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

These five years saw a spate of new initiatives by the government starting with
the establishment of the Regional Development Banks by the Central Bank in
1986, the Jansaviya Trust in 1990 and the Small Farmers and Landless Credit
Project in 1991. The period can also be considered as the beginning of major
NGO involvement in this field starting with the setting up of SEEDS in 1986.
The next most significant step was the establishment of Samurdhi Authority and
its micro finance program in 1997. The government also re-structured the
Regional Development Banks into 6 Regional Banks in 1997 reducing the control
and ownership of the Central Bank in the system and making the Bank of Ceylon,
Peoples Bank, the EPF workers fund and the Central Bank owners.
In terms of current involvement of the government in Micro finance, the Central
Bank Rural Credit Department remains the key government agency responsible
for rural credit and for micro finance outside the Samurdhi Authority. It
supervised 15 projects in year 2000 of which at least 10 had some components of
micro finance. The division also implemented 2 of the 15 projects, namely
SFLCP and PAMP. However the division mainly acted as a financial channel for
donor funded projects. It did not actively initiate or participate in policy
formulations or in the regulation of micro finance. In fact the difference in
emphasis between rural credit and micro finance showed that no government
agency was responsible for or focused on policy aspects of micro finance
exclusively.
In 1992, the Presidential Commission on Banking and Finance recommended that
the Central Bank confine itself to its traditional supervisory role and shed its
development role. Despite this, it began a new microfinance project, PAMP, with
Japanese funding, as well as continued to implement the Small Farmers and
Landless Credit Program, and own majority shares in the Regional Development
Banks.
The Central Bank, which is the government agency responsible for the
supervision of banking and non banking agencies has no capacity to supervise the
large spectrum of micro finance agencies and work spread all over the country.
The Co-operative Department, responsible for supervising key agencies such as
the CRBs and TCCS is equally incapable of even auditing its agencies. Thus
today micro finance in Sri Lanka is by and large an unsupervised, unregulated
area. One of the key aims of this study therefore, is to map out as much of the
micro finance sector as possible.
Despite the massive growth of micro finance in Sri Lanka in the last 15 years
there has been no attempt to regulate the institutions providing this service. The
key reason why some regulations are required is the vast amount of savings that
the poor entrust to these organizations. As the individual amounts are small from
a national perspective the key agencies such as Central Bank or the Finance
Ministry does not appear to give this issue sufficient attention. At the moment
there are no safe guards or very few for savers in these schemes including all
NGO programs, the Co-operative Programs and even some of the government
programs. As a result, many NGO’s and even TCCS have folded but as seen
individually the figures are not newsworthy, no one is aware. Eventually this
could become a serious problem.
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