By: Staff Writer
June 05, Colombo (LNW): Sri Lanka has launched the National Credit Guarantee Institution Ltd (NCGIL) to transform small and medium enterprise (SME) financing by enabling cashflow-based lending without the need for traditional collateral.
Established under the Asian Development Bank’s (ADB) Enhancing Small and Medium-Sized Enterprises Financing Project, NCGIL was created with a $50 million ADB loan. It provides participating lenders with a 67% credit guarantee on SME loans, significantly reducing their exposure to risk and encouraging broader lending.
Deputy Finance Minister Harshana Suriyapperuma said the initiative empowers banks to evaluate businesses based on viability and cashflow, rather than fixed assets. “It’s important for banks to understand risk profiles and support SMEs, which are crucial to economic growth,” he said.
He noted that while SMEs are often seen as high-risk due to their limited resilience to economic shocks, NCGIL offers them a new pathway to access finance, especially in the absence of collateral.
The Central Bank of Sri Lanka played a key role in the initiative, aligning it with broader financial reforms. Governor. Nandalal Weerasinghe highlighted that NCGIL supports both financial inclusion and systemic stability. He emphasized that lending decisions often depend on banks’ risk appetite, which can exclude underserved sectors. “Some parts of the economy have easier access to credit, while others don’t—mainly due to perceived risk,” he said.
Weerasinghe added that this gap is being addressed through complementary reforms such as enhanced credit information systems and the introduction of modern bankruptcy laws, which would allow struggling businesses to transition to new ownership more efficiently.
ADB’s Country Director for Sri Lanka, Takafumi Kadono, said the institution has not only provided capital but also supported the governance structure and sustainability model of NCGIL. He pointed out that the initiative is particularly significant for women entrepreneurs, who have historically faced greater challenges in securing loans due to lack of collateral.
Kadono added, “This lack of collateral has long been a major obstacle for SMEs. ADB’s support goes beyond funding—it aims to strengthen banking systems, improve lending practices, and promote inclusive financing.”
To ensure long-term success, the Central Bank is also promoting financial literacy across regions, aiming to equip entrepreneurs with the knowledge and skills needed to navigate the formal financial system.
The creation of NCGIL is expected to strengthen Sri Lanka’s financial ecosystem and unlock growth potential in the SME sector, which represents a key driver of employment and innovation in the country.
