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

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Introduction to the Study The objective of this report is to take a ‘snapshot’ of microfinance activity throughout the whole of Sri Lanka. This document is intended to provide an empirical source of reference for the microfinance community as a whole. Four different surveys were undertaken. First, an actor survey was conducted in order to gain an understanding of the different types of microfinance activity presently taking place in Sri Lanka. The major microfinance actors were identified and a typology of actor type was developed. The actors were then approached and then either eliminated or asked to provide details of current and planned practices and intervention activities. A combination of semi-structured interviews, questionnaires, formal and in-house documentation and informal discussions were used. The results of this survey are presented as Part A of this Report. Some of the formal banking sector institutions are engaged in activities that can arguably be defined as microfinance. The banks were approached in the same manner as all the main actors and asked for information regarding their activities. Most were happy to be approached, however, it then became apparent that the majority of the commercial banks were either not practising microfinance per se or were unable or unwilling to provide the level of detail about their operations required for the study. 1 Because of this it was not possible to include the commercial banking sector in the two main surveys. The Regional Development Banks and Samurdhi are included in the main actor and activity surveys as their function is not commercial but poverty orientated. The commercial banking sector is clearly too important to be omitted as it represents perhaps as much as one quarter of the microfinance credit sector and significantly more so in terms of microfinance savings activity 2 3 It was therefore decided to do a separate survey of the commercial banking sector. The results of this are presented in Part B of this report. This is a national study of microfinance conducted on a district by district basis. Microfinance, as with the provision of all financial services, takes place in the wider context of an economic stream and that this stream is segmented with different actors, services and clients at different levels. Microfinance is concerned primarily with creating access to financial services for the poor. 1 The two notable exceptions to this were the Hatton National Bank and The Bank of Seylan. 2 The self-reported data provided by the commercial banking sector (namely, BoC, Peoples Bank, HNB and the Seylan Bank) in Charitoneko & de Silva (2001) amounts to approx. 4.2 billion total outstanding loans as at 31 st Dec 2000. Obviously the figure for loans disbursed during the year 2000 is less than the outstanding totals provided. The total amount of microcredit supply identified by the survey during 2000 was SLR 14.4 billion. If one assumes, say, that SLR 3 billion of the SLR 4.2 billion was disbursed during the year 2000, then the total national supply of microfinance during the year 2000 can be estimated at approx. SLR 17 billion. 3 The government subsidised programmes of the New Comprehensive Rural Credit Scheme (NCRCS) and the Surathura Diriya Credit Programme (SDCP) are included in Part B as commercial banks are the implementing partners. 31
Assessment of poverty levels in Sri Lanka varies according to the indicators or benchmarks used. Earnings of less than US$1 a day is a common benchmark, while others are based on the purchasing power of a currency relative to a ‘basket’ of essential food items. Poverty estimates thus range between one quarter and one third of the population (UNDP, 2000). The Sri Lankan Economy as a whole has grown steadily over the last decade yet it is currently in a fairly dangerous position. The most notable features of which are that currency reserves are low, periodic IMF borrowing is necessary, inflation is high, the public sector is huge and the economy has unsustainable levels of military spending (c.f. ADB, 2001; World Bank, 1998; World Bank, 2001). 4 In the North & East region, the situation is worse. The Region has suffered the equivalent of minus 5.5% year-on-year economic growth (UNDP, 2001) and formal employment opportunities are scarce. Relatively little detailed economic analysis of the region has been done. 5 . The effectiveness of microfinance as an intervention tool in areas affected by conflict is dependent upon the presence of certain basic ‘market’ conditions that allow semi-formal financial services to function (Doyle, 1998). As this study progressed, it became evident that the localised contextual information required to reach an informed opinion about the potential effectiveness of the role for microfinance to act, as an agent of economic recovery in the North and East region was largely unavailable. To help inform policy decisions about economic recovery initiatives, it was decided to include a survey of the operational conditions of the North and East with specific regard to microfinance. The results of this survey are presented as Part C of this report. The second main undertaking of this study was a district-by-district activity survey. This was conducted in order to gain a detailed understanding of the actual levels of microfinance supply throughout the country. To achieve this all the major microfinance practitioners were approached and asked to provide information about their savings and loans activities as of the 31 st of December 2000. This included government microfinance programmes, international practitioners and the not-for-profit sector. The survey undertook a district level analysis of actor activity. This included the use of a nation-wide questionnaire to gain an in-depth appreciation of NGOs practising microfinance at the local level, as well as the larger national and regional entities. 4 The armed forces are a huge source of employment with over 250,000 employees. In the event of a prolonged peace settlement the issue of de-mobilisation will create huge problems economically. One estimate, for example, claims that the rural poor in the ‘south’ are three times more dependent on ‘military remittances’ than the Janasaviya and Samurdhi programmes (Dunham & Jayasuriya, 1998). 5 For example, of the 43 papers related to the ‘relief/development nexus’ identified by Zunzer (2002) as having been published in the last three years, only two (Ravano, 2001; CARE 2000b) focus on localised economic analysis in the North and East region. Other publications not included in Zunzer’s survey do engage economic analysis but tend to be limited to general reviews of the region as a whole (DRC 1999; UNDP 2001) 32
Page 1: National Microfinance Study of Sri
Page 4 and 5: (b) Lenders .......................
Page 6 and 7: Introduction into the pawning busin
Page 8 and 9: Microfinance Overview .............
Page 10 and 11: Savings ...........................
Page 12 and 13: List of Tables Table 1 Microfinance
Page 14 and 15: Table 70 Ratnapura District Microfi
Page 16 and 17: JBIC MFI MFN MIS MPCS MSME NCPPDP N
Page 18 and 19: Figure 1 Map of per Capita Value of
Page 20 and 21: Figure 3 Map of per Capita Value of
Page 22 and 23: Executive Summary This report provi
Page 24 and 25: Practitioner Microfinance Activity
Page 26 and 27: As a result the banks are moving aw
Page 28 and 29: The operating conditions of the con
Page 30 and 31: Donor Strategies There should be a
Page 34 and 35: The survey does not claim to repres
Page 36 and 37: Introduction Socio-Economic Overvie
Page 38 and 39: These five years saw a spate of new
Page 40 and 41: The 'Economic Stream' Employment is
Page 42 and 43: Microfinance Clients and Beneficiar
Page 44 and 45: 1. Funders of Microfinance in Sri L
Page 46 and 47: CIDA believes that microfinance act
Page 48 and 49: The Department For International De
Page 50 and 51: NOVIB Partnerships tend to be long
Page 52 and 53: HIVOS The HIVOS Desk concentrates o
Page 54 and 55: Over time SIDA noted that the loan
Page 56 and 57: Comment freely given from one of th
Page 58 and 59: the time period of the project, wit
Page 60 and 61: Only a very small part of the US 50
Page 62 and 63: The demand for loans from this fund
Page 64 and 65: Without permanent access to institu
Page 66 and 67: This broad strategy means that the
Page 68 and 69: Beneficiary targeting was generally
Page 70 and 71: The FCSs were developed the followi
Page 72 and 73: CARE's new strategy commits the org
Page 74 and 75: Each CBO determines the level of in
Page 76 and 77: The project’s overall approach re
Page 78 and 79: Figure 6 GTZ/JRP - Project Interact
Page 80 and 81: The Social Development Foundation F
Page 82 and 83:
There are no sector-based quotas ap
Page 84 and 85:
Over the past five years SCN has as
Page 86 and 87:
UNDP in the North & East - The Jaff
Page 88 and 89:
In December 2001 a new UNDP Program
Page 90 and 91:
From previous experience and lesson
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World Vision Lanka WVL believes tha
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Membership Development 3500 3000 25
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Table 14 World Vision - Gramashakth
Page 98 and 99:
ZOA works with community groups in
Page 100 and 101:
At the village society and bank lev
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In Wayamba the sustainability of th
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Table 15 Badulla IRDP - Summary Dat
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DZPDP/WHRDA credit operations comme
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In the initial years they did not f
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Table 18 SPRDP- Loans 1993 to 1999
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(c)Lender-Practitioners The Central
Page 114 and 115:
Society members have access to cred
Page 116 and 117:
The RDBs were re-structured in 1998
Page 118 and 119:
Table 25 Value of Loans Disbursed b
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The total savings and credit issued
Page 122 and 123:
Table 29 Samurdhi - Loans by Distri
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In 1998 SEEDS converted to a separa
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Within the loans from SEEDS funds t
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The Arthacharya Foundation practice
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The program was assisted by some li
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However in general the majority of
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Table 33 Growth of MPCS CRBs -1990
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As at the end of December, 2000 a s
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Some 1,176 of the 1,476 Co-operativ
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A total of 74 NGOs were identified
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Finally only a small proportion of
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Table 38 TCCS Active Societies and
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District Unions - National Federati
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4. Facilitators a) National Level F
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International Centre for the Traini
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Funder-Practitioner Microfinance Ac
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As practitioner experience increase
Page 156 and 157:
Introduction and Approach The major
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State-Owned Banks The Bank of Ceylo
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Starting in 1994, the NCRCS is aime
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The Seylan Bank The Seylan Bank ent
Page 164 and 165:
Figure 9 Linking of the RBIP Tools
Page 166 and 167:
People's Fast reduces loan processi
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In addition, RBIP monitors the impl
Page 170 and 171:
The Hatton National Bank Case Study
Page 172 and 173:
Seylan Bank Case Study The Seylan B
Page 174 and 175:
Until 1961 private pawnbrokers were
Page 176 and 177:
Bank officials stated that PSC staf
Page 178 and 179:
The urban PSCs have on average more
Page 180 and 181:
The lack of flexibility has induced
Page 182 and 183:
From the borrowers perspective not
Page 184 and 185:
The Peoples Bank, on the other hand
Page 186 and 187:
Introduction and Approach Internati
Page 188 and 189:
Displaced populations are dependent
Page 190 and 191:
Large tracts of land have become to
Page 192 and 193:
Public markets, shops, guest houses
Page 194 and 195:
The previous thriving local economy
Page 196 and 197:
The Wanni Access to the area known
Page 198 and 199:
Remembering that these intervention
Page 200 and 201:
This type of situation is seen thro
Page 202 and 203:
People IDPs in welfare centres, sho
Page 204 and 205:
World Vision has been working in al
Page 206 and 207:
small entrepreneurs have received t
Page 208 and 209:
The exception to this is a governme
Page 210 and 211:
There has been some continued acces
Page 212 and 213:
Introduction and Approach A distric
Page 214 and 215:
The MPCSs were equally disrupted an
Page 216 and 217:
The main body of the survey is pres
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Local NGOs 11 NGOs were identified
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Local NGOs 1 NGO was identified in
Page 222 and 223:
Local NGOs 1 NGO was identified in
Page 224 and 225:
Local NGOs 2 NGOs were identified i
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Local NGOs No NGOs were identified
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Gampaha District Microfinance Overv
Page 230 and 231:
Hambantota District Microfinance Ov
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Jaffna District Microfinance Overvi
Page 234 and 235:
Staring in 1998 each DS received SL
Page 236 and 237:
Page 238 and 239:
Page 240 and 241:
Page 242 and 243:
Page 244 and 245:
Matale District Microfinance Overvi
Page 246 and 247:
Matara District Microfinance Overvi
Page 248 and 249:
Moneragala District Microfinance Ov
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Nuwara Eliya District Microfinance
Page 252 and 253:
Polonnaruwa District Microfinance O
Page 254 and 255:
Puttalam District Microfinance Over
Page 256 and 257:
Ratnapura District Microfinance Ove
Page 258 and 259:
Trincomalee District Microfinance O
Page 260 and 261:
Vavuniya district Microfinance Over
Page 262 and 263:
The Wanni Area Microfinance Overvie
Page 264 and 265:
Summary Microfinance Activity by Ac
Page 266 and 267:
The NGO questionnaire survey identi
Page 268 and 269:
World Vision Lanka works in 5 distr
Page 270 and 271:
Given that these figures do not inc
Page 272 and 273:
Overall, 13 of districts had levels
Page 274 and 275:
Averages Value of Loans Table 78 Av
Page 276 and 277:
Volume and Number of Loans The surv
Page 278 and 279:
Findings The key and main findings
Page 280 and 281:
Service Providers The service provi
Page 282 and 283:
those incapacitated by conflict, wi
Page 284 and 285:
Cultures of Dependency in Microfina
Page 286 and 287:
Strategic Recommendations The key s
Page 288 and 289:
Conclusion The study found that the
Page 290 and 291:
Charitoneko, S. and D de Silva (200
Page 292 and 293:
Remenyi, J (1991). Where Credit is
Page 294:
Technical Appendix
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