Car Financing in Sri Lanka

Carmudi 2015

Overview of the Sri Lankan Economy

Over the last five years, the Sri Lankan economy has seen tremendous growth. Sri Lanka’s economic growth averaged 6.3% between 2002 and 2013. GDP per capita grew 51% between 2012 and 2014, rising from $2,399 to $3,631, placing it among the world’s fastest growing economies. GDP growth this year through 2020 is predicted to hover at 6.5%.

GDP Per Capita: 2012 vs. 2014

Sri Lanka has experienced economic growth due to rising rates of consumption, increased foreign direct investment, and public works projects, which have only been possible due to postwar peace. Consumption grew 34.4%, rising from $40 billion in 2010 to $53.7 billion in 2013. Foreign direct investment almost doubled between 2010 and 2013, rising from $477.6 million to $915.6 million.

The Sri Lankan government has fostered this growth in pursuit of increasing the size of its middle class. Economic growth has significantly helped Sri Lanka’s poor during this period. This can be observed in the higher rate of per capita consumption among Sri Lanka’s poor. Per capita consumption grew on average 2.8% in 2012 in Sri Lanka. When focusing on the bottom 40% of wealth holders, per capita consumption grew at 3.4%.

Source: World DataBank –  World Development Indicators (2015)

Overview of the Auto Industry in Sri Lanka

Annual new car registrations with the Department of Motor Vehicles hit their peak in 2011. The motor industry reached its peak as the economy improved post war. In 2012, car registrations dropped as the Rupee was allowed to float on the currency market and imports were curbed. These monetary measures lead to a steep currency depreciation and increased prices on imports.

2015 marked a turning point in new car sales for Sri Lanka with monthly sales dwarfing the previous year’s, according to JB Securities. New car registrations increased to hit an all-time high of 4,990 in August 2015, compared to only 788 units the previous year. Small cars made up 94% of all new car registrations. Maruti remained the small car market leader with 81.7% of new car registrations belonging to the brand.

Sales for two- and three-wheel vehicles also rose during this period. Motorcycle registrations rose 35 percent to 25,655 units in August from a year earlier. Three wheeler registrations also rose 46 percent to 10,273 units. Three-wheelers are now increasingly used as a personal transport vehicle, rather than only as a taxi.

Vehicle Sales by Type


The number of hybrid vehicle registrations also rose to reach 3,813 this August, up from roughly 2,045 in the previous year. Decreased import duties on electric cars has helped power the sale of hybrid cars in Sri Lanka. The popularity of electric cars also grew thanks to the introduction of the more affordable Nissan Leaf to the Sri Lankan market in 2013. Local auto manufacturers are keen to monetize this increasingly popular trend and are launching their own electric models to the Sri Lankan market. Data from The Sri Lanka Department of Motor Traffic shows that in 2014, hybrid vehicle registrations stood at 19,557 units. Based on these facts, we are positive that green cars in Sri Lanka are at the green light.

The Japanese Yen depreciation against the Sri Lankan Rupee as well as a historically low interest rate attributed greatly to the increase in new and used vehicle registration between 2014 and 2015. New vehicle registrations are forecasted to grow at a Compound Annual Growth Rate (CAGR) of 6% between 2014-2016, driven by a low interest environment and heightened interest in investment purchases.

Department of Motor Traffic –  Total Vehicle Population  (2014)
The Sunday Times –  Sri Lanka’s vehicle population now at 5.6 mln (2015)
Experts at JB Securities (2015)

Automotive Financing in Sri Lanka

The nominal value of automobiles in Sri Lanka has remained constant over time, making it the next safe investment, which can be viewed through vehicle registrations and financing rates in September, reports JB Securities. Car financing is one of the few collateral-based lending channels remaining for the industry. Banks have lowered interest rates as low as 9-10% in order to meet consumer interest in recent times.

A majority of new and used vehicle registrations are resulting from financing in Sri Lanka. In August 2015, 68.4% of new car registrations resulted from financing. During the same period, 64% of used cars, 57.4% of two wheelers, and 91.6% of three wheelers were financed.

Share of Cars Purchased with Credit



The debt-equity ratio offered to borrowers for new cars averages 80-20, meaning borrowers provide 20% of the car’s purchase price and lenders provide 80% of the car’s purchase price. The debt-equity ratio for used cars tends to be lower with lenders providing 70-75% of the purchase price.

A significant player in car financing in Sri Lanka are the car manufacturers themselves. Maruti, the small car manufacturer with the largest market share, provides financing for its own cars through its own captive financing company. The company’s captive had a financing market share of 61.2% of its models registered in August 2015.

Another alternative financier is the Ministry of Finance of Sri Lanka. It issues special permits for government employees for the importation of motor vehicles, as a form of loan program. Additionally, it issues special loan schemes for vehicles imported with these permits. The loans are given out at a maximum of 5.0 Mn with the repayment period normally lasting 5-7 years.

Source: Experts at JB Securities (2015)

Consumer Financing Timeline

Overview of Financing in Sri Lanka from 2010 to Today (Source: Central Bank of Sri Lanka)

  • 2010

    The year starts with an average monthly Average Weighted Prime Lending Rate (AWPR) of 10.99%. The AWPR gradually decreases to be 9.27% by the end of the year, partly owing to the April election.

  • 2011

    The AWPR decreases further to 9.12% in the first quarter of 2011. This year sees 57,886 new car registrations, despite the AWPR increasing to 10.49% by the end of the year.

  • 2012

    January sees a further increase in the monthly AWPR with a rate of 11.33%. The monthly AWPR continues to climb to reach 14.29% in December with annual new car registrations totaling 31,456.

  • 2013

    This year starts off with a monthly AWPR of 14.3% but in December the monthly AWPR drops to 10.95%

  • 2014

    The monthly AWPR drops to 6.49% by the end of the year, down from 9.96% in January. The presidential election, scheduled for January 2015, is a critical factor for the low interest rates.

  • 2015

    The monthly AWPR continues to hover at 6.0%

The Election's Impact on the Economy

The Sri Lankan economy continues to face daunting challenges with a trade deficit reaching $9 billion this year, and a need for public and foreign debt reduction, following the President’s inaugural speech in September. A high fiscal deficit is also among the challenges for the new coalition government. Increasing government revenue from its current level continues to be a necessity. Revenue is targeted to grow from 12% of GDP to 15% by next year, further increasing to 20% by 2020.

Foreign investors looked toward the 2015 parliamentary and presidential elections to seek answers regarding Sri Lanka’s economic future. Mahinda Rajapaksa lost the presidency to Maithripala Sirisena during the presidential election in January. Voters chose Ranil Wickremesinghe as Prime Minister in August’s parliamentary elections. According to industry sentiment, the parliamentary elections were seen as a way to boost the Sri Lankan economy. The elections were expected to bring the country forward through clearer economic policy and political stability.

Sri Lanka will continue to pursue currency devaluation and improved trade relations with neighboring countries, reasons JB Securities. Prior to the parliamentary election, the central bank propped up the Rupee to avoid voter discontent. It bought back Rupees in exchange for its foreign reserves in USD to prevent the depreciation of the Rupee. With the new parliamentary coalition in place, Sri Lanka’s currency is expected to devalue to keep pace in export numbers with China. During the first half of September, the Sri Lankan Rupee depreciated by 4%.

Sri Lanka has seen improved relationship with China, who have already poured billions of dollars into the country for its “Maritime Silk Route” to oil-rich Middle East and Europe along with the $1.4 billion “Port City” project in Colombo. The current government under Sirisena and Wickremesinghe is expected to maintain Sri Lanka’s relationship with China and adapt a more balanced foreign policy.

Economic growth in Sri Lanka requires improvements in the investment climate. This includes transparency in governance and political stability.

Experts at JB Securities (2015)
Reuters – Sri Lankan rupee hits record low on importer dollar demand  (2015)
The Sunday Times – Will the Colombo Consensus spur economic growth? (2015)

The Future of Car Financing in Sri Lanka

Sri Lanka’s leasing and overall car financing market has been showing clear developments since 2009 and is poised to continue growing, despite the new government’s attempts to reverse its relaxed import duties and interest rates. Two policies are currently being explored by the Sri Lankan government, outlined by JB Securities: increased excise duties on cars and a decreased debt-to-equity ratio for car financing. The first policy would increase the already high by ASEAN standards duties on imported cars. The second would require a smaller debt-to-equity ratio, meaning that borrowers would need to provide a larger percentage of the car’s purchase price. Despite these policies, Sri Lankan residents see the car as a smart investment and are hurrying to purchase before such changes go into effect.  

Managing Director of Carmudi Sri Lanka, Firaz Markar adds,“Vehicle leases and loans have always been an integral part of the vehicle industry in Sri Lanka. We see high correlation between vehicle sales and interest rates as evidence of this. As mentioned in our report, we saw a lot of first-time buyers entering the market by financing small cars and motorbikes. Lower debt-to-equity ratios have certainly helped the market while finance companies and banks have also contributed to the growth of the market by having versatile products that are catered to the first-time buyer.

Recent events resulting in vehicle values going up have definitely affected the market. We see lower sales in vehicles since news broke of this increase. Interest rate changes are not expected to affect the market drastically due to it being a very nominal increase thus far.

We will continue to monitor the market over the next month or so as dealers adopt a wait and see approach towards vehicle buyer intent. We expect the market to return to normalcy over the next month or so with sales expected to be largely within vehicles falling within lower price brackets, in contrast to the previous year, where both lower priced and mid-ranged vehicles such as the Vezel and Axio Hybrid were in high demand.”

Experts at JB Securities (2015)