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

GTZ/RBIP – Case Study
The Rural Banking Innovations Project (RBIP) was established in 1996 to support
the People’s Bank of Sri Lanka to re-orient itself towards lending activities for
Micro, Small and Medium Enterprises (MSME) 25 . As a state-owned bank, the
People's Bank is expected to contribute to the national mandate to serve rural and
underprivileged communities. It has an outstanding track record in savings
mobilisation and pawning.
Since the People's Bank's inception in 1961, the Sri Lankan governments have
introduced various development loan schemes through the Bank as a tool to
alleviate poverty in rural areas. Like in many other developing countries, these
directed credit schemes were largely failing in achieving important goals due to
the supply-led and subsidy-dependent character.
Today, in the face of increased competition in the liberalised financial sector of
Sri Lanka, the People’s Bank is making strong efforts to position itself as a
service-oriented, sound and professionally run commercial bank. RBIP is
supporting the Bank in this transformation process through the provision of
innovative 26 tools for rural banking, which specifically address the needs of the
micro and small enterprises.
The project, thus, is fully committed to both financial broadening and deepening
of the financial sector through extending the range of financial products of the
People’s Bank and through increasing the outreach to new customers.
The tools have been developed during the first phase of RBIP and are still in a
process of continued adjustment. Nevertheless, the authors feel that the time is
now appropriate to discuss the initial experiences of RBIP’s innovations with a
broader circle of committed people. The tools and instruments, which have been
introduced to the Bank during phase I are:
Field Officer Concept as the Bank’s prime instrument to establish and to deepen
a lasting and profitable business relationship with the small customers;
Multi-purpose Small Business Loan ("People's Fast"), which combines a number
of innovative elements reducing transaction costs for borrowers and the Bank.
Management Information System (MIS), which provides information on the
bank’s performance and its impact on customers;
Geographic Information System (GIS), which helps the Bank target its services
to defined customer groups; and
Impact Monitoring, which enables the People's Bank to measure the impact of its
activities on MSME customers and the Bank itself.
25 MSME in this context are all enterprises with up to 50 employees.
26 Innovation in this context is defined along the ideas expressed by Peter Drucker in Innovation
And Entrepreneurship (1985): Innovation is the specific tool of entrepreneurs, the means by which
they exploit changes as business opportunities; i.e. innovation is not the same as invention.