ICTA and PwC frame credit scores to support IT sector financing

• Move to ensure the high-growth potential technology sector receives debt financing without need for tangible collateral 
• In pilot move 6 banks have already pledged their support; 28 tech companies express interest to be evaluated and borrow via new method

By Darshana Abayasingha

Sri Lanka’s technology sector is set to receive a vital boost as several local banks come forward to offer debt facilities without the need for tangible collateral. 

This is the outcome of an initiative led by the Information and Communication Technology Agency (ICTA) together with PWC, which together developed a Credit Scoring Framework for technology companies and projects, which will be employed by these banks for evaluation. 

The ICTA and PWC will recommend companies that gain high credit scores through this framework for possible financing from banks. 

ICT sector is by far the fastest growing in Sri Lanka. Its exports in 2020 were estimated at $ 1.2 billion, up from $ 847 million in 2015. The sector employs now around 150,000 up from 50,000 in 2010.

ICTA Program Head Sachindra Samararatne told the Daily FT that many technology companies were forced to rely on personal investment, venture capital or divest equity as banks required physical collateral for lending. He noted it was imperative for tech companies to have avenues to funds to enable the growth of the sector without having to resort to divestment. 

The ICTA had commissioned PWC – on free of charge basis – together with an industry-led steering committee to formulate the credit scoring framework. The scoring framework is based on four pillars evaluating project founders, product focus, the market and financial projections.

The growth of the technology sector is imperative to drive expansion of the nation and its industry, as it enables digital transformation across all sectors. Samararatne said technology companies were often left out of the formal financing process, remarking this should be part of a national drive to promote entrepreneurship considering the export potential of IT.

Banks in developed and fast-developing nations have appointed separate departments to consider start-up eco-systems and financing, and it would be opportune for Sri Lankan banks to consider such avenues, he said. 

With this initiative six banks have already pledged their support to the program, and agreed to consider using the credit evaluation framework presented by the ICTA and PWC. Also, 28 tech companies have submitted Expressions of Interest to get their projects and organisations evaluated through this framework to generate credit scores. The ICTA and PWC will recommend those who receive high credit scores for the banks for further consideration. Loan values could range from Rs. 5 million up to Rs. 100 million. 

The framework has been developed in discussion with banks on necessary fundamentals for consideration and many rounds of engagement. The ICTA and PWC look forward to support from more banks to come on board and employ this framework to support the growth of Sri Lankan technology solutions. 

ICTA is currently in discussion with more banks to expand its reach. There has been good traction with tier-two banks as they have less hierarchical processes, Samararatne added.