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

Co-operative Rural Banks
The CRB system commenced in March 1964 in Menikhinna in the Kandy District
and in the initial years was a partnership between the Peoples Bank and the cooperative
movement. The Peoples Bank chose Multi-purpose Co-operatives with
a significant membership and acceptable accounting and management to set up
Co-operative Banks.
The intention was that CRBs focus on small loans and savings that at that time
was beyond the reach of the Peoples Bank. It was seen as a win–win equation for
the Peoples Bank and the MPCS movement. The initial CRBs were even
managed by staff member of the Peoples Bank. All accounting and
management/banking systems were introduced by the Peoples Bank and all
training of staff undertaken by them, with the bank also introducing a deposit
insurance scheme with all excess deposits invested in the Peoples Bank.
The CRBs which were the banking division of the MPCS was set up as an
independent profit centre and given semi-autonomy from the MPCS but had no
separate legal status. The Manager of the CRBs at the MPCS report directly to the
Board of Management of the MPCS rather than to its Chief Executive.
However Peoples Bank (PB) relationship with CRBs changed a number of times
and the practice of having PB staff as managers soon ended with instead
experienced officers appointed as instructors to each CRB. Further after the reorganisation
in 1971 the autonomy of the CRBs reduced with the CR Bank
Manager responsible to the CEO of the MPCS and not directly to the Board.
By year 1997 the relationship between the Peoples Bank and CRBs was
terminated, leaving a major vacuum as no longer did CRBs have access to the
banking technology and capacity building from an external source and training
reduced to in-house training by senior officials.
As a consequence of the PB moving away from its advisory and semi-banking
role with CRBs the bank started setting up its own higher-level organisations
starting with district unions. By the end of 1999 there were 14 such district
unions providing banking services to the CRBs. A national federation was also
formed and in 1999 an application was made to the central bank to set up a
specialized co-operative development bank, the central bank did not approve the
application. Meanwhile the original peoples bank that was set up to be a cooperative
bank drifted away and focused on becoming a commercial bank.
The growth of CRBs in the last 10 years is given below. What is remarkable is
that the growth does not seem to be hampered by the advent of Samurdhi or the
large number of NGO and government schemes. Both savings and loans have
more than doubled since 1996.
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