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

The ADB believes that in general the earlier projects failed to make a significant
contribution to poverty reduction because of their limited outreach. Some of the
projects had a limited positive impact on a small number of clients, but there was
no mechanism to sustain this impact beyond the project period. Poor
infrastructure, sluggish agricultural growth, and limited markets imposed serious
limitations on the potential for broad-based growth in rural areas and access to
credit could contribute little to permanent improvements in income for clients of
microfinance projects under these conditions.
The lessons learned by the ADB from its experience over the past 11 years are
Adoption of the financial system development approach is the key to
achieving sustainable results and to maximising development impact.
This approach emphasises an enabling policy environment, financial
infrastructure, and the development of financial intermediaries that are
committed to achieving financial viability and sustainability within a
reasonable period and that can provide a variety of financial services, not
just credit, to the poor.
Microfinance clients are more concerned about access to services that are
compatible with their requirements than about the cost of the services.
Given the diversity of demand for financial services, a broad range of
institutional types is required to expand the outreach.
Strong retail institutions committed to outreach and sustainability are
essential for extending the permanent reach of financial services and to
have a significant impact on poverty reduction. Thus building the capacity
of institutions with a commitment to reach the poor is vital.
Financial institutions committed to provide microfinance services were
found to require considerable technical assistance for capacity building.
The demand for savings services by poor households and microenterprises
is as strong if not stronger than the demand for credit. The
expansion of the outreach of savings services can have a potentially
significant impact on both institutional sustainability and poverty
reduction.
Because microfinance is primarily targeted to the poor who are
disadvantaged, social mobilisation is necessary to introduce them to a
formal or semi-formal, market-orientated institutional environment.
The goal of the ADB’s proposed Microfinance Development Strategy is to ensure
permanent access to institutional financial services for a majority of poor and
low-income households and their micro-enterprises. The purpose is to support the
development of sustainable microfinance systems that can provide diverse
services of high quality. The strategy focuses on:
Creating a policy environment conducive to microfinance
Developing financial infrastructure
Building viable institutions
Supporting pro-poor innovations, and
Supporting social intermediation.
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