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

The Peoples Bank, on the other hand, in cooperation with GTZ and its Rural
Banking Innovations Project has developed a client focused microfinance product
supported by computerised technology and systems that ‘reaches out’ to rural
clients specifically addressing the needs of entrepreneurs in the areas of micro and
small business. In the face of increased competition in the semi-liberalised
financial sector of Sri Lanka, the People’s Bank is making a strong effort to
position itself as a service-oriented, viable and professionally run commercial
bank. The Peoples Bank is currently developing a specialized microfinance
division that will manage all of its microfinance products and programmes.
The Hatton National Bank was the first of the private banks to enter the area of
microfinance in 1989 with a specialised programme, utilising its own funds
granting small loans for self-employment and enterprise development with project
feasibility as the criteria and two account holders acting as guarantors as
collateral. Over time the Bank has shifted its focus from the poor to rural
entrepreneurs, this is due to the following factors; established clients requiring
cumulatively larger loans as they progress through the ‘economic stream’ from
micro to small business activities, entry of a wider range of subsidised actors,
such as Samurdhi; and a need to improve profitability through reducing
transaction costs.
The Seylan Bank is a recent entrant to microfinance with a focus on providing
financial services to the poor within the rural communities. In 1996 the Bank
initiated a microfinance scheme for farmers that would provide them with access
to credit to purchase inputs for the production of crops. The bank’s staff
developed this scheme through utilising previous social mobilisation interventions
in eight districts. The operation uses a credit system with a network of approved
traders. In the past year apex organisations have been formed in two districts and
the bank has introduced a credit card system for its members. The bank is
planning to wholesale credit to the apex organisations for on lending to their
members.
Conclusion
The commercial banking sector has been a major actor in microfinance for more
than four decades. Over the past five years the state banks have undergone a
major shift from acting as funnels for state directed microfinance programmes to
focusing on becoming profitable microfinance retailers.
The pressure of retaining and building market share, mainly in the rural areas,
linked to a requirement for profitability has forced them through a steep learning
curve resulting in product innovation, organisational restructuring, and the need to
acquire new technology.
The private banks microfinance schemes are evolving rapidly to meet the
challenges presented by their clients needs and at the same time trying to retain
competitive profitability in a market place that is becoming ‘crowded’.
Given that the commercial banking sector can profitably operate and expand its
outreach in the microfinance arena then these banks may threaten the existence of
the present microfinance intermediaries in the near future.