Breaking free from conventional investment paths: How to make your money work harder

PICTURE this: You have some extra money sitting in your drawer, while across town, an established manufacturing company with a solid track record desperately needs funds to expand their operations and hire more workers. How do these two needs meet? Welcome to the fascinating world of capital markets — Sri Lanka’s financial matchmaking service.

- By Securities AND EXCHANGE Commission OF Sri LANKA

What exactly are capital markets?

Think of capital markets as giant marketplaces where money changes hands. Just like in an ordinary marketplace, companies come to capital markets to “buy” money (through borrowing or selling shares), while people with extra cash come to “sell” their money (by investing) in exchange for returns.

In simple terms, capital markets help channel money from people who have it (savers and investors) to people who need it (businesses and governments) to grow and create jobs.

Breaking free from the middleman: Why direct investment matters

It is the general consensus that the depositing your hard-earned money in a bank is the safest option, what’s with the collective financial trauma Sri Lankans have gone through via experiences like the Golden Key Scandal and the Sakvithi Debacle.

For years, the journey of your money looked like this: You earn money — deposit it in a bank — bank lends it to businesses — bank keeps most of the profit. In fact, according to the Economic Financial Review 2024, published by The Central Bank of Sri Lanka, showed that deposits, collectively racked up to an amount of Rupees 17,969.4 billion which accounted for 81% of the banking industry’s total liabilities and equity at the end of 2024. This reveals how there is a massive deposit concentration in the economy created by the overwhelming confidence in the banking sector. It is obvious that Sri Lankans understand the vitality of the banks and that they provide essential services, keep our money safe, and fund countless businesses. Essentially, they have become the backbone of Sri Lanka’s financial system.

However, this system has natural limitations. Banks must be careful with depositors’ money, so they’re selective about who gets loans. Interest rates stay high because banks need to cover their costs and risks. Many promising small businesses get turned away simply because they don’t fit standard lending criteria.