ADB provides $ 69 m to help broaden access to finance for Micros, SMEs in Sri Lanka

Manila, Philippines — The Asian Development Bank (ADB) and LOLC Finance, one of Sri Lanka’s leading non-bank financing institutions, have signed an agreement  for a loan totalling $ 69 million to help expand funding support to micro- small- and medium-sized enterprises (MSMEs), which play a key role in the economy.

LOLC Finance will get $ 69 million, consisting of an A-loan of $ 30 million with a tenor of seven years, and a B-loan of $ 39 million with a tenor of three years from commercial banks, with ADB acting as the lender of record. 

LOLC Finance is a unit of the LOLC Group, Sri Lanka’s largest nonbank financial conglomerate. Alpen Capital ME Limited acted as the financial advisor for arranging the B-loan tranche from Middle Eastern banks. 

“Sri Lanka’s MSMEs contribute over half the country’s gross domestic product and account for 70% of total jobs, but large numbers of these businesses can’t readily access affordable finance which hampers the country’s drive for more sustainable growth,” said Monisha Hermans, Investment Specialist in ADB’s Private Sector Operations Department. “These loans will allow LOLC Finance, which has a strong track record in financing a wide cross section of small- and medium-sized businesses, to expand its activities and provide longer term funds.”

Although Sri Lanka has a large number of banks and nonbank financial institutions, the sector still remains relatively underdeveloped and an estimated 70% of the population does not have access to banking services. To reach underserved market segments, ADB identified LOLC Finance as an institution with a broad reach which could provide loans to MSME customers across a wider income base.  

LOLC Finance, a unit of the LOLC Group, is the second largest nonbank financial institution in the nonbank finance sector by asset size, with 140 outlets, and services which include Islamic financial products. 

“We have worked closely with ADB in uplifting the entrepreneurs in Sri Lanka, and this  transaction is even more special as it is the first time a consortium of Middle Eastern banks has joined us in our developmental role,” said LOLC Group Managing Director and CEO Kapila Jayawardena. 

Nonbank financing institutions in Sri Lanka typically find it difficult to source long term funds for their needs, so ADB’s loans with tenors of up to seven years provide a valuable source of finance, allowing LOLC Finance to offer longer term leasing products and to recycle shorter-term microloans. 

ADB’s presence has also catalyzed private sector support which is likely to increase through the syndicated loan.   

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region.