By: Staff Writer
February 26, Colombo (LNW): While government relief programs trickle slowly, Sri Lanka’s MSMEs face deeper systemic barriers that hinder investment and long-term resilience. At the Lanka Impact Investment Summit, Azusa Kubota of UNDP emphasized that the country’s capital problem is structural, not financial. The cyclone and the 2022 economic crisis exposed deficiencies in governance, data systems, and enterprise readiness, which deter institutional investors despite liquidity in global markets.
Rapid Assessment for Information and Decision Analysis (RAPIDA) findings show that 93% of affected communities reported business disruption, with 91% of key informants confirming significant operational setbacks. One-third of enterprises were severely damaged or shuttered entirely. These enterprises, despite being central to employment and GDP, remain ill-prepared for private capital engagement.
Kubota highlighted four pillars of capital readiness: governance, financial discipline, data and reporting, and compliance standards. Enterprises lacking these pillars risk mismanaging capital or deepening fragility if they take on debt or grants. “Purpose-driven enterprises cannot replace clean financials or decision-grade data,” she said, pointing out that many MSMEs operate informally and lack cash-flow visibility.
Sri Lanka’s structural gap is compounded by weak regulatory awareness. Chandula Abeywickrema noted that SMEs often fail to comply with tax laws, employment contracts, or environmental standards. He cited post-Ditwah assessments showing that 40% of debris came from unauthorized constructions, demonstrating how non-compliance increases economic vulnerability.
Transparency and data integrity are equally critical. Sohil Shah explained that investment decisions hinge on reliable reporting and governance controls as much as on entrepreneurial vision. Mistrust of equity investors persists, with family-run SMEs preferring debt to avoid perceived loss of control.
UNDP is exploring comprehensive packages combining finance with risk guarantees, capacity building, and financial literacy to bridge this structural gap. But without government facilitation and ecosystem support for research, accelerators, and compliance training, MSMEs risk stagnation despite global liquidity and impact investment opportunities.
In essence, Sri Lanka’s MSME sector is trapped between slow relief, weak structural systems, and a lack of capital readiness. Unless reforms prioritize governance, transparency, and market integration, private capital will remain cautious, and cyclone-hit businesses may face prolonged stagnation.