Systemic reforms critical for MSME financing to work: UNDP

UNITED Nations Development Programme (UNDP) Sri Lanka Resident Representative Azusa Kubota has positioned enterprise readiness as a structural reform priority aimed at unlocking private capital for micro, small and medium enterprises (MSMEs), shifting the conversation at the recent Lanka Impact Investment Summit from recovery to investability.

- Ruwan Walpola

Delivering the keynote on day two of the Summit, Kubota framed the issue as one of capital architecture rather than humanitarian support, arguing that Sri Lanka's financing constraint lies in weak enterprise systems rather than a shortage of liquidity.

Referring to the combined effects of the 2022 economic crisis and Cydone Ditwah, she noted that the cyclone affected over 1.8 million people and displaced more than 300,000.

The UNDP's Rapid Assessment for Information and Decision Analysis (RAPIDA) conducted with the Government showed that over half of those in flooded areas were already facing multiple vulnerabilities before the disaster.

Key informant interviews conducted last month found that 93% of affected communities reported livelihood losses, while 91% of 510 key informants said business activities and operations had been impacted. Around one-third reported that both formal and informal businesses were severely affected or completely shut down.

Kubota said MSMEs, which account for two-thirds of Sri Lanka's employment and over half of GDP, remain central to economic recovery but structurally underprepared to attract institutional capital.

Challenging the assumption that purpose-driven enterprises are inherently investable, she said:"Purpose is powerful, but it does not replace dean financials. It does not replace governance discipline. It does not replace decision-grade data. And many enterprises simply don't have the systems or the support to generate that information." "Some are still reorganising after the economic crisis. Some are drowning in multiple debt. Some lack basic cash-flow visibility. And many are operating in deeply informal environments where shocks, whether economic or dimate-driven, keep setting them back" she added.