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

Without permanent access to institutional microfinance, most poor
households continue to rely on meagre self-finance or informal sources of
microfinance, which limits their ability to actively participate in and
benefit from the development opportunities.
Microfinance can provide an effective way to assist and empower poor
women, who make up a significant proportion of the poor and suffer
disproportionately from poverty.
Microfinance can contribute to the development of the overall financial
system through the integration of financial markets.
During the period 1988 to 1998 the ADB approved 15 microfinance projects
totalling approximately US$ 350 million, 6 projects with microfinance
components valued at about US$ 53 million, and 34 technical assistance activities
for about US$ 18 million to support microfinance operations. The ADB admits
that it provided this assistance without a well-defined strategy and as a result, has
not been able to fully harness the potential of microfinance for poverty reduction.
Of this, two countries; Bangladesh and Indonesia received about 62% of the total
loan amount for microfinance projects; Philippines and Nepal, 33%; Kyrgyz
Republic, 4%; and Mongolia 1%. Of the total assistance provided through
component projects, 56% went to the Philippines, while Pakistan and Sri Lanka
each accounted for 20%, with the remaining 4% going to Vietnam (ibid.)
This means that Sri Lanka received some US$ 3.6 million over this period in
technical assistance activities that are funded as grants. Presently the NEDCORD
project in the North and East Region of Sri Lanka with a loan funding of US$
35.5 million has a component for microfinance that is estimated at some 5% of
the total at approximately US$ 1.8 million for the conflict affected areas of the
country, excepting the Jaffna Peninsula.
The earlier ADB microfinance projects where characterised by;
A focus on micro credit delivery,
Allowed subsidised interest rates,
Paid little attention to financial viability, and
Were poorly targeted.
The lending operations in recent years support a wider array of institutions, go
beyond credit services to promote voluntary savings on a limited scale, emphasise
market orientated interest rates, and pay more attention to financial viability than
did the earlier projects. The most recent projects, such as the Rural Microfinance
Project in Nepal, with a loan of US$ 36 million approved in November 1998,
have been designed to encourage greater participation of the private sector in
microfinance (ibid.)
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