ADB Approves $100M Loan to Strengthen Sri Lanka’s Financial Sector Stability

The Asian Development Bank (ADB) has approved a $100 million policy-based loan to assist Sri Lanka in implementing complex structural reforms aimed at strengthening the country's financial sector governance, resilience, and inclusiveness. This funding is a continuation of a broader engagement by ADB to support Sri Lanka's recovery from its 2022 economic crisis, during which the nation grappled with its most severe financial turmoil in recent history.

Building on a Foundation of Reform

This newly approved loan follows two prior ADB lending programs amounting to $400 million, bringing the total financial support to $500 million for financial sector restructuring since the onset of the crisis. These programs were designed to:

• Restore macroeconomic stability

• Enhance regulatory oversight

• Rebuild public trust in the banking system

• Improve long-term sustainability of financial institutions

The current program represents the third and culminating phase of these reform efforts, with a focus on institutionalizing changes, ensuring they are sustainable over the long term, and expanding financial access—especially for underserved communities and sectors.

"ADB is proud to support Sri Lanka's continued efforts in strengthening the financial sector," said Takafumi Kadono, ADB Country Director for Sri Lanka. "This initiative builds on earlier banking sector reforms and aims to broaden access to finance for micro, small, and medium-sized enterprises (MSMEs), with a strong focus on empowering women-led enterprises."

Enhancing Sector Stability and Crisis Preparedness

The program's core objective is to fortify the resilience of Sri Lanka's financial system. Key measures to be supported include:

• Strengthening banking sector governance and capital adequacy

• Enhancing risk management frameworks and crisis response capabilities

• Promoting better coordination among financial regulatory authorities

• Supporting the long-term sustainability of public and private financial institutions

These steps aim to ensure that banks and non-bank financial institutions (NBFIs) can continue to operate efficiently and maintain service delivery even in the face of economic shocks. The ADB also seeks to restore public confidence by ensuring that financial institutions are well-capitalized and governed transparently.

Promoting Financial Inclusion and Gender Equality

A major thrust of the program is to expand access to finance, especially for micro, small, and medium-sized enterprises (MSMEs), which form the backbone of Sri Lanka's economy. Many of these businesses were severely impacted by the recent crisis and continue to face barriers in accessing affordable credit.

Key focus areas include:

• Developing policies that enable easier access to credit for MSMEs

• Strengthening financial literacy and outreach

• Targeted support for women-led enterprises, ensuring equitable participation in economic recovery

By promoting inclusive access to credit, the ADB aims to revitalize entrepreneurship, stimulate job creation, and support grassroots-level economic growth—critical for long-term recovery.

Strategic Alignment with National Objectives

This program is fully aligned with Sri Lanka's national development strategy, which emphasizes:

• Ensuring stability of the financial system

• Enhancing financial intermediation efficiency

• Promoting sustainable economic growth

The program will contribute to the Government of Sri Lanka's broader efforts to build a resilient, inclusive, and modern financial system capable of supporting a wide range of economic activities and absorbing future economic shocks.

A Regional Model for Financial Sector Resilience

Through this structured, multi-phase engagement with Sri Lanka, ADB is also setting a regional example of how to implement targeted financial sector reforms in response to economic crises. It illustrates how policy-based lending, when coupled with technical assistance and capacity building, can help nations address both immediate vulnerabilities and long-term institutional gaps.

The reforms supported by this latest loan are expected to:

• Bolster long-term investor confidence

• Encourage domestic and international capital flow

• Provide a more stable financial environment for Sri Lanka's businesses and citizens

In an era of increasing economic uncertainty, ADB's program highlights the importance of financial sector preparedness, sound governance, and inclusive economic participation as foundational pillars of sustainable development.