New credit guarantee will break collateral barriers for local SMEs: ADB

• Says new NCGI will support SMEs that have growth potential
• Points out model allows banks and nonbanks to extend credit by focusing on the viability and cash flow

The lack of sufficient hard collateral has long blocked small and medium enterprises (SMEs) in Sri Lanka from accessing finance. The newly launched National Credit Guarantee Institution (NCGI), backed by a US$ 50 million government equity infusion, aims to change that by enabling loans based on the business strength of projects rather than traditional collateral requirements. Addressing the official launch this week, Asian Development Bank (ADB) Country Director Takafumi Kadono noted that the “lack of collateral has been a significant barrier for SMEs throughout the years, particularly for women entrepreneurs, and it is expected that the NCGI will alleviate this problem and support SMEs who have growth potential.”

Kadono emphasised that the government’s 90 percent shareholding in NCGI, financed through equity funds injected under the ADB-supported Enhancing SME Financing Project, forms the basis for a forward-looking financial model designed for the sustainability of the institution. The model allows banks and nonbanks to extend credit by focusing on the viability and cash flow of SMEs, rather than hard collateral.

Beyond addressing collateral constraints, Kadono highlighted efforts to strengthen the broader financial ecosystem for MSMEs through institutions such as credit information bureaus, rating agencies, and microfinance providers, alongside initiatives targeting women entrepreneurs. 

ADB has supported over 1,500 women-owned SMEs through programmes like the Women Entrepreneurs Finance Initiative (We-Fi) and the Women Entrepreneurs Finance Code, aiming to close gender gaps in SME financing.

Meanwhile, transitioning to government perspectives, Deputy Finance Minister Dr. Harshana Suriyapperuma stressed the importance of reviving confidence among entrepreneurs and the financial sector. 

“Entrepreneurs will have the confidence to try again. Small and medium enterprises (SMEs) will have the tenacity to go back to the finance sector and start borrowing,” he said.

Dr. Suriyapperuma further called for banks to “assess business cash flow and viability, not just collateral, and to adopt financing models that empower innovation and reduce risk premiums for aspiring entrepreneurs.” 

He also emphasised the need for Sri Lanka’s SMEs to evolve beyond traditional sectors with targeted support for startups, green businesses, tech ventures, and exporters.

The event was also graced by Central Bank Governor Dr. Nandalal Weerasinghe, signalling the coordinated efforts among key financial institutions to support SME growth and inclusive financing.