Sri Lanka

Country Profile

Sri Lanka, a country of 20.48 million (2013), has historically had 15 percent of its population live in urban regions.1 However, this urban percentage is expected to grow by 3-4 percent annually.2 Combined with high population density in certain districts and existing housing needs, this increased urbanization rate has resulted in high demand for housing finance.2 Sri Lanka’s housing finance sector is currently only 6.8 percent of its GDP. The mortgage lending market has had real annual growth rates of 10-30 percent in the past few years.  While Sri Lanka currently has a system of directed credit with a highly segmented market, the country is moving toward an integrated, market driven housing finance system.2

The current housing supply gap is estimated to be at 350,000 units (2010).2 The Central Bank of Sri Lanka (CBSL) estimates annual requirements for new houses at by 50,000-100,000 units per year.2 The housing finance market in Sri Lanka is segmented between private commercial banks and state-owned banks, with a small number of other financial institutions making housing loans. Private commercial banks hold 75 percent of the mortgage market share, while the National Savings Bank (NSB), State Mortgage and Investment Bank (SMIB), Housing Development Finance Corporation Bank (HDFC) hold 9, 7, and 6 percent of the market respectively.2 Microfinance institutions, accounting only for 0.1 percent of financial institutions’ assets, typically only fund housing repair and upgrades.2

Most housing finance offered is in long-term, fixed-rate mortgages, with private banks experimenting with adjustable rate loans.  The SMIB and NSB offers 10 year fixed rate of 13.5-14.5 percent, while HDFC offer a fixed rate of 16 percent with similar loan lengths (2013).2 For low- to middle-income borrowers, lenders will allow a maximum of 40 percent of the debt service to income ratio, and 60 percent for higher income borrowers.2 The maximum loan-to-value ratio is 80% percent for housing (50-60 percent for land), as of 2013.2

The average loan size at private commercial banks and the NSB is around $7530 USD (1 million SLR), $4518 (0.6 million SLR) at the SMIB, and $1882-3765 (0.25-0.5 million SLR) at the HDFC.2 Microfinance lenders offer loans ranging from $113-$753 (15,000 to 100,000 SLR).2

Currently, the Sri Lankan government’s involvement in housing finance development is limited to a facilitative role, as opposed to a direct provider role.2 As such, the private sector has emerged as the major funding provider for housing finance development for middle- to high-income groups, while the government and microfinance institutions cater to the lower income groups.2 While the state-owned participants in the housing finance markets provide aid, the lack of market viability for private sector companies makes it difficult for a wide range of Sri Lankans to gain enough funding to purchase their own homes.2 In addition, this system has weakened due to competing governmental priorities and fiscal pressures, further necessitating a self-sustaining housing finance market.2


1 The World Bank.

2 Nenova, Tatiana. “Expanding Housing Finance to the Underserved in South Asia: Market Review and Forward Agenda.” 2010.