Already a three billion rupee (26 million US dollar) re-finance scheme for small loans called Vaddakin Vasantham, or Northern Revival which was set up by the Central Bank, has seen a flood of loan applications.
The new fund is being started following request made for a special development bank for the region at a forum attended by Central Bank Governor Nivard Cabraal last month in Jaffna.
"We will create a fund of about 100 million US dollars," Cabraal says. "If we set up a special bank, we will have to set aside several billion rupees to capitalize it and it will also have operating expenses."
"By channelling the funds through existing banks we can make sure that all the money will go to the people."
The central bank is also looking for space to set up a regional office in Jaffna.Banks are rushing to open branches in the north after a war with Tamil Tigers ended last May. So far the Central Bank has given the nod for 91 bank branches and extension offices to be opened in the region.
"I would like to urge overseas Sri Lankan's to take an early look at emerging investment opportunities particularly in the fields of information technology, education and real estate development," Cabraal said after opening a branch of HSBC in Jaffna Thursday.
"They can be an important influence in supporting the expansion of industrial activity and tourism."
Tens of thousands residents fled the region during the 30-conflict forming the diaspora community. Already hotels are mushrooming as visitors pour in through the main A-9 highway linking Jaffna to the rest of the country.
An 80 million rupee 35 room Tilko Jaffna City Hotel is coming up in the town's Hospital Road. It is promoted by a British based firm owned by a member of the diaspora.
Cabraal says the government wants to invest about 290 billion rupees over three years to upgrade roads, irrigation and health infrastructure.
Since the A-9 road was opened for free civilian traffic in January, visitors have to book three weeks ahead to reserve a room say officials of the few existing hotels. People are also busily converting rooms in houses to let out.
The open highway is also driving up demand for the region's agricultural and fisheries products from outside. Meanwhile vegetables from the South and fruits from abroad are also coming to Jaffna.
Fishing restrictions have also been eased.
It has created new enthusiasm among the region's farmers and fishermen to produce more, driving up demand for bank credit as they look for working capital and money to buy fishing nets and boats.
The central bank's northern revival loan re-finance scheme has already attracted applications for 9,000 loans valued at 1.8 billion rupees and a billion rupees has already been given through banks in the area, Cabraal said.
Prices of fish, crabs and prawns have increased with seafood being exported after being taken by freezer truck to Sri Lanka's capital Colombo.
"We have to pay more for fish now," says a smiling Bishop Thomas Savundaranayagam, from the Roman Catholic Church's Jaffna diocese, which extends to the neighbouring Mullaitivu and Kilinocchi districts, where fighting made 300,000 people homeless.
The government allowed them to move out late last year after holding in refugee camps as authorities looked for Tamil Tigers among them.
Bishop Savundaranayagam about 90,000 refugees from the two neighbouring districts have come to Jaffna.
"They are now staying with relatives," he says. "Some are with the fishing community and going out to work in their boats. They need nets and boats."
The church has just built a fishing net factory with the help of Caritas, a religious charity.
Bishop Savundaranayagam says efforts must be made especially to give people opportunities to move out of subsistence agriculture.
"Jaffna is a small place. The arable land is small," he tells the visiting central bank governor.
"We must encourage people to come here and set up education institutes. Then not only people here will learn but students from abroad will come and study."
Jaffna has a long tradition in fostering knowledge development. Jaffna's St. Johns College set up in 1823 by missionaries is one of Asia's oldest schools.