The paper identifies why the recycling industry is deficient in Sri Lanka from the viewpoint of the integrated sustainable waste management model (ISWMM). ISWMM identifies from a broad perspective the complex and multi-dimensional challenges and solutions in the recycling industries in developing countries. The focus of this study is on all types of recyclable waste generated by all the actors in a developing economy well beyond the commonly focused municipal solid waste. Data were collected from interviews, document analysis and site visits. The challenges for the recycling industry stem from various upstream and downstream actors in the recycling value chain (broadly stakeholders), waste system stages and enabling environment. Sri Lanka, far from being a circular economy, faces many social, environmental, and economic problems. They need remedial action based on these challenges through awareness creation, capacity building, investment in infrastructure and technology, law enforcement and policy implementation, international collaboration, private–public partnership, fiscal policy support, and industry formalization. Thus, the solutions call for a multi-faceted and all stakeholder-inclusive approach.