Sri Lanka has embarked on a gradualtransition from a system of directed credit in a highlysegmented market toward an integrated market-driven housingfinance system. This transition has included an increasedrole of private universal banks in the immediate term and afunctioning secondary mortgage market in the long term. Anactive system of housing finance provides real economicbenefits and positively affects savings, investment, andhousehold wealth. It provides an investment option forlong-term funds in the economy as an alternative toinvestment in treasury bonds. In turn, each dollar investedin the housing sector catalyzes economic activity in othersectors, exerting an indirect positive impact on employmentlevels, the retirement system, fiscal returns, andconsumption. Housing finance enables households toaccumulate assets that can provide the collateral for theirinvestment needs, thus stimulating small business. Housingfinance development boosts equitable economic growth andreduces poverty by improving living conditions, empoweringthe middle and lower-income population, and strengtheningcommunities. Housing policy focuses on improving governmentland use and maximizing the use of the existing housingstock by providing basic public services and upgrades.