Unlocking Sri Lanka's SME powerhouse: New Secured Transactions Registry

IMAGINE a talented dressmaker in Sri Lanka who dreams of expanding her small business. She has a shop in town, a loyal customer base, and the potential to hire more staff. But there is one major obstacle - access to finance.

- By Gevorg Sargsyan

Banks are hesitant to lend because, like many small and medium-sized enterprises (SMEs), she lacks fixed assets like land or buildings to offer as collateral for a loan. This lack of access to credit is a major brake on her growth - and the growth of countless other SMEs that form the backbone of Sri Lanka's economy.

SMEs make up over 75% of enterprises, account for 45% of employment, and contribute 52% of the country's GDP. Clearly, helping them thrive is key to national prosperity. A stronger financial system means more opportunities for businesses to grow and create jobs.

A smart solution: Reforming Secured Transactions

One of the most powerful ways to increase access to credit is to let businesses use what they already own as security for loans. Collateral such as equipment, machinery, inventory, accounts receivable, and even crops are often the most valuable assets a small business has.

However, without a clear way for lenders to verify and record their interest in these movable assets, the risk of lending is too high. This is where a Secured Transactions Register (STR) comes in. A Secured Transactions Register is a central, public database where lenders officially record their legal interest in personal property being used as collateral for a loan.

This simple mechanism creates transparency in credit markets. By reducing the risk for lenders-who now have a secure, verifiable claim on the collateral-it encourages them to extend credit to businesses that need it most.