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

Most international 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. They are also funding microfinance activities for issues
related to using microfinance as a ‘membership’ tool to help increase civil society
and community rehabilitation.
Most funders believe that microfinance has proven to be an effective intervention
tool for alleviating poverty in Sri Lanka. However, there is an increased emphasis
on the use of ‘soft’ policy tools such as training and technical assistance rather
than ‘hard’ financial instruments and few funders are still financing RLFs on their
own any more.
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.
Funder-Practitioners of Microfinance in Sri Lanka
Most of the INGOs and multilateral agencies operating in Sri Lanka currently
practice microfinance. The use of microfinance as an intervention tool varies
widely. Poverty alleviation and sustainable livelihoods are key themes, but it is
also used in emergency situations, for purposes of educational development,
housing construction, to empower women, to decrease household vulnerability, to
increase child protection, to build-up civil society, to rehabilitate communities
and for purposes of income generation and enterprise development.
Methods of implementation vary widely. As a rule, microfinance activity takes
place through the economic mobilisation of groups and societies at the village
level often utilising some sort of RLF ‘seed’ funding and technical assistance
activity as key intervention tools; but there is a huge variance in the exact
methods and models used. Some work directly with community and village based
organisations, others implement indirectly through NGOs, co-ops and government
partner organisations, while yet others do both.
Microfinance is used as a multifaceted intervention tool. No two international
organisations view microfinance in the same way. Frequently, microfinance is not
the core intervention activity but a means to achieving another end. Where
increased access to financial services for the poor is a primary aim, the majority
of international interventions are under researched, badly planned, lack
specialised microfinance competencies and operate on too short a time scale.
Many of the funder-practitioners are starting to re-evaluate how they approach
and plan their microfinance interventions. There appears to be a growing
consensus that the use of fungible assets as an intervention tool requires different
management skills and performance management systems. At least three
organisations now employ, or are in the process of training-up, microfinance
specialists and at least one organisation appears to have successfully moved onto
a longer term funding platform.
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