New collateral system to expand lending opportunities for local SMEs

• New system allows businesses to use movable assets such as machinery, equipment and inventory as collateral for loans
• Reform expected to ease one of biggest hurdles faced by SMEs – limited access to credit, due to lack of fixed assets

The small and medium enterprises (SMEs) in the island nation are set to gain improved access to finance with the launch of the Secured Transactions Registry (STR), a new system that allows businesses to use movable assets such as machinery, equipment and inventory as collateral for loans. 

The reform is expected to ease one of the biggest hurdles faced by the SMEs – limited access to credit, due to the lack of fixed assets, while strengthening the country’s overall credit infrastructure.

The STR, introduced by the Credit Information Bureau (CRIB) in collaboration with the Central Bank of Sri Lanka and Finance Ministry, was developed with technical assistance from the International Finance Corporation (IFC) and funding from the European Union’s regional initiative ‘Accelerating Climate Smart and Inclusive Infrastructure in South Asia’.

While the SMEs make up over 75 percent of Sri Lanka’s businesses and generate 45 percent of jobs, many remain excluded from formal lending channels. The new digital registry is designed to change that by creating a transparent, efficient mechanism for the lenders to recognise and record security interests over movable property, thereby expanding the country’s formal credit market.

“Historically, the borrowers in Sri Lanka, particularly the MSMEs, have encountered significant barriers in accessing formal credit sources. This has been primarily due to their inability to provide fixed asset collateral and the absence of standardised credit practices. 

To address these challenges, the reforms to the legal and institutional framework governing movable collateral, seeks to establish an enabling environment that allows the borrowers, especially the MSMEs, to unlock the value of their movable assets,” said Secured Transaction Registration Authority Chairman Chaaminda Bandara.

“The launch of the Secured Transactions Registry marks a transformative milestone in Sri Lanka’s credit ecosystem. By enabling the use of movable assets as collateral, the STR expands access to finance for the SMEs and entrepreneurs who have traditionally been constrained by the lack of immovable assets. 

“This initiative reinforces the CRIB’s commitment to fostering financial inclusion and strengthening the digital credit infrastructure of the country,” said CRIB Director/General Manager Pushpike Jayasundera.

Meanwhile, IFC Country Manager for Sri Lanka and Maldives Gevorg Sargsyan said empowering the SMEs is critical to sustaining economic momentum and job creation. 

“A strong and efficient credit infrastructure is essential in unlocking the growth potential of these businesses and transforming the financial sector. The IFC has been proud to contribute its expertise throughout every phase of this reform and look forward to also supporting greater awareness for uptake. These efforts, backed by both the public and private sectors, is poised to unlock enormous potential and drive lasting progress for generations to come,” he said.

Accessible via www.str.lk, the registry provides a centralised digital platform with simple registration procedures and clear legal protections for lenders, including enforcement and repossession rights in case of default.