The International Finance Corporation (IFC) has agreed a US$36mn trade finance facility with two Sri Lankan banks, in a bid to strengthen the country’s economic stability.
The facility will be provided to Nations Trust Bank (NTB) and National Development Bank (NDB) via the IFC’s global trade finance programme to shore up the lenders’ trade finance offering.
The trade finance lines consist of up to US$20mn for NTB and US$16mn for NDB, and will help enhance their ability to give “underserved sectors” – including SMEs – greater access to global markets and supply chains, the IFC said.
The global trade finance gap currently stands at US$2.5tn, according to the biennial survey conducted by the Asian Development Bank. Small businesses historically find it more difficult to access facilities than larger corporates.
Imad Fakhoury, IFC regional division director for South Asia, said: “Strengthening the country’s financial ecosystem means equipping banks with the capacity, tools and confidence to extend finance where it is most needed – from expanding trade finance capabilities to modernising digital transaction systems.”
The IFC financing forms part of a US$166mn investment programme, which includes the first IFC-funded debt investment in Sri Lanka’s financial sector following the nation’s 2022 economic crisis.
The programme aims to close the financing gap for SMEs, which account for more than 75% of all Sri Lankan businesses and 45% of jobs, but face barriers when accessing credit.
Particular focus will be on women-owned businesses and the agri-business sector, the IFC said, as it looks to “drive inclusive growth and unlock job opportunities for underserved groups”.
A total of US$7.5mn has been earmarked for on-lending to women-owned SMEs.
Allen Forlemu, IFC regional industry director, financial institutions group for Asia and the Pacific, said: “SMEs are the undisputed backbone of Sri Lanka’s economy, and their growth is essential for creating jobs.”
Alongside the trade finance facility, the funding comprises a US$50mn loan to NTB and a deal for up to US$80mn in risk-sharing facilities (RSFs) with Commercial Bank of Ceylon (CBC) and NDB.
The RSFs comprise US$60mn for CBC and US$20mn for NDB, and the IFC will share 50% of principal losses incurred by the banks on a portfolio of eligible SME loans.
The facilities will be supported by the International Development Association private sector window blended finance facility, through the small loan guarantee programme that helps to de-risk and scale up financing for SMEs in eligible countries.
Gevorg Sargsyan, country manager for the World Bank Group in Sri Lanka and the Maldives, added: “As Sri Lanka rebuilds following multiple shocks – including the recent devastation caused by Cyclone Ditwah – IFC’s collaboration with leading financial institutions is instrumental in addressing urgent needs while laying the foundation for long-term competitiveness.
“These investments send a strong signal of confidence to the market.”
The IFC will also help modernise NDB’s digital transaction banking and supply chain finance systems, as well as support an upgrade of the bank’s climate risk management framework, the development institution said.
