Sri Lanka’s SME Financing Gap: Bridging the Venture Capital Divide 📈

Small and Medium Enterprises (SMEs) remain the backbone of the Sri Lankan economy, yet a significant "financing gap" persists for those deemed too large for microfinance but too traditional for venture capital. • Overall Figures & Economic Impact: SMEs account for over 75% of all Sri Lankan businesses, contributing 52% to the national GDP and providing 45% of total employment. Despite this, they face a staggering NPL stock valued at approximately Rs. 680 Bn following recent economic shocks. • Sector & Regional Breakdown: Venture capital remains heavily concentrated in ICT/BPM and tech-driven startups in urban Colombo. In contrast, SMEs in agriculture, manufacturing, and traditional services—especially in rural regions—are often excluded due to a lack of scalability or geographical bias. • Financing Challenges: Access to bank finance is stifled by high interest rates and rigid collateral requirements. Current SME lending rates remain a hurdle, though the Budget 2026 has proposed a Rs. 7.7 Bn allocation for concessionary loan schemes with interest rates as low as 5% for certain agricultural segments. • Proposed Solutions: Experts suggest a shift toward angel investors, impact funds, and regional venture plans. The government is also consolidating support agencies (IDB, NEDA, SMED) to streamline assistance and bridge the equity gap for the "underserved majority." _Note: Summary based on provisional 2025/2026 market data and recent budget proposals._