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Sri Lanka, Softlogic Finance

Using a pioneering debt instrument to enable small transport owner/ operators to access affordable loans

Sri Lanka Softlogic Finance

Context
Following the end of Sri Lanka’s long-running civil war, the country is experiencing a period of rapid economic development. An efficient transport sector will be crucial to the country’s growth; ensuring that goods have swift access to local and international markets. Small scale commercial
vehicle operators make up a significant portion of the sector’s workforce. With an increasing demand for credit, the existing banking system lacks the capacity to supply affordable loans to small businesses in the transport sector and wider economy. To address this credit deficit, the Government of Sri Lanka is implementing policies aimed at strengthening the country’s debt capital markets.

Project
GuarantCo was approached to support Softlogic, an established local lender making loans to small entrepreneurs in Sri Lanka’s transport sector. In spite of its strong reputation, the company had struggled to access the longer-term funds necessary to continue offering affordable loans. GuarantCo provided a local currency 1.4bn Sri Lankan Rupee (US$10.75m) guarantee which supported the company to raise funds through a pioneering long-term debt instrument known as a credit enhanced Non-Convertible Debenture (NCD). The project also received US$40,000 in funding from TAF to cover costs including the delivery of investor education around the new instrument. With GuarantCo’s involvement, Softlogic was the first local private company to issue an AAA rated bond in Sri Lanka.

Impact

The project will enable Softlogic to make additional affordable loans to small commercial vehicle owner-operators. Enabling operators to own their own vehicles will enhance the quality of Sri Lanka’s commercial vehicle fleet, providing sustainable long term employment for around 9,660 people. Delivering stable employment will positively impact upon social mobility and standards of living. GuarantCo’s work to pioneer the use of credit enhanced NCDs to attract investors will strengthen Sri Lanka’s debt capital markets; familiarising investors with new debt instruments and enabling similar transactions to take place in the future.