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

UNDP in the North & East - The Jaffna Resettlement and Rehabilitation Project
The JRRP microfinance component was funded by AusAID during 1999-2000 at
a value of AUS$ 100,000. In the two designated Resettlement Areas of the Jaffna
Peninsula, Tellipalai and Kayts & Islands, JRRP initiated micro finance credit
schemes in partnership with ten Multi Purpose Co-operative Societies (MPCS),
with five in each area. The MPCSs had a joint membership of some 20,000
members in March 1999 at the outset of the schemes and this has grown to over
40,000 members to date.
The MPCSs have substantial funds from members’ savings however due to
stricture by the Assistant Commissioner Cooperatives Department and the
MPCSs own risk analysis no funds were made available for a loan portfolio to
assist members in the rehabilitation of their livelihoods. However since the
scheme’s inception four of the MPCSs have started to allocate their own funds as
a result of the schemes success and to cope with the demand.
Training in business and fund management was given to the managers and staff of
the Credit Rural Banks that act as the banking units of the MPCSs. Technical
Partnerships were initiated with the Departments of Agriculture and Livestock,
Agrarian Services, Industrial Development Board and the GTZ funded
entrepreneurial training project CEFE.
These partners extend services such as business plan preparation, enterprise
training, field extension, technological inputs and mentoring to the beneficiaries
of the micro finance credit schemes. Loans are based on demonstrated need and
range from SLR 5,000 to SLR 50,000 thereby covering the segments of the
economic stream from vulnerable poor through to micro enterprise development.
Agreement with the GoSL on interest levels was at first difficult, as the
government through the Government Agent had set a level of six percent as the
ceiling rate. Once an adequate interest rate of twelve percent was agreed to be
used for purposes of capital growth only, with the MPCSs paying for collection,
administration and risk, the first scheme in Tellipalai was launched in March
1999.
The interest rates have been gradually stepped up and as of July 2001 were
seventeen percent. The MPCSs no longer pay for administration and collection
from their own funds, but are still responsible for the non-performing loan
portfolio. Both schemes have a regular and detailed monitoring system as an
integral segment of the scheme.
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