Banking on Resilience

How Sri Lanka is unlocking climate finance for small businesses

April 28, 2025

In the coastal region of Kalpitiya, Sri Lanka, the local economy is built on fishing, mangroves, and small-scale agriculture. For Rita Malani, a dried fish producer, the process was simple: harvest, salt, and dry the fish under the predictable heat of the tropical sun. But in recent years, that predictability has vanished. Sudden, unseasonal rains now frequently ruin entire batches of fish, while rising sea levels push salt water into the soil, killing the crops of small-scale farmers nearby.

For Rita and thousands of other local entrepreneurs, climate change is not a future threat—it is a direct hit to their daily income. Small and Medium Enterprises (SMEs) like hers are the backbone of Sri Lanka’s economy, providing the vast majority of local jobs and food security. Yet, when a climate disaster strikes, these businesses are the most vulnerable. They lack the capital to invest in resilient technology—like solar dryers or salt-tolerant seeds—and they are often seen as too risky by traditional banks. Supporting these local economic actors is not just about business; it is about ensuring the entire community doesn't collapse under the weight of a changing climate.

A person pours food into a trough for a pig in a farm setting. — Linat Airangani Fernando, a small-scale farmer in Kalpitiya, feeds her livestock as she prepares to expand her poultry business with support from climate finance training.

The role of Economic Development Officers

To address this financial barrier, the Climate Finance Network (CFN), with support from the UK Foreign, Commonwealth & Development Office (FCDO) CARA Programme and Sweden Sida, partnered with the Department of Environmental Technology at the University of Colombo. The goal was to solve a specific problem: while climate finance exists, it rarely reaches the small businesses that need it most.

The project identified a "missing link" in the system: Economic Development Officers (EDOs). These are local government officials who interact with small businesses every day but previously lacked the technical knowledge to give climate-related financial advice. Through a CFN-supported training program, these officers were transformed into climate finance advisors.

“Previously, we didn't have the tools to help a business owner adapt to climate risks,” says N.N. Priyadarshani, an Economic Development Officer in Kalpitiya. “Now, we can guide them through the specific loan procedures for climate-resilient tech. We’ve seen a shift—SMEs are no longer just asking for general help; they are coming to us with plans to adapt.”

Two women converse outside a house, one holding a clipboard and wearing a hijab. — Shalika Lakmali (right), a home gardener in Kalpitiya, discusses climate finance opportunities with an Economic Development Officer trained under the initiative.

From risk to resilience: A new financial model

For Rita, this meant moving from uncertainty to a structured investment. With the guidance of a trained EDO, she was able to understand the financial benefits of a solar-powered drying system, which allows her to continue production even during unseasonal rains.

Before this initiative, 77% of local business owners in the region had never engaged with a bank for climate adaptation. By training the EDOs to act as bridges, the project has successfully de-risked these businesses in the eyes of local lenders. So far, 88 SMEs in Kalpitiya have received this direct mentorship, turning climate adaptation from a perceived cost into a driver of long-term revenue.

Building momentum through awareness, partnerships, and innovation

Beyond technical training, the project built a wider network of practical partnerships and community engagement. In collaboration with the University of Colombo, students and faculty worked directly with SMEs to co-develop simple, actionable business ideas and visual materials to help entrepreneurs understand financing concepts. These efforts culminated in a Climate Finance Exhibition in Kalpitiya, where business owners connected with financial institutions and technology providers, exploring real-world solutions like solar-powered drying systems and rainwater harvesting setups.

Media also played a role. Local journalists received training on how to report on climate finance, resulting in stories published in national newspapers and featured on radio. Meanwhile, a digital outreach campaign launched by university students used platforms like Facebook, LinkedIn, and YouTube to raise awareness in local languages.

“We’ve seen a big change in how our small business owners think. Earlier, they were just trying to get through each day. Now, they’re planning ahead, learning new methods, and even working with banks to grow their businesses.”
— S.M.P. Nandasena, Divisional Secretary, Kalpitiya

“Working directly with SMEs gave our students a rare chance to apply what they were learning in real-world settings—and at the same time, co-create practical solutions with the community. It was a powerful reminder of how much can be achieved through collaboration.”
— Dr. Thakshila N. Dharmapriya, University of Colombo

Importantly, local banks that participated in the program have shown growing interest in offering tailored financial products for SMEs facing climate challenges. Conversations have begun about simplifying processes and making lending more accessible—a promising sign of longer-term systemic change.

De-risking the private sector

The success in Kalpitiya provides a critical blueprint for how the Climate Finance Network scales private sector investment across the Asia-Pacific:

Institutionalizing Advisory Services: By integrating climate finance training into the official duties of government officers and national university curricula, the CFN ensures that this support becomes a permanent feature of the national economic architecture.
A Roadmap for Blended Finance: The project demonstrates to national banks that climate-smart SMEs are viable clients. The CFN uses these results to advocate for blended finance facilities—where public funds are used to lower interest rates for resilient investments—across the region.
Empowering the Most Vulnerable: With a focus on women-led enterprises like Rita’s, the model ensures that the transition to a green economy is inclusive, providing a strategy for other member nations to protect their most at-risk economic actors.

Scaling national impact

Building on the lessons from Kalpitiya, the focus is now on expanding this model to other climate-vulnerable districts in Sri Lanka. By aligning the efforts of the Ministry of Finance, local government, and academic institutions, the CFN is helping create a climate-ready economy. For entrepreneurs like Rita, this means the future is no longer a gamble against the weather, but a funded opportunity to grow. As she puts it: "We aren't just surviving the seasons anymore; we are building a business that can last."

This story is part of a series of initiatives supported by the UNDP Climate Finance Network (CFN), a flagship programme supporting Asia-Pacific countries to bridge the gap between climate goals and the investment needed to reach them. As a regional platform, CFN provides technical and policy support to integrate climate into public finance, mobilize private and innovative capital, and create the enabling environment required for lasting impact. Supported by the UK’s FCDO flagship CARA programme and Sweden (Sida), CFN ensures climate action is transparent, coordinated, and fully funded.