National Microfinance Study of Sri Lanka: Survey of Practices and ...

The new Rural Economic Advancement Projects (REAP) in Matale and the
Southern Province have larger loan sizes reaching a maximum of SLR 500,000.
This scheme, however, is in its initial stages and the discussion below concerns
the previous loan history of these projects.
It was found that by the end of the project period only some 25% of the credit
component had been taken up. Thus a large volume of available credit allocated
by donors had gone under-utilised mostly due to indifference and poor linkages
between the banks and the project staff. For example in Badulla IRDP the budget
for credit was SLR 53.1 million from 1993 to 1999 but actual delivery was only
SLR 25.9 million or 48.8% by the seven participating agencies.
Recently however, Regional Development Banks and SEEDS have shown more
interest in using these funds. However, take up would have been even smaller if
not for the fact that TCCS and SEEDS in Badulla used SLR 9.7 million of these
funds to give credit to their own members rather than to the society members of
the IRDP.
The Anuradhapura North Central Province Participatory Development Project
that commenced in 1996 had issued only 78 loans through 5 participating banks
by the end of September 2001. This situation is similar to that of the ADB funded
Rural Development project also in Anuradhapura. In both cases it appears that a
lack of enthusiasm of the banks combined with a dispute between the banks and
the project over re-financing of funds has resulted in this poor performance.
In Matara, the SIDA funded IRDP project’s credit component has collapsed due
to the poor financial management of an NGO which was created by the project in
order to handle the credit component. This NGO has now folded. It is however
believed that an attempt is being made to revive this aspect of the project.
It can clearly be seen that the majority of the credit components managed by the
Plan Implementation Ministry have failed. This is through a combination of lack
of expertise in the area of financial credit with a seemingly low interest in the
projects by the banks that are the main participatory agencies for the credit
component.
The potential for sustainability of the village organisations formed by these
projects is very low as all the inputs and staff assistance cease after the project
period is completed. In the absence of a link to an outside agency which supports
them extensively not just in savings and credit but also in many aspects of their
operation the village societies tend to collapse.
The formation of linkages with each other at divisional level or even at district
level or perhaps more usefully linkages to other organisations, such as to the
HDCC in Hambantota is advisable. Then projects with similar objectives could
ensure their sustainability.
For example the village organisations formed by Second Badulla IRDP could be
easily linked with Poverty Alleviation Microfinance Project of the Central Bank
that has just set up office in Badulla. However neither the Ministry of Plan
Implementation nor the Project Office have done much to bring about such a
linkage despite the project coming to a closure in September 2002.
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