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

Some 1,176 of the 1,476 Co-operative Rural Banks were profitable in year ended
31 st Dec 2000 and previously donors especially the multi-laterals do not want to
give loans and do not find organisations having excess funds attractive as a
development partners preferring in the main to ‘prop up’ the weaker NGOs.
However, UNDP is working with 17 MPCS in Jaffna using a combination of soft
and hard policy tools including leverage strategies.
Another practical reason is the ownership of CRBs that is not centralised but
diffused between many Multi Purpose Co-operative Societies. The impressive
record does not mean that CRBs do not have problems in fact their future is very
uncertain as there are many issues which if not addressed soon will lead to a
deterioration of the banks as a whole;
1. Ownership
Ownership of the CRBs is with the Multipurpose Co-operative Societies (MPCS)
with a few exceptions and therefore they not a separate legal entity but a division
of the MPCS. MPCS leadership is elected by the members and is in many cases
divided along party political-lines, open to political capture rather than the
effective and efficient management of the CRBs.
The ownership issue is also a threat to the profitability of the banks with the
profits considered as part of the profits or losses of MPCSs’ as a whole, where
other divisions are making losses then the incentive for the CRBs to maximize
their profits is diminished. The salary structures for staff are poor and there is no
profit share for the members both of which reduce the incentive for effective and
efficient operation.
MPCS ownership also means a diffusion of the ownership throughout 306
MPCSs that have the 1476 CRBs under their control resulting in a lack of focus in
management structures and systems. There is a District level CRB but this too has
limited capacity and authority -as ownership of the CRBs is not with this
organisation.
2. Management
Presently the management too is under the General Manager of the MPCS who in
many cases have not come from a Rural banking background. Earlier this was not
the case and Bank Managers reported to the Head of Banking in the MPCS.
3. Monitoring and Capacity Building
From the inception of CRBs in 1964 until 1997 the Peoples Bank supervised the
CRBs and made a great contribution to the structures and systems as well as
building the capacity of the staff. Now that this relationship has been terminated
the CRBs do not have a source for capacity building and the monitoring task has
been passed to the Assistant Commissioner Co-operative Development in each
district whose offices in the main do not have sufficient capacity for this role.
4. Viability And Deposit Security
With the high level of political interference in the MPCS system it is possible that
the risk to members funds and non members deposits has grown without neutral
oversight and objective external audit.