ADB support for Sri Lanka small business venture capital fund
ECONOMYNEXT – The Asian Development Bank (ADB) is to help Sri Lanka set up a venture capital fund for small and medium-sized enterprises (SMEs) who face difficulties in getting access to finance.
The support comes in response to a government request to the ADB to formulate a plan for a venture capital fund for SMEs, and is aligned with the lending agency’s interim country partnership strategy.
Sri Lanka lacks a vibrant capital market to support investment and economic growth, with the financial market dominated by banks.
The ADB will provide technical assistance to help set up the venture capital fund for SMEs, and has also been invited to contribute to it.
The fund will lend to responsible venture capital firms for a guaranteed minimum rate of return, with the venture capital firms making equity investments in small businesses.
“SMEs are responsible for 30 percent of the country’s economic output and are critical for Sri Lanka’s economic growth,” the ADB said in a report. “Despite their importance, SMEs struggle to access financing.”
The ADB said it will also assess the feasibility of an SME credit guarantee facility.
“Equity capital is still a constraint on SMEs. The venture capital industry is in a nascent stage, with only 0.1 percent of total assets in the financial system of Sri Lanka in 2014.”
The bank said this was partly due to a lack of risk management expertise and insufficient funding from long-term strategic investors for further growth.
(Colombo/June 09 2016)