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

Summary
The Funding of Microfinance Activities in Sri Lanka
Overall, there has been broad-based coverage of microfinance funding throughout
the country with significant levels of funding readily available to microfinance
practitioners at all levels from local NGOs up to the professional national-level
MFIs, INGOs and government programmes. There has also been a balanced
mixture of short and medium term funding activity with several funders
historically prepared to commit to long-term partnerships.
In terms of the provision of lending services one funder has recently become a
granter-lender. This along with the existence of the presence of the national
lending institutions means that there would appear to be adequate access to
wholesale and retail funding for the professional MFIs. Furthermore there is
some evidence to suggest that the NDTF has successfully managed to encourage
some local NGOs to switch from grant in aid funding, it is to early to say whether
this is tactical behaviour on the part of the NGOs or that it is the start of a longer
term shift. Obviously, much depends on future patterns of granter funding and
the ability of the NDTF to sustain loans at below market rates of interest.
Most of the international bilateral and multilateral funding organisations that
target development aid to Sri Lanka have been granting monies for microfinance
projects for the purpose of poverty alleviation for some time 18 . In addition, some
multilateral agencies such as UNHCR and UNICEF have also recently been
prepared to fund microfinance activity for the purposes of decreasing
vulnerability and child development. 19 Other funders are funding microfinance
activities less for issues related to poverty alleviation and more directly to do with
using microfinance as a ‘membership’ tool to help increase civil society and
community rehabilitation.
In terms of policy, most funders believe that microfinance has proven to be an
effective intervention tool for alleviating poverty in Sri Lanka. However, there is
clearly an increased emphasis on the use of ‘soft’ policy tools such as training and
technical assistance rather than ‘hard’ financial instruments. Few funders are still
prepared to finance RLFs on their own any more.
Perhaps as a consequence of the recently changed geopolitical environment, many
of the key funders of microfinance activities in the country are about to start or
are in the process of major strategic reviews of their development briefs. Three
funders have recently committed to the funding of two medium term projects with
microfinance components. There is a strong possibility that in a year from now
the patterns of microfinance in Sri Lanka will look quite different.
18 In the least couple of years, two donors, ICCO and UNHCR, have ceased funding microfinance
activity in the country, while another, USAID has unexpectedly decided to continue its operations
in Sri Lanka. A further two actors, IFAD and WFP, also appear to have stopped funding
microfinance projects.
19 Although they have, on occasion, funded microfinance activities in the past, none of the
international embassies are currently funding microfinance activities themselves and all report that
the funding of microfinance activities is left to the development arms of the respective
governments