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

The village based units in the programme have offices which rural and
microfinance clients can visit and discuss their business with the GPU. The
branch-based units do not take up much space within the branches and do not
require separate support staff.
The key aspects of operational procedures and administrative arrangements that
have been simplified to keep the GP programme responsive to the relatively less
complex banking requirements of the GP client base and to facilitate account
management by the GPUs are:
Separate ledgers maintained at the branch level for GP borrowers
facilitating tracking, monitoring and the status reporting of accounts;
performance of GPUs: progress of the programme against the budgeted
goals.
Loan amounts are well within delegated loan approval and commitment
levels of branch management.
GPUs manage an average of 125 accounts in a service area defined by a
20 kilometre radius from the branch, visiting between 10 to 15 clients and
prospects a day, with all clients being visited at least once every two
weeks.
The collateral requirements and procedures for GP loans have been adapted to
facilitate access by microfinance borrowers. For loans up to SLR 100,000 the
guarantees of two other existing clients of HNB generally suffice, with a turn
around time between application, evaluation and approval at 48 to 72 hours.
Interest rates are market related and the portfolio monitoring and management is
in accord with best banking practice and is a good example of commercialisation
of microfinance.
The full range of HNB’s financial services are promoted and marketed in the rural
areas covered by the GPUs; savings accounts, fixed deposits, savings certificates,
children’s savings accounts and the savings lottery campaign. The focus of the
GP programme is on total banking services for households in the rural areas.
The total deposit balance for the programme as at 30 th June 2001 was SLR 905
million, there are 9,237 active loan clients and the programme has a total
outstanding loan balance of SLR 378.5 million. The sources of funds as at the 30 th
June 2001 were SLR 39.6 million from the SMILE project, SLR 10 million from
Surathura and SLR 328.9 million of the banks own funds.
While GP loans are mainly unsecured, the delinquency and loan loss experience
of HNB’s microfinance programme has been generally favourable with loan
repayment ratios in the high nineties and a provisioning equivalent to 5% of the
outstanding GP loan portfolio. The pricing of GP loans has not been significantly
higher than that of regular commercial bank loans, even though the transaction
costs are for generating and managing more numerous, smaller and riskier credits.
The GP programme does not address all five levels of the poverty pyramid. By
choice, HNB has positioned its GP programme to focus on the upper three layers
of the poverty pyramid – the self-employed poor, the entrepreneurial poor and the
near poor.