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

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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. 37
The current laws do not permit NGO’s to take deposits even from its members as the Banking and Finance Act of 1998 restricts deposits to only Banks and Finance Companies. This prohibition covers all aspects of savings whether it is from members or non-members or whether it is as a guarantee for a loan or not. If NGO’s take any deposits, then they must deposit them in turn in a regulated financial institution and are not permitted to lend even a part of them. In spite of these restrictions, this is sometimes ignored not just by the NGO’s but also by the government itself. For example NDTF a government body and Small Farmers and Landless Credit Program -also a government program, insist that NGO’s have savings deposits. Also, some NGO’s and Co-operative Societies that have no assets at all except members’ savings take on savings even of nonmembers without any reserve requirements. Still others loan the entire savings. Part of this study involves surveying existing NGO and co-operative activity. However it is first worth discussing what is meant by the term microfinance. Definition of Microfinance The Asian Development Bank has defined microfinance as: “The provision of a broad range of financial services that includes services such as deposits, loans, payment services and insurance to poor and low income households and their micro enterprises.” (ADB, 2000) Typically, microfinance services are provided through three sources, these are: 1) Formal institutions, such as banks, rural banks, government projects and cooperatives; 2) Semi formal institutions, such as NGOs; and, 3) Informal sources, such as moneylenders and shopkeepers. Institutional microfinance is thus defined to include microfinance services provided by formal and semi-formal institutions while microfinance institutions are defined as institutions "whose major business is the provision of microfinance services.” (ibid.) Loan Levels in Microfinance Microfinance activity can be separated according to size of loan. In this regard, we have segmented loan activity into five levels according to type and utilisation (Gant & Durrant, 2002c). However, a certain amount of overlap will always exist between levels and this is more of an analytical heuristic rather than strict categories. This study focuses primarily on loan levels 1-4, as well as savings products below SLR 100,000. Table 1 Microfinance Loan Levels and Utilisation Level Level of Loan (SLR) Loan Utilisation 1 0 – 3,000 Consumption 2 3,000 – 7,500 Consumption & Income Subsistence 3 7,500 – 30,000 Micro Enterprise Start Up, 4 30,000 – 100,000 Micro Enterprise Expansion & Housing 5 100,000 – 500,000 Small Business Formalisation & Start Up 38
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 32 and 33: Introduction to the Study The objec
Page 34 and 35: The survey does not claim to repres
Page 36 and 37: Introduction Socio-Economic Overvie
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
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ZOA works with community groups in
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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
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Society members have access to cred
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The RDBs were re-structured in 1998
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Table 25 Value of Loans Disbursed b
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The total savings and credit issued
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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
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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
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Figure 9 Linking of the RBIP Tools
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People's Fast reduces loan processi
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In addition, RBIP monitors the impl
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The Hatton National Bank Case Study
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Seylan Bank Case Study The Seylan B
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Until 1961 private pawnbrokers were
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Bank officials stated that PSC staf
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The urban PSCs have on average more
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The lack of flexibility has induced
Page 182 and 183:
From the borrowers perspective not
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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
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This type of situation is seen thro
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People IDPs in welfare centres, sho
Page 204 and 205:
World Vision has been working in al
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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
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The MPCSs were equally disrupted an
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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
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Local NGOs 1 NGO was identified in
Page 224 and 225:
Local NGOs 2 NGOs were identified i
Page 226 and 227:
Local NGOs No NGOs were identified
Page 228 and 229:
Gampaha District Microfinance Overv
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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
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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
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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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