ECONOMYNEXT – The Asian Development bank (ADB) has recommended the Sri Lankan government set up a fund to provide risk capital to support the growth of Small and Medium-sized Enterprises which do not have adequate access to finance.
The fund would aim to support SMEs that have built stable business models and also possibly start-ups that are cash flow positive.
The ADB has suggested the Ministry of Finance 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.
The ADB said 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 said.
“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.”
(COLOMBO, March 14, 2018)