ADB records growth in demand for equity finance by Sri Lankan start-ups and small businesses
The demand for equity finance by Sri Lankan start-ups and small businesses has recorded a growth, says the Asian Development Bank (ADB). The ADB has also recommended the government to set up a pilot fund with US$10 million to begin with.
“Over the next 5 years, we project that the demand for equity financing by start-ups could reach $200 million,” the ADB has stated.
The ADB has noted that the government can play a catalytic role by directly investing in the fund, alongside private investors and added that in order to fund its capital contribution,
The Bank has also recommended the government to pursue a loan from the ADB.
The aim is to provide risk capital to support the growth of start-ups and Small and Medium-sized Enterprises (SMEs) which do not have adequate access to finance.
“The government is recommended to consider a pilot fund size of US$ 10 million to test the concept before pursuing larger-scale capital commitments,” the ADB has said.
According to the ADB, a new study shows two distinct types of SMEs: high-growth start-ups and low and moderate-growth established SMEs, each with very different cultural, operational, and financial profiles.
“While both categories require equity or risk capital, the nature of their financing needs is quite different. The demand for capital from start-ups is more obvious and well-articulated in the market, as many of them are actively seeking external equity investment,” the ADB has stated.
“We estimate there is a need of $0.5 billion–$1.0 billion in risk capital from established SMEs,” the Bank has further noted.
The observation of the ADB indicates a growth in start-ups as well as SMEs in Sri Lanka. This is an encouraging sign since it indicates the expansion of the country’s economy. The willingness shown by the ADB to grant the required funds to the Sri Lankan government to assist the start-ups and SMEs requiring capital infusion is also an encouraging sign that has opened up opportunities for the launching of many SME businesses in the country.
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