World Bank Country Director for Sri Lanka and the Maldives Idah Pswarayi-Riddihough (second from left) and Finance and Media Ministry Treasury Secretary R.H.S. Samarathunga exchange agreements 

Sri Lanka yesterday signed an agreement to modernize and improve the efficiency of its financial sector, which in turn will help small businesses and entrepreneurs compete in the markets and create better jobs.

Financed through a US $ 75 million loan from the International Development Association (IDA) of the World Bank, the new Financial Sector Modernization Project (FSMP) was signed yesterday by World Bank Country Director for Sri Lanka and the Maldives Idah Pswarayi-Riddihough and Finance and Media Ministry Treasury Secretary R.H.S. Samarathunga.

Financial intermediaries and regulatory institutions stand to benefit from the modernized regulatory frameworks and state-of-the-art financial infrastructure that will ease access to affordable finance and spur an entrepreneurship culture in Sri Lanka.

“A strong financial sector can help Sri Lanka sustain its developmental returns. Efficient financial markets can boost the competitiveness of Sri Lankan firms and overall job creation,” said Pswarayi-Riddihough.  

“Inclusive finance, in turn, can help increase spatial integration and access to opportunities, encouraging entry into the formal economy. To make all this happen, the Sri Lankan authorities must continue effectively addressing the challenges in the financial sector, such as the gaps in the financial sector infrastructure, weak legal frameworks and in oversight functions of the regulators.”

“A competitive, diversified and well-regulated financial market is imperative for Sri Lanka to create better investment finance for micro, small and medium enterprises and thereby provide economic opportunities for the financially underserved,” said World Bank Senior Financial Sector Specialist and Task Team Leader Anoma Kulathunga.  

“Such financial markets can support shared prosperity and allow Sri Lanka to remain on its development path to an inclusive upper-middle income status,” she added.

The loan for this project is provided by the IDA, the World Bank’s grant and low-interest arm, with a maturity of 25 years that includes a grace period of five years.

This five-year project will be implemented via the financial sector regulators— the Central Bank of Sri Lanka (CBSL), Securities and Exchange Commission of Sri Lanka (SEC) and Insurance Board of Sri Lanka (IBSL).

The project consists of three key components: supporting selected mid-level reforms through results-based financing, strengthening the financial sector regulator’s institutional capacity, upgrading the legal and regulatory framework and modernizing the financial market infrastructure and project implementation and monitoring.