights the country’s potential to foreign investors. These investments are expected to reach over 36,000 small businesses.
Each FM client also works with the Access to Finance team – providing a holistic approach to help clients grow sustainably, with minimal risks. For instance, IFC’s first microfinance investment in Sri Lanka with long standing advisory client Sanasa Development Bank is helping the bank reach over a million MSMEs, especially in the post-conflict regions.
Exploring New Opportunities
At a recently concluded strategy session to discuss expanding IFC’s opportunities in the country’s financial markets, the importance of innovation, and exploration of new sectors was highlighted. IFC is also looking to diversify into sectors such as insurance and affordable housing finance.
“Our pipeline looks strong – we are exploring new ideas and opportunities to do ground-breaking work in Sri Lanka to provide solutions for our clients, to help them in-turn promote MSME growth,” said Adam Sack, Country Manager for Sri Lanka and Maldives.