Sunday Dec 21, 2025
Sunday Dec 21, 2025
Friday, 31 October 2025 00:22 - - {{hitsCtrl.values.hits}}
By Devan Daniel
Sri Lanka’s investment landscape faces deep structural financing gaps despite growing global appetite for social and environmental impact capital, according to a new study by the Lanka Impact Investing Network (LIIN) “Impact Investing Landscape in Sri Lanka”.
LIIN was founded by veteran banker Chandula Abeywickrema, who established Sri Lanka’s first impact investing fund to channel private capital into ventures creating measurable social and environmental outcomes.
As Founder and Chairman of GSG Impact Sri Lanka, he has linked the country to the Global Steering Group for Impact Investing (GSG Impact Global), a network spanning more than 50 countries that mobilises capital for sustainable development.
The report, launched this week, offers the first comprehensive mapping of opportunities and barriers to mobilising private capital for development. It comes as Sri Lanka seeks new sources of investment to rebuild a resilient economy and restore investor confidence.
LIIN Senior Manager – Impact Investing Vasanthen Sivakajan said the study’s goal was to translate regional insight into national action and position Sri Lanka as a credible destination for impact capital.
“Globally, the impact investment market reached $ 1.5 trillion in 2024, growing by about 21% from 2019,” he said, noting that emerging markets account for only 6% of total assets.
“South Asia’s impact investment market is valued at around $ 20 billion, led by India and Bangladesh. But despite contributing 45% of global GDP, the region attracts only 14% of global impact capital.”
Sri Lanka’s challenges lie in limited access to finance, high borrowing costs, and policy fragmentation. SMEs, which contribute 52% to GDP and employ nearly half the workforce, have declined from 1.3 million in 2018 to 1.04 million in 2024 amid the crisis.
“Bank loans remain the primary financing source, but with interest rates between 10% and 27% and collateral often exceeding loan values, access to finance is severely constrained,” Sivakajan said.
The study estimates investment demand of $7–10 billion annually for sustainable development goals, $ 3–5 billion for infrastructure, and $ 2–3 billion annually for climate finance.
Women-led enterprises face an additional $ 695 million funding shortfall despite new laws such as the Women in Empowerment Act of 2024. “Women-led SMEs make up only 25% of the total, showing how much untapped potential exists,” he said.
High-impact opportunities exist in renewable energy, financial inclusion, sustainable infrastructure, affordable housing, and healthcare, but Sri Lanka’s ecosystem remains fragmented.
“We have a vibrant ecosystem, but it’s operating in silos,” Sivakajan noted. “There’s no national impact investment policy or tax incentive framework. Even the definition of an impact enterprise is unclear.”
Institutional constraints persist. Commercial banks’ ESG portfolios represent less than 2% of total lending, while the country’s largest pension and insurance funds are legally barred from investing in impact assets. “Many still see impact investing as philanthropy, not as capital that expects returns,” he said.
Only around 700 to 1,000 SMEs are considered investment-ready. “Weak financial literacy, governance, and record-keeping undermine investor confidence. When household and business expenses are mixed, investors walk away,” Sivakajan added.
To close the gaps, the study calls for an operational impact investment fund, credit guarantee facilities, and a pipeline acceleration platform linking investors with enterprises.
It also recommends corporate immersion programs, regulator training on “impact underwriting,” and a public-private Impact Investment Council to coordinate efforts. “The aim is to move from fragmentation to innovation,” Sivakajan said.
“Sri Lanka has strong entrepreneurial potential but is constrained by finance and coordination gaps. With the right frameworks, private capital can deliver measurable social and environmental impact.”
Lanka Impact Investing Network will launch Sri Lanka’s first Impact Enterprise Fund in partnership with the United Nations Development Program (UNDP), to address the financing challenges facing small and medium enterprises (SMEs) and startups that remain underserved by the country’s banking sector.
LIIN Director Jonathan Abeywickrema said the fund, initially established in 2019, is now ready for launch after delays caused by the Easter attacks, the pandemic, and the financial crisis. “We’ve already got a few supporters for the fund,” he said. “Today is a call to action.”
Abeywickrema said the fund was designed to fill a systemic gap where “funding in Sri Lanka goes only to 1% of SMEs.” He explained that traditional financial institutions continue to lend on collateral rather than business performance, leaving smaller firms with limited access to credit.
“Businesses are evaluated simply based on the collateral they give,” he said. “That’s the biggest problem in Sri Lanka.”
The Impact Enterprise Fund will start with $5 million, providing investments ranging between $ 50,000 and $ 100,000 through convertible notes. It includes a first-loss guarantee covering up to 20% of potential defaults to attract investor confidence.
“Sri Lanka’s average non-performing loan ratio is around 12% as of 2024. Our guarantee can absorb up to $ 1 million in defaults,” Abeywickrema said. “This is the first ever first-loss guarantee-backed fund in Sri Lanka.”
The fund’s early deployment is expected by mid-2026, with around ten investments across agriculture, tourism, IT, healthcare, apparel, and sustainable construction. “We don’t want to go too high or too low because we want to address the missing middle-income market that really needs to be propelled in terms of capital markets,” he said.
Each investee company will go through pre- and post-investment technical assistance for about six months, focusing on investment readiness, governance, and impact measurement.
“Startups don’t just need capital, they need hand-holding support,” Abeywickrema said. The program will also prioritise women-led enterprises. “We are planning to provide concessional capital and targeted support to female founders who often face additional barriers.”
He noted that Sri Lanka’s capital markets have limited private equity exits, with few listings on the Colombo Stock Exchange’s Empower Board.
“Our goal is to inspire SMEs to raise private equity and eventually list,” he said. “This is not about chasing returns but building a credible foundation for SME growth.”
Abeywickrema said the fund could serve as a prototype for future blended finance vehicles, combining private capital with development partner support. “When investors, the private sector, and SMEs come together, the equation starts to work. This is how we evolve Sri Lanka’s capital markets and build investor confidence.”
