New Secured Transactions Registry established to help expand financing for SMEs

A new Secured Transactions Registry (STR) has been established to facilitate the use of moveable assets as collateral for loans for Small and Medium Enterprises (SMEs) in Sri Lanka while ensuring financial stability and fostering economic growth in the country.

The STR was established by the Central Bank of Sri Lanka (CBSL), together with the Finance Ministry and the Credit Information Bureau (CRIB) and with technical assistance from the International Finance Corporation (IFC).

Accordingly, the new Secured Transactions Registry Act aims to address legal and operational challenges in the existing law. 

SMEs comprise more than 75% of enterprises while accounting for 45% of employment and 52% of the country’s GDP. Yet, they cite access to finance as one of the key obstacles, hindering their growth potential. 

Against this backdrop, a robust legal framework to register security interests over movables assets will help unlock the full potential of small businesses in Sri Lanka through easier access to loans.

“The enactment of the new law and consequential amendments to 7 related laws is a critical step in developing a fully-fledged secured transaction framework to mortgage moveable assets in Sri Lanka that protects the rights of all types of regulated financial institutions, encouraging them to provide financing secured by moveable collateral,” said Pushpike Jayasundera, Director/General Manager of CRIB.

Globally, businesses are restricted from using movable collateral such as machinery, inventory, accounts receivables, crops, and equipment to obtain financing because many countries do not have functioning laws and registries to govern secured transactions. However, STRs can also encourage women to start or expand a business, as they are more likely to have movable assets to pledge.

“An effective credit infrastructure is key to strengthening Sri Lanka’s financial sector. IFC assisted CRIB in drafting the new law, which incorporated several rounds of consultations and expert input, thus ensuring that small businesses and entrepreneurs with few fixed assets can obtain the financing they need to thrive. We greatly appreciate the perseverance and commitment of all the stakeholders to see this legislation come to fruition,” said Alejandro Alvarez de la Campa, IFC Country Manager for Sri Lanka and Maldives.

IFC’s efforts to improve access to finance and foster inclusion in Sri Lanka span across several initiatives. Apart from supporting secured transactions regimes, the IFC helped the Central Bank of Sri Lanka launch the country’s first national financial inclusion strategy and develop a financial literacy roadmap, strengthening financial consumer protection and increasing the uptake of digital finance.

The IFC, a member of the World Bank, is the largest global development institution focused on the private sector in emerging markets. They work in over 100 countries, using their capital, expertise, and influence to create markets and opportunities in developing countries. 

For the 2023 fiscal year, the IFC committed a record USD 43.7 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises.