IFC proposes to extend $50m local currency debt to Sri Lankan lender NDB

Sri Lankan currency. Photo: Nuzree/Pixabay

The International Finance Corporation (IFC), a member of the World Bank Group, is looking to provide a loan of up to $50 million to Sri Lanka’s National Development Bank (NDB) to support financial access to agriculture-related micro, small and medium enterprises, according to IFC filing.

The loan will be in Sri Lanka rupees to facilitate local currency financing.

“The proposed project will involve advisory support to PFIs (participating financial institutions) to develop capacity to lend to agri-finance projects, a segment currently underserved by the banks and largely neglected. It will also demonstrate to other Sri Lankan financial institutions that commercial lending to agriculture related MSMEs is both a profitable and sustainable business proposition,” as per the disclosure.

NDB expects to provide access to finance to agriculture-related MSMEs in Sri Lanka over the next five years.

Other contributions will include climate resilience via climate smart agriculture, sustainable agri-finance to help address food security, job creation, and overall economic growth.

IFC had earlier extended $75 million in the form of long-tenor financing to NDB.

In the previous year, IFC extended a $24 million loan to NDB to support the bank’s growth plans and long term funding for small businesses.

The Colombo Stock Exchange-listed NDB’s top five shareholders are Bank of Ceylon, Employees’ Provident Fund, R.S. Captain, an entrepreneur and investor, Sri Lanka Insurance Corporation Ltd – General Fund and Dr. S. Yaddehige, chair of Richard Pieris and Company Plc.

NDB has 107 branches spread across Sri Lanka.

In Sri Lanka, nearly 91 per cent corporate entities operate in the SME segment, which is seen as one of key growth drivers for the country’s economy.

The remittance space occupies a major part of the commercial banking business, contributing about 8.5 per cent of the country’s GDP.

The country has been receiving support from the World Bank to support SMEs. Back in 2011, National Development Bank was among the eight financial institutions to participate in the World Bank’s $57.4 million project in supporting the government’s efforts to improve SMEs affected by the global financial crisis.

Banks like Commercial Bank of Ceylon have also received support of $65 million from IFC to help improve the operation in the SME sector through the securitization of remittances.

“There is a clear role for IFC in providing a large amount of longer-tenor, fixed interest rate local currency funding, not readily available from the market,” as stated by IFC on the latest loan support to NDB.

On of the difficulties SMEs face in accessing credit in Sri Lanka is the shortcomings within the SMEs as well as shortcomings in the financial system. The country face a lack of understanding of genuine SME oriented banking practices, as mentioned in an ADB report.

However, the Credit Information Bureau of Sri Lanka has already introduced a state-of-the-art ‘Secured Transaction Registry’ to help banks evaluate the repayment capacity of entrepreneurs.

Also Read:

IFC may extend $20m debt to Sri Lanka’s Central Finance to boost lending to agri SMEs

IFC to provide up to $50m senior loan to Sri Lanka’s Nations Trust Bank

IFC invests $27m in Sri Lanka’s Melwa Hotels and Resorts