This document is exploring and explains Sri Lanka’s work to embark on a gradual transition from a system of directed credit in a highly segmented market toward an integrated market-driven housing finance system. This transition has included an increased role of private universal banks in the immediate term and a functioning secondary mortgage market in the long term. To nurture home mortgage markets, this ambitious agenda would require a stable macro economy, low inflation, and careful fiscal policies. An active system of housing finance provides real economic benefits and positively affects savings, investment, and household wealth. It provides an investment option for long-term funds in the economy as an alternative to investment in treasury bonds.