IFC Boosts Access to Finance for Sri Lankan SMEs through Innovative Investment
July 16, 2012 -- Remittances make a major contribution to Sri Lanka’s economy. In 2011, Sri Lanka’s migrant population contributed to approximately 8.5 percent of the country’s GDP through remittances. Banks can also use remittances to raise external financing through innovative investment models. IFC is using one such unique model to help Sri Lanka's Commercial Bank of Ceylon mobilize long-term financing through the securitization of remittances and export proceeds it receives to boost the bank’s SME portfolio.
Worker remittances are systematically important for Commercial Bank. Inflow of foreign worker receipts to the bank has more than tripled since 2006, with the bank receiving over $700 million in 2011. Under the terms of IFC’s latest financing of the bank for $65 million, future foreign receipts received by the bank from migrant worker clients will be securitized offshore, enabling Commercial Bank to obtain longer-term funding at a competitive price to boost its SME portfolio.
“The most pressing need in Sri Lanka is for development to occur in all regions,” said Ravi Dias, Managing Director of Commercial Bank. “This innovative $65 million IFC financing will help us improve our operations in the SME sector, and expand our activities to reach more entrepreneurs in the post conflict regions.”
This unique financing structure is being done for the first time in Sri Lanka and is a first for IFC in Asia. It will also, in turn, help the bank increase its outreach to boost access to finance and credit for up to 20,000 small and medium enterprises, with a focus on the post-conflict northern and eastern regions of the country.
"The structure utilized for Commercial Bank will improve access to finance for small and medium businesses, and can also be replicated by banks across the region to obtain long-term financing," said Adam Sack, Country Manager for Sri Lanka and Maldives.
Additionally, this unique funding contributes to capital market development in Sri Lanka. The structure utilized will encourage other banks in the country to raise much needed long-term funding leveraging their future foreign remittances and export proceeds.
IFC’s relationship with Commercial Bank dates back many years, beginning with an equity investment in 2003. The partnership was further strengthened through multiple other advisory and investment engagements, with the aim of supporting the bank’s expansion to do more to support the small and medium entrepreneur in Sri Lanka.
With the end of the 26-year armed conflict, Sri Lanka’s SME sector is growing. With people returning to rebuild their livelihood in the conflict-affected areas, many small-scale entrepreneurs and farmers will require specialized guidance and financial support from banks.