micro finance in srilanaka

1. MICRO FINANCE IN
SRILANKA
M H N S GUNATHILAKA
13/AG/011
EG949
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2. Content
• Srilanka economy
• What is microfinance?
• Present status of microfinance industry
• Microfinance approaches
• MF institutions
• Microfinance practioners
• Why microfinance is growing?
• Key challenges
• References
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3. Srilanka Economy
GDP US$ 80.591 Billion (World bank.)
GDP growth 15.79% (2015)
GDP per capita US$ 3,818.161 (2015)
GDP by sector agriculture: 12.8%
industry: 29.2%
services: 58% (2009 est.)
Inflation (CPI) 7.3% (2017 Dec.)
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4. Microfinance
The term refers to the provision of financial services to low-income clients, including the
self-employed
Microfinance activities usually involve:
■ Small loans, typically for working capital
■ Informal appraisal of borrowers and investments
■ Collateral substitutes, such as group guarantees or
compulsory savings
■ Access to repeat and larger loans, based on repayment
performance
■ Streamlined loan disbursement and monitoring
■ Secure savings products.
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5. Present status of micro finance in srilanaka
Key Microfinance Statistics As at 2016-07-06
• Number of Active borrowers : 702940 (Male : 121248,Female : 81692)
• Loan Portfolio Rs. 70,346,652,158.00
• Number of depositors 104401
• Value of Deposits Rs. 923,568,580.00
• Number of MFIs who provided data 37
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6. Microfinance clients
self-employed, low-income entrepreneurs in both urban and rural areas.
Clients are often traders, street vendors, all farmers, service providers
(hairdressers, ), and artisans and small producers, such as blacksmiths and
seamstresses.
• MFIs can be nongovernmental organizations
• (NGOs), savings and loan cooperatives, credit unions, government banks,
commercial banks, or nonbank
• financial institutions.
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7. Microfinance Approaches
• Individual lending
• Grameen Bank solidarity lending
• Latin American solidarity group lending
• Village banking
• Self-reliant village banks. On sharing
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8. individual Lending
Individual lending is defined as the provision of credit to individuals who
are not members of a group that is jointly responsible for loan repayment.
Individual lending
• requires frequent and close contact with individual clients to provide
credit products tailored to the specific needs of the business.
• It is most successful for larger, urban-based, production-oriented
businesses and for clients who have some form of collateral or a willing
cosigner.
• In rural areas, individual lending can also be successful with small farmers
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9. Grameen Solidarity Group Lending
• This lending model was developed by the Grameen
• Bank of Bangladesh to serve rural, landless women wishing to finance
income-generating activities.
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10. Latin American Solidarity Group Lending
• The solidarity group lending model makes loans to
individual members in groups of four to seven.
• The members cross-guarantee each other’s loans to replace
traditional collateral.
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11. Village Banking
• Village banks are community-managed credit and savings associations
established to provide access to financial services in rural areas
• build a community self-help group, and help members accumulate
savings
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12. Self-Reliant Village Banks (Savings and Loans
Associations)
• Self-reliant village banks are established and managed by rural village
communities.
• They differ from village banks in that they cater to the needs of the
village as a whole, not just a group of 30 to 50 people.
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13. The Importance of MF Institutions
• An institution is a collection of assets—human, financial, and others—
combined to perform activities such as granting loans and taking
deposits overtime.
• A one-time activity such as a “project” is not an institution.
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14. Attributes of a Good Institution
1. It provides services to the relevant target group
2. Its activities and offered services are not only demanded but also
have some identifiable positive impact on the lives of the customers.
3. It is strong, financially sound, and stable
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15. Characteristics of MF Institutions
• A mission statement that defines the target market and services offered and is endorsed by
management and staff.
A strong commitment by management to pursuing microfinance as a potentially profitable
market niche (in terms of people and funds).
Financial services and delivery methods
• Decentralization of client selection and financial service delivery.
• Accurate job descriptions, relevant training, and regular performance reviews.
• Accounting systems producing accurate, timely, and transparent information as inputs to the
management information system.
Internal and external audits carried out at regular intervals.
Budgets and financial projections made regularly and realistically
• Systems providing timely and accurate information on key indicators that are most relevant
to operations and are regularly used by staff and management in monitoring and guiding
operations.
• Legal registration and compliance with supervisory requirements.
Clearly defined rights and responsibilities of owners, board of directors, and management.
Strong second level of technically trained managers.
• Achievement of significant scale, including a large number of underserved clients (for
example, the poor and women).
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16. Institutional Types
Formal institutions semiformal institutions Informal providers
• Public development banks
• Private development banks
• Savings banks and postal
savings banks
• Commercial banks
• Nonbank financial
intermediaries.
• Credit unions
• Multipurpose cooperatives
• NGOs
• (Some) self-help groups.
• Pure) moneylenders
• Traders, landlords, and the like
(as moneylenders)
• (Most) self-help groups
• Rotating savings and credit
associations (work groups,
multipurpose self-help groups)
• Families and friends.
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17. Micro finance practioners
• Berendina Microfinance Institute
(Gte) Ltd
• HDFC Bank
• Janamithu Lanka Ltd
• Lak Jaya Microfinance Ltd
• Loan & Land Investment (Pvt) Ltd
• LOLC Micro Credit Ltd
• Prosperous Capital & Assurance Ltd
• Puttalam District Isuru Company
• Rajarata Micro Credit and Services
(Pvt ) Ltd
• Rajarata Participatory Development
Foundation
• S. N. Micro Credit
• Sabaragamuwa Childe Development
Federation
• Silver Enterprises (Pvt) Ltd
• Sanasa Federation Ltd
• SAPCO
• Sarvodaya Development Finance
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19. why is Microfinance Growing?
Microfinance is growing for several reasons:
• The promise of reaching the poor. Microfinance activities can support
income generation for enterprises operated by low-income households.
• The promise of financial sustainability. Microfinance activities can help to
build financially self-sufficient ,subsidy-free, often locally managed
institutions.
• The potential to build on traditional systems. Microfinance activities
sometimes mimic traditional systems (such as rotating savings and credit
associations).
• The contribution of microfinance to strengthening and expanding existing
formal financial systems.
• The growing number of success stories.
• The availability of better financial products as a result of experimentation
and innovation.
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20. What Are the Risks of Microfinance?
• Sound microfinance activities based on best practices play a decisive role in providing the poor
with access to financial services through sustainable institutions.
• However, there have been many more failures than successes:
• Some MFIs target a segment of the population that has no access to business opportunities
because of lack of markets, inputs, and demand. Productive credit is of no use to such people
without other inputs.
• Many MFIs never reach either the minimal scale or the efficiency necessary to cover costs.
• Many MFIs face no supportive policy frameworks and daunting physical, social, and economic
challenges.
• Some MFIs fail to manage their funds adequately enough to meet future cash needs and, as a
result, they confront a liquidity problem.
• Others develop neither the financial management systems nor the skills required to run a
successful operation.
• Replication of successful models has at times proved difficult, due to differences in social
contexts and lack of local adaptation.
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21. Key challenges
• the lack of a regulatory and supervisory framework for microfinance
• inadequate supervision of savings in the sBss and crBs.
• politicization in meso level
• funding issues.
• insufficient specialized microfinance training facilities
• Limited knowledge transfer and information exchange within the sector
• minimal specialized capacity among audit, rating and information
systems forms
• Lack of credit information sharing
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22. References
• www.microfinance.lk
• Ledgerwood, J. (1998). SUSTAINABLE BANKING with the POOR
MICROFINANCE HANDBOOK. Washington D.C.: the world bank .
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