By Economic Affairs Division – TheCapitalist.lk Institute of Policy & Enterprise
(An independent research arm of TheCapitalist.lk, focused on economic development, innovation, and private sector transformation in Sri Lanka)
In Sri Lanka, the dream of becoming a successful entrepreneur is too often derailed — not by lack of ambition or ideas, but by a system designed to resist innovation. From hostile banking policies to archaic government regulations, the entrepreneurial ecosystem remains stifled. If Sri Lanka is serious about building wealth and a resilient labour market, we must stop treating entrepreneurs like gamblers — and start treating them like the economic architects they are.
The Entrepreneur as a Nation Builder
Throughout history, entrepreneurs have been the driving force behind economic advancement. Think of Elon Musk, whose ventures in electric vehicles and space travel have redefined industries; or Sara Blakely, who built Spanx with $5,000 and became the youngest self-made female billionaire in America. These are not anomalies; they are proof that the right policy environment can unleash immense productive capacity.
As economist Joseph Schumpeter famously argued, entrepreneurs are agents of “creative destruction” — dismantling outdated systems and ushering in innovation-driven growth. This growth leads to higher employment, improved productivity, and long-term national competitiveness.
Yet in Sri Lanka, our policies treat entrepreneurship more as a side hustle than a central pillar of development. It’s time to change that.
How Banks Undermine Innovation
One of the most glaring roadblocks is the banking system. Sri Lankan banks overwhelmingly favor asset-backed lending. In other words, you must already be wealthy to access capital. This bias toward real estate and personal guarantees discourages risk-taking and innovation.
Compare this to countries like the U.S. and Israel, where venture capital markets flourish and banks offer structured credit lines based on business potential, not personal assets. In the UK, the government even underwrites SME loans to reduce risk aversion among lenders.
Policy Recommendation:
The government should introduce a Credit Guarantee Scheme for Startups, allowing banks to issue loans based on business viability — supported by government guarantees and sector-specific risk pools. The Central Bank should revise its prudential norms to allow more flexible, innovation-focused lending instruments.
Bureaucracy: The Silent Killer of Startups
From registering a company to securing permits, the Sri Lankan regulatory maze is slow, opaque, and often riddled with corruption. According to the World Bank’s Doing Business Index (last published in 2020), Sri Lanka ranks 99th globally, with particularly poor scores in “Starting a Business” and “Getting Credit.”
This hurts young entrepreneurs the most. Red tape delays momentum. Compliance costs eat into already thin margins.
Policy Recommendation:
Sri Lanka should implement a “One-Stop Digital Business Registration Portal” that integrates BOI, Inland Revenue, EPF/ETF, and municipal permits — modeled after Singapore’s ACRA system. Additionally, all government startup compliance processes should be time-bound by law.
Rewiring the Tax Code for Innovation
The current tax system punishes early-stage startups with blanket VAT, PAYE, and income tax requirements before they are even profitable. This creates an inverted incentive system: the more a company grows, the more friction it encounters.
Policy Recommendation:
Introduce a Five-Year Tax Holiday for registered startups earning under Rs. 100 million annually — with reduced rates in subsequent years. Follow the Estonian model of zero corporate tax on retained earnings to encourage reinvestment into business growth.
Empowering the Labour Market through Entrepreneurship
One of the most powerful, yet underappreciated, roles of entrepreneurs is job creation. According to data from the Kauffman Foundation, new firms account for nearly all net job creation in the U.S. economy. Sri Lanka’s bloated public sector cannot absorb the tens of thousands entering the workforce each year. Entrepreneurship is the answer.
Startups generate diverse, future-ready jobs: coders, marketers, UI/UX designers, logistics personnel, content creators — all of which pay more and demand skills over connections.
Policy Recommendation:
Establish a National Startup Employment Subsidy Scheme to reimburse 50% of the first-year salary for new hires in startups, capped per employee. This would lower hiring risk for startups while training the youth in the real economy.
A Culture Shift: From Welfare to Wealth Creation
For decades, Sri Lanka’s economic policy has leaned toward redistribution and state dependency. While social protection is vital, it cannot come at the cost of stagnation. We must now shift from a welfare mindset to a wealth creation ethos — and that begins with policy that backs the entrepreneur.
To quote Steve Jobs:
“Innovation distinguishes between a leader and a follower.”
If we want Sri Lanka to lead in the 21st century, we must empower those who dare to innovate.
Conclusion
The time for incrementalism is over. Sri Lanka must enact bold reforms that reposition entrepreneurs as central to national development — not as peripheral figures struggling against the system.
Let the banks open their vaults not only to landowners, but to visionaries. Let the government tear down red tape and build pathways. Let us unleash the entrepreneurial spirit that can truly transform our economy, generate dignified jobs, and create lasting wealth.
The future is not built in parliament. It is built in garages, co-working spaces, and late-night coding sessions.
Let’s stop getting in the way.
