The soap refill dispenser at a cafe in TRACE Expert City — a technology hub in Colombo, Sri Lanka — boldly declares that it was delivered by ”USAID, from the American people.”

The device is a relic from the past, reflecting goodwill that once existed between the US and Sri Lanka. Now, as external aid through USAID and other entities dries up, the island nation is looking inward for its future.

You’ll find some of that focus at TRACE’s campus, where energetic AI entrepreneurs with international ambitions brim with fresh ideas. Startup Jendo Innovations is already deploying AI-driven medical technology internationally. “We have the best affordable talent in the region to develop applications on AI,” said Heminda Jayaweera, executive director of TRACE.

Meanwhile, in Kathmandu, Nepal, venture capitalist Preeti Adhikary and medical doctor Kisu Rawal beam with joy as women entrepreneurs wrap up a series of AI training sessions. Adhikary sees in the women newfound confidence and fresh ideas about how to expand and streamline their businesses.

While much of the chatter about AI in the US carries with it an element of danger — hallucinations, rogue AI agents, leaked or stolen data — in Nepal the conversation centers around empowerment and upward mobility.

“While AI has been an equalizer…, it’s on us to find underserved communities and demographics to educate and enable,” said Adhikary, who is a general partner at Momo VC. She works to connect the Nepal tech ecosystem through initiatives like The Great Nepali Diaspora, a global network of Nepali talent, and The Empowered Women Network, which organized the recent AI training session.

The Empowered Women Network

To be sure, AI is still in the Wild West phase in Nepal, Sri Lanka and many developing economies — just as it is elsewhere in the world. Locally, some startups have focused  AI tools on their unique cultures, demographics and business environments.

Some are focused on AI for good, especially in rural areas, where 33% of the population resides, according to the World Bank. 

Mobile devices are ubiquitous in those areas, which opens the door for AI-driven healthcare that can quickly diagnose diseases and reduce long lines in remote hospitals.

But culture also presents unique data challenges. Literacy remains an issue, and locals prefer interacting with AI using voice-driven methods rather than text, which changes customer feedback and service flows. 

Product recommendations are also made by word-of-mouth, cutting off one layer of product discovery and reshaping how AI models are built.

Because workforces in Nepal and Sri Lanka are still emerging, the concern over AI-driven job losses is not as dire as in the US, where job cuts have been attributed to automation via AI. And unlike in the US, legacy systems and technical debt are not a burden here. 

Enterprises with lean IT budgets have little appetite for digitizing legacy data, which could slow AI adoption. So, bootstrapped startups, facing limited hardware, capital and talent, hope to make their workflows and processes AI-native from the start.

Even so, the lack of resources makes innovation and skills development difficult. Nvidia GPUs, for instance, are particularly scarce in Nepal and Sri Lanka and prohibitively expensive. 

To work around the challenges, startups have turned to small language models (SLMs) and popular AI tools. “AI tools — which are powerful even at the free version — and open-source models have meant AI is truly democratized now,” Adhikary said.

AI adoption is poised to grow in both Nepal and Sri Lanka, both of which have Gen-Z-inspired governments that grew up on social media and are AI-ready. Nepal last year published a national AI strategy outlining plans to boost infrastructure, skills readiness and countrywide awareness.

It has room to grow. Nepal ranks 106 out of 190 countries in Oxford Insights’ 2025 Government AI Readiness Index. The nation’s goal is to reach the top 50.

Meanwhile, Sri Lanka is ranked 80th and is pushing AI adoption. The country in 2024 established the Ministry of Digital Economy and has an AI strategy to boost the local ecosystem.

And Sri Lanka’s new digital nomad program could bring diaspora and foreign tech workers back onshore to help bolster local AI development and adoption.

As in other parts of the world, there is an ongoing need for mentorship, domain expertise and access to networks to grow and scale, according to Adhikary. But AI  entrepreneurs in Nepal recognize the benefits of collaboration. 

“I’m pleasantly surprised … that a nation with a newish tech ecosystem can compete with New York and Silicon Valley in terms of ideas and technical acumen,” Adhikary said.