Sri Lanka: The Impact of Economic Crisis on the Fintech Industry
- MD Finance Team
- Mar 13
- 3 min read
Updated: Mar 14
We continue to explore South Asian markets and invite you to look at Sri Lanka, a country with a predominantly agricultural and tourism industry. In 2019 Sri Lanka faced a major economic decline. This report showcases key metrics and recovery trends within Sri Lanka’s economy and its fintech industry after the crisis.
From 2019 to 2024, Sri Lanka experienced hard times caused by governmental mismanagement, budget deficit and hyperinflation, rising foreign debt, structural economic weaknesses including reliance on imports, and the crippled tourism sector due to the COVID-19 pandemic. As a result, the country faced a significant economic downturn and default on $51B in foreign debt, which has hindered progress and impacted living standards.
The crisis has affected all economic sectors, including fintech, which remains undeveloped yet and has a limited number of players. Funding in fintech businesses also stays low due to high investment risks. Sri Lanka’s fintech sector, however, could be improved with economic stabilization, governmental support, and increased digital adoption.
Economy recovery
In 2023–2024, Sri Lanka sought financial aid from the International Monetary Fund, implemented economic reforms, and focused on debt restructuring. This helped the country’s economy to recover after the long-lasting crisis.
Real GDP is estimated to have grown by about 5.0% in 2024 and reached $88.6B, marking the highest annual growth since 2017. By early 2025 YoY inflation has fallen below zero.
Economic recovery, also supported by accommodative monetary policy and a low-inflation environment, leads to increasing consumer spending, creating a favorable climate for business.
Non-performing loans to total loans issued by the banking sector declined to 12.4% at end Q3 of 2024 compared to 13.6% at end Q3 of 2023, indicating a gradual decline in default risk of the banking sector. Nevertheless, NPLs remain high, showcasing lingering credit and investment risk.
Fintech industry trends
Sri Lanka’s fintech industry is undeveloped, with only 155 market participants – a very small number compared to neighbouring markets, such as 555 in Thailand, 630 in Vietnam, or 642 in the Philippines.
In the fintech sector, payment services dominate at 36%, while other areas, including finance and accounting tech (21%) and alternative lending (11%), are smaller but present opportunities for growth. The strong presence of the digital payments niche reflects high consumer demand and government support for digital transactions.
However, regulatory reforms, economic stabilization, and growing digital adoption could improve Sri Lanka's fintech sector and restore investor confidence. The Central Bank's regulatory sandbox and new fintech-friendly policies aim to reduce entry barriers. Younger consumers are increasingly adopting digital payments, indicating future market growth.
Consumer Lending
Sri Lanka’s volatile economic conditions and surging inflation, peaked near 70% YoY in September 2022, eroded real incomes and compelled many households to borrow more to meet rising living costs.
There were structural shifts in bank lending portfolios, most notably an increased reliance on pawning (gold-backed loans) as economic turmoil made lenders and borrowers favor secured credit. In fact, gold-backed pawning advances have been continuously growing since the COVID-19 started, with a peak rise of 77% in 2022.
Credit extended in the form of personal loans and advances was marginally contracted by 0.2% in 2023, but a resumption was observed in the second half of the year, driven by the substantial increase in pawning-related credit.
Alternative lending in Sri Lanka is underdeveloped, represented only by 9 loan providers, including international non-banking financing groups and local companies. All of them started operations just a few years ago. The median year of the year launched is 2022.
Download the full report to get more insights on the fintech industry and the alternative lending market in Sri Lanka.