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Sri Lankan government gets ADB recommendation to set up fund to provide risk capital for SMEs

Sri Lankan government gets ADB recommendation to set up fund to provide risk capital for SMEs

The government of Sri Lanka has reportedly received a recommendation from the Asian Development Bank (ADB) to set up a fund to provide risk capital with the aim of supporting the growth of Small and Medium Enterprises (SMEs) that do not have adequate access to finance.
The ADB has proposed that the fund should aim at supporting SMEs that have built stable business models and also possibly start-ups that are cash flow positive.
The Sri Lanka’s Ministry of Finance has reportedly been asked by the ADB to consider operationalizing the fund as a pilot project that could be expanded based on its successful performance over time.
The fund could provide risk capital through revenue-linked self-liquidating instruments, to support the growth of SMEs.
According to the ADB, these instruments are best suited for firms with established business models and steady operating cash flow whose growth has been constrained by lack of equity.
“As this instrument will be redeemed exclusively through cash flows generated by the SMEs, it would enable SMEs to access risk capital without diluting their ownership,” the bank has been quoted as saying in the local media.
“It would also mitigate exit risk for the fund. Given that this fund provides a funding avenue to address the capital constraints of SMEs and unlock growth, it would likely result in meaningful development outcomes.”

OSL take:

The proposal by the ADB to the Sri Lankan government would add to the government’s policy of supporting local SMEs. Given the government’s approach to develop the SME sector in the country, it has expanded the opportunities of doing business in Sri Lanka.

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Article Code : VBS/AT/20180316/Z_3

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