Unlocking Sri Lanka’s SME powerhouse: New Secured Transactions Registry

Imagine a talented dressmaker in Sri Lanka who dreams of expanding her small business. She has a shop in town, a loyal customer base, and the potential to hire more staff. But there is one major obstacle – access to finance. Banks are hesitant to lend because, like many small and medium-sized enterprises (SMEs), she lacks fixed assets like land or buildings to offer as collateral for a loan. This lack of access to credit is a major brake on her growth – and the growth of countless other SMEs that form the backbone of Sri Lanka’s economy.

SMEs make up over 75% of enterprises, account for 45% of employment, and contribute 52% of the country’s GDP. Clearly, helping them thrive is key to national prosperity. A stronger financial system means more opportunities for businesses to grow and create jobs.

A smart solution: Reforming Secured Transactions

One of the most powerful ways to increase access to credit is to let businesses use what they already own – their movable assets – as security for loans. Collateral such as equipment, machinery, inventory, accounts receivable, and even crops are often the most valuable assets a small business has.

However, without a clear way for lenders to verify and record their interest in these movable assets, the risk of lending is too high. This is where a Secured Transactions Register (STR) comes in.

A Secured Transactions Register is a central, public database where lenders officially record their legal interest in personal property being used as collateral for a loan.

This simple mechanism creates transparency in credit markets. By reducing the risk for lenders – who now have a secure, verifiable claim on the collateral – it encourages them to extend credit to businesses that need it most.

Globally, countries that have implemented modern collateral registries have seen dramatic results. For example, according to the World Bank Group through its private sector arm, the International Finance Corporation (IFC), nations like Ghana, Viet Nam, Mexico and Colombia saw billions of dollars in new SME lending after adopting these reforms. This particularly benefits groups often restricted from traditional finance, such as women entrepreneurs, who are more likely to have movable assets that can facilitate business startup or expansion. In Ghana, the IFC-supported project has facilitated $ 53.1 billion in financing, equating to over $ 63,000 in new financing across all types of businesses – micro, small and medium enterprises – for every dollar spent on project expenses. This includes $ 525 million in financing to 194,000 women borrowers.

Sri Lanka’s journey to the STR Act

In 2011, the need for a robust credit infrastructure, including a well-functioning collateral registry system, was identified by the World Bank’s Financial Sector Assessment Program for Sri Lanka. This was identified as essential for increasing credit access for Sri Lankan SMEs.

In response, the Government reached out to IFC specifically for its technical expertise in financial infrastructure and private sector development. IFC’s technical assistance supported a collective effort led by the Central Bank of Sri Lanka (CBSL), Credit Information Bureau (CRIB) of Sri Lanka and the Ministry of Finance (MoF), engaging relevant stakeholders for intense consultations, leading to the development of the new law – aligned to international best practices – and consequential amendments to seven related laws enabling the operationalisation of the Secured Transactions Registry in Sri Lanka. Along the way, the initiative also benefited from budget support financing from the World Bank and the Asian Development Bank (ADB), having been included as a policy action trigger to move the reform forward.

With support from across the entire World Bank Group, the STR was brought to life through the collective efforts of the CRIB, CBSL and the MoF. This aligns with the National Financial Inclusion Strategy, which was developed with technical and financial assistance from IFC, placing access to finance for SMEs at its core. Under its regional initiative, the European Union is supporting the next phase of the STR’s rollout to drive awareness and to boost financial literacy.

With the STR Act passed, now is the time for implementation. 

What does the STR mean for Sri Lanka?

The launch of the STR lays the foundation for a resilient and inclusive credit infrastructure for Sri Lanka. The system will feature:

Simple and inclusive rules: making it easier to establish security interests over movable assets.

A fast and efficient database: using a modern filing system. 

Robust protections: outlining clear procedures and legal protections for both borrowers and lenders, including in case of default.

As part of this initiative, IFC will continue to advance financial literacy initiatives for SMEs, empowering businesses to leverage movable assets as collateral and thereby strengthening access to formal finance.

This change is critical for Sri Lanka. A strong and efficient credit infrastructure is essential in unlocking the growth potential of small businesses, like our dressmaker’s, and transforming the financial sector. The World Bank Group has been proud to contribute technical expertise for this reform and looks forward to supporting deeper awareness for uptake. These efforts, backed by both public and private sectors, are poised to unlock enormous potential in creating jobs and driving growth across Sri Lanka’s economy. To access the STR, visit www.str.lk.

(The writer is the Country Manager for the World Bank Group in Sri Lanka and Maldives.)