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IDLO. 2007. A Comparison of the Draft Microfinance Institution Act with the Co-operative Societies Law Number 5 of 1972 and Voluntary Social Services Organization Act of 1980

This paper discusses the Micro Finance Act (MF Act) which was proposed by the Central Bank of Sri Lanka in 2007. This regulation would have superposed with the Cooperative Societies Law of 1972 (Coop Law) and the Voluntary Social Services Organizations Act (VSSO Act) of 1980. This study adopts a comparative approach on those texts and focuses on their complementarities, redundancies and contradictions.

Link
http://www.idlo.int/Microfinance/Documents/Publications/10E.pdf

Munsh, Meena / Anne Ritchie / Ajai Naire. 2007. Community-managed Microfinance – A New Model from Sri Lanka.

The Village Savings and Credit Organization (VSCO) is a community-managed microfinance organization developed in Sri Lanka under the Community Development and Livelihood Improvement Project or “Gemi Diriya”. When the project’s Village Self-help Learning Initiatives (VSLI) pilot was started in 1999, it did not envisage having a microfinance component. The project expected the communities to use the funds provided to create social infrastructure such as roads and water-supply.

Link
http://www-wds.worldbank.org/Rendered/PDF/427320optmzd0N1ia051SL1microfinance.pdf.

India has the fastest growing microfinance sector in the world and is rapidly moving towards having the largest microfinance sector as well. This is a matter to be celebrated and lamented. The high growth rate even at levels above 10 million clients – now approaching 20 million – bears testimony to the professionalism and management capacity of some of the leading MFIs in the country. There has also been a rush to expand to hitherto under-served areas in the East and North of the country.

This document reviews the growth, outreach and financial performance of Indian microfinance over the past few years until March 2009. It is essentially a summary version of the M-CRIL Microfinance Review 2009, to be released soon.
This second edition of the Sri Lanka Microfinance Forum focuses on on the topic of microfinance policy. Opinions and experience from various stakeholders were collected and the questions
whether Sri Lanka needs a microfinance policy and what they would expect from such a policy. How would such a policy be helpful for the Sri Lankan microfinance sector and what are the biggest challenges a policy should address?

The document is available in English, Sinhala and Tamil under:

English Version
http://issuu.com/slmf/docs/slmf_volume2_en

Sinhala Version
http://issuu.com/slmf/docs/slmf_volume2_sin

Tamil Version
http://issuu.com/slmf/docs/slmf_volume2_tm

 
The Sri Lanka Microfinance Forum is unique in the Sri Lankan microfinance sector. Its major philosophy is that it is From the Sector and For the Sector. It is open to everybody who is active in the sector and it will be available in Sinhala, Tamil and English. It is seeking to collaborate with all stakeholders who represent the sector, such as the Lanka Microfinance Practitioners’ Association (LMPA), research institutes, practitioners, policy makers and other interested parties. Its targets are to ENCOURAGE THE DIALOGUE between the different stakeholders in the sector INFORM THE SECTOR about local and international news on microfinance DISCUSS TECHNIQUES and methodologies and promote best practices in microfinance OFFER A SPACE to announce events such as training courses, workshops or conferences. In the long run, of course, the ultimate aim of the Sri Lanka Microfinance Forum is to strengthen and promote the sector by achieving the above mentioned targets.

The first issue discusses the promising contribution of Information and Communication Technology (ICT) to the microfinance industry.

English Version
http://issuu.com/slmf/docs/slmf_volume1_en

Sinhala Version
http://issuu.com/slmf/docs/slmf_volume1_sin

Tamil Version
http://issuu.com/slmf/docs/slmf_volume1_tam
The Asia Microfinance Analysis and Benchmarking Report 2008 draws on fiscal year (FY) 2007 data of 244 MFIs submitted for benchmarking analysis and data from a total 313 MFIs with published profiles on MIX Market. The data cover 16 countries across South Asia and East Asia and the Pacific (EAP): Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka from South Asia and Cambodia, China, East Timor, Indonesia, Laos, Papua New Guinea, Philippines, Samoa, Thailand and Vietnam from EAP. A smaller panel of 184 MFIs provided sufficient data for analyzing performance trends over the 2006 – 07 period.
This chapter from the Mahinda Chintana Ten Year Horizon Development Framework specifically addresses issues, objectives and strategies relating to the Sri Lankan microfinance sector. The pages here are an extract from the whole document since only these pages are relevant for the microfinance sector in Sri Lanka.
This paper was written as part of a World Bank project in South Asia to celebrate the International Year of Microcredit 2005. It describes the emergence and development of the influential microfinance movement that has come to prominence in South Asia over the past 30 years and considers the issues and prospects that will face microfinance in the coming years. The team that wrote this paper was led by Sanjay Sinha (EDA Rural Systems) and Stephen Rasmussen (World Bank, SASFP) and included Amit Brar (EDA Rural Systems), Frances Sinha (EDA Rural Systems), Gautam Ivatury (CGAP), Imran Matin (BRAC), Niraj Verma (World Bank, SASFP), Stuart Rutherford (SafeSave), and Syed Hashemi (CGAP).
Thirty years of lessons learned, translated into operational advice for development agencies, foundations, social and commercial investors, international NGOs, and others that help build financial systems that work for poor people. This edition of Good Practice Guidelines seeks to raise awareness of good practice and improve the effectiveness of donors’ and investors’ operations in supporting inclusive finance. Specifically, the Guidelines address the key question: What is the best use of subsidies? To answer this question, the Guidelines capitalize on lessons learned over the past 30 years about basic conditions for successful microfinance, and translate them into practical operational guidelines for staff of funding organizations. The intent is not to dictate one way to support microfinance, but rather to support diverse approaches and priorities within a framework of basic good practice principles.
Much-needed donor funds poured into Sri Lanka following the tsunami. Yet, managing this money well and with a long-term sustainable perspective has proved difficult. CGAP's latest CLEAR takes a close look at the effectiveness of funding agencies, including public donors, international NGOs, and private investors, in this difficult environment. The report analyzes findings from the CLEAR's interviews with over 200 people in Sri Lanka in October 2005, including government representatives, practitioners, and donor staff. It also offers recommendations on how donors can address gaps in the financial system more effectively.
In Sri Lanka, provision of financial services to the poor has a long history dating back to the early years of the twentieth century. Particularly during the last two decades, the microfinance sector has expanded significantly, embracing all sectors including the governmental, non-governmental and co-operative sectors. Nevertheless, unavailability of proper records on the existing literature has constrained their access and dissemination to a large group of stakeholders in the microfinance sector. In the context, IPS made an effort to compile and document the details of the existing literature on microfinance in Sri Lanka published during 1980-2005. This 'Annotated Bibliography' contains details of over one hundred documents related to microfinance including books, reports, journal articles and papers presented at international and national conferences/workshops.
This report looks at the outreach of the microfinance sector in Sri Lanka in terms of scale, depth and spatial outreach and its impact on poverty and welfare of households. The extent and the role of the informal financial sector are also analyzed. The study is based on a survey of 1,500 households conducted across 17 districts of the country. The study finds a wide geographical outreach of microfinance services in the country. Although the poor groups have been reached, a significant proportion of microfinance clientele are from the non-poor groups. Further, the report states that microfinance has helped households in the middle quintiles to increase their income and assets; helped the poorest quintile to increase consumption expenditure; has inculcated savings habits and has helped to reduce vulnerabilities among almost all income groups.
This survey provides profile information on MF-NGOs in Sri Lanka, including their ownership structure; age; client base; employee profile; management profile; financial practices; use of computers, internet and computer applications; practices related to business planning and the financial and non-financial services which they offer. The survey was conducted among 25 MF-NGOs across 10 districts of Sri Lanka. Rough estimates suggest that this could be around 10% of the total MF-NGO population in Sri Lanka. The survey provides specific information related to training and training needs of MF-NGOs and includes an assessment of factors limiting their ability to expand and major problems and needs which confront them. It also measures MF-NGO performance during the past year.
This study covers two microinsurance schemes in Sri Lanka, ALMAO and Yasiru. Both operate through local organisations that manage all fieldwork. The local partners recruit clients/members, collect premiums and administer claims. The main target group for both ALMAO and Yasiru is the rural poor.
This paper combines local knowledge of the sector with international industry reporting norms to explore the performance of South Asian microfinance and describe the factors that contribute to our understanding of that performance. Local microfinance experts collected data on microfinance institutions (MFIs) and surveyed the local transparency environment for six countries across the region: Afghanistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka
The world of microfinance, including that in Asia, is undergoing a major shift. Once the realm of donor supported, grassroots non profit organisations, the microfinance sector is forming partnerships with other stakeholders to create a broadbased approach to the provision of financial services to the poor. By joining forces with governments and commercial banks, the microfinance sector is gaining recognition as a key part of the world's mainstream financial system. This shift is enhancing the sector's ability to reach out to larger numbers of clients with increased efficiency.
The central challenge and opportunity is to build long-term, market-oriented reforms into short-term disaster relief," reflected Terence Miller of USAID's Microenterprise Development office (MD) on the unique approach of a USAID-funded tsunami relief project in Sri Lanka. Mr. Miller and his colleague, Lillian Villeda, submitted this week's Note from Sri Lanka on the Revive and Upgrade Economic Livelihoods in Tsunami-Impacted Areas (REVIVE) project.
This report analyzes the progress toward commercialization of Sri Lanka’s relatively large and heterogeneous microfinance industry. It also explores the remaining challenges and the implications, prospects, and positive approaches to the commercialization of microfinance.
On top of existing flow from both domestic and international sources, Sri Lanka is estimated to have on stream a hefty US$ 250 million in mcirofinancing pledges for next five years though its effectiveness and sustainability has come under scrutiny. The future funding commitments as well as existing multilateral donor supported base of resources and plethora of institutions engaged in microfinancing was subject to a three-week review by experts of the microfinance specialist agency Consultative Group to Assist the Poor (CGAP).
A first principle of smart subsidies is to avoid cheap credit. But then what are smart subsidies if not cheap credit? And when – if at all – is it useful to apply them? Smart subsidies mean that a wise dosage of well placed subsidies for an MFI can make sense under certain circumstances. Since it takes time for an MFI to achieve economies of scales, even the CGAP donor guidelines on good practices endorse startup subsidies, provided that these are time-limited and transparent. Another aspect is the fact that MFIs usually serve the moderately poor and low-income households but often do not serve the poorest income groups. Can smart subsidies help to achieve social goals instead of only looking at efficiency and profitability? And how many MFI are actually really financially sustainable? Quite a controversial topic. Read more about it.
The poor have very dynamic financial lives. Therefore an MFI needs to offer flexible, convenient and reliable financial services. SafeSave, Bangladesh, is a successful example. With around 10,000 clients it is a relatively small MFI for Bangladesh, but nevertheless sustainable. The volume of transactions is equally small, but numerous. Loans are limited to one per household, but they are flexible: “Clients are offered an opportunity to repay [or save] any amount they wish”, there is no schedule for loans, no fixed-term and no repayment schedule. In addition, loans are taken for an unlimited duration, with the incentive of an increased credit limit in future, if the loan is repaid quickly
The Asian tsunami caused by a massive earthquake on December 26, 2004 is now considered as the most devastating rapid on-set natural disaster in the past three decades with a heavy toll on lives, assets and livelihood opportunities. While the disaster has affected several countries, losses in some parts of Sri Lanka that are still under civil conflicts has been immense - a double blow to the affected communities, as roughly 80% of Sri Lankans affected by the tsunami are also affected by conflict. Well designed and implemented microfinance initiatives are now shown to be important and useful reconstruction tools in the wake of either disasters or conflicts. There now exist several lessons from many microfinance post-disaster and post-conflict experiences to draw guidelines for donors and MFIs to effectively manage the crisis situation
The Sri Lanka Business Development Centre (SLBDC), a non stock, non profit, provider of business development services was meeting with the Ceylon Chamber of Commerce, the Employers Federation of Sri Lanka, the Sri Lanka Institute of Directors and the Regional and District Chambers of Commerce to partner with local microfinance institutions to prepare some programs for the UN’s International Year of Microcredit. The goal was to link the formal business sector with informal entrepreneurs and their support systems, using the Year of Microcredit as the catalyst. From December 27th, this initiative became one driven by the tsunami. With the collaboration of the other organizations, the Ceylon Chamber of Commerce set up a Disaster Response Center at its Head Office, and made contact with the Regional and District Chambers to assess needs.
The microfinance institution Women’s Development Federation of Hambantota (Janashakti) was hard hit by the December 26 tsunami. The management of the grassroots microfinance institution made the grim discovery in the wake of the disaster that it had lost five full-time staff and 13 volunteers. Greater still was the number of clients missing: of the over 32,000 members, approximately 1,000 are dead or missing. Infrastructure damage was also extensive: there was major damage suffered in 20 of 72 Janashakti bank societies (JBS), and minor damage in an additional 23 JBS. The immediate reaction to the devastation by Janashakti’s management was to join the relief work that began in earnest all over the country. Needs were immense and the devastation in the low-lying areas of this coastal district was widespread. As they got more information that allowed them to better assess the situation, the decision was made to focus Janashakti’s efforts on rehabilitation of its members’ businesses and not on direct relief work.
Linking banks and self-help groups has been a major program of German Development Cooperation [GTZ] since the mid-1980s. Given the involvement of GTZ in SHG banking and the outreach of that program in India, the German Ministry of Economic Cooperation and Development (BMZ) has proposed to study the impact of SHG banking in India in the framework of the United Nations Millennium Development Goals 2015 on the basis of the existing literature; and subsequently to examine the contribution of GTZ on the evolution of the program in India. The results of the impact studies indicate that considerable socio-economic benefits have been accruing to small-scale farming households, rural micro entrepreneurs and the landless and have contributed to most impact aspects of MDGs 1 to 6.
As neither commercial nor development banks nor state-dominated but unsupervised cooperatives delivered to the rural and urban masses, credit NGOs, during the 1970s, ushered in what came to be known as the microcredit revolution. Powered by donor support and international publicity, Grameen Banking became the new model of microcredit, its founder the prophet of the microcredit movement. The term microfinance, originally meant to comprise financial intermediation between savers and borrowers, was created only in 1990. In the mid-1990s it was taken up by CGAP, the donor Consultative Group to Assist the Poor, which has turned the microcredit revolution into the microfinance revolution and professionalized microfinance. […] Microfinance in Asia presumably has a much longer history, though little seems to be known about the early history of the hui in China, the chit funds in India, the arisan in Indonesia or the paluwagan in the Philippines, to name but a few. Financial institutions of indigenous origin, most of them informal, are still exceedingly widespread but have been largely ignored in financial sector development.
The massive earthquake and tsunami that devastated countries around the Indian Ocean on December 26, 2004, brought international attention on South Asia into sharp focus. While initial relief efforts and rebuilding will be funded by billions of dollars in grants and soft loans, microfinance institutions will play a key role in the longer-term economic recovery for millions of poor people who lost everything.
The analysis of interest rates has figured prominently in economic studies that compare formal and informal credit sources. Sri Lanka's Central Bank, amongst others, compares interest rates in its various surveys of rural credit markets.However, focussing on interest rates alone is not sufficient to explain borrowers' choices for or against a particular financial intermediary.
Examination of the microfinance systems in the region reveals that the region still lacks a clearly defined and articulated microfinance policy. Microfinance has largely been left to itself, and the systems have sprung up almost automatically to meet the demands of the clientele. In this context, the numerous microfinance systems that are operating have stood the test of time and, therefore, could be considered more sustainable than formal financial systems regulated by authorities.
According to Ratha (2003, p.160) [...] the inflows to the Asia and the Pacific amounted to $27 billion in 2002, $11 billion of which went to the East Asia and the Pacific countries while $16 billion went to the South Asian countries. They were equivalent to 2.5% of the GDP in South Asia. In each region, one country accounts for over 50% of the total regional inflow: for example, India, the world's largest workers' remittance recipient country, accounted for 62.5% of the inflows to the South Asian region [...]. Bangladesh, Pakistan, Philippines, Sri Lanka, and Thailand were also among the top 20 developing country recipients of workers' remittances in 2001 (Ratha, 2003, p.159). However, the estimates based on IMF data are, admittedly, underestimates of the actual amounts received, for several reasons.
Pawnshops are an important source of microcredit in many developing countries, especially in Asia. Nevertheless, many practitioners, policymakers, and funding agencies seem to be prejudiced against pawnshops. They consider pawning to be a "desperate measure" and an activity that needs to be curtailed. As a result, some countries have laws that inhibit pawning by private sector operators. In other countries, pawning has not yet received adequate attention, despite its potential as a useful service.
This paper addresses some key issues in developing an appropriate regulatory environment for credit cooperatives. It begins from an underlying precept that regulatory agencies for banks and other deposit-taking institutions will find it problematic to become involved in regulating institutions that do not take deposits from the general public. However, it is not necessarily simple to define what it means to take deposits from the general public, especially in the case of credit cooperatives.
This study is the second of a series of publications resulting from a regional technical assistance project on commercialization of microfinance. The series comprises four country reports on Bangladesh, Indonesia, Philippines and Sri Lanka, and a regional report on perspectives on commercialization from South and Southeast Asia. [...]The microfinance industry in Sri Lanka is at a fairly early stage of commercialization MFIs serve about 80 % of potential microcredit clients Cooperatives play a dominant role in the microfinance market, although their performance varies considerably. There is inadequate involvement in microfinance by commercial banks. Government policies and inappropriate interventions discourage new entrants into microfinance and hinder the commercialization of existing MFIs.
SEEDS was established in 1986 as an offshoot of the Sarvodaya Society, which started the Sarvodaya movement in Sri Lanka during the mid-1950s. The main objective of this movement was all round social development of the community and, initially, the Sarvodaya Society itself managed all economic development activities. However, the Society soon realised the need for a separate body to focus specifically on the business, entrepreneurial and technical issues and hence SEEDS was established.
In this paper the utilization of banking services by Sri Lankan consumers, both at individual and at household level, is examined usingempirical data. A multilevel linear regression analysis is used to examine the factors associated (in the data) with the flow of bank credit, with the flow of total credit, with the uptake of moneylender credit, with the use of boutiques, and with the uptake of special NGO loans. Policy implications are drawn out for a pro-poor programme of regulation in the financial services sector.
In Sri Lanka the cooperative sector is active in microfinance, and there are also a number of specialist microfinance institutions (MFIs). The Central Bank of Sri Lanka (CBSL) has traditionally pursued an active "developmental" role in the microfinance sector, although this has been changing. It should further reduce its developmental activities by diluting its ownership of regional development banks and taking a less hands-on role in project implementation. Conversely, it would be appropriate for CBSL to expand its "promotional" role through training, research, information dissemination, and pilot projects. There is also a case for bringing the larger cooperative rural banks within the regulatory ambit of the central bank and encouraging their latent capacities for lending. And given the uncertainty concerning deposit taking, the central bank should explicitly authorize MFIs to mobilize member savings, subject to appropriate standards of operation
Launched in October 1989, Hatton National Bank's (HNB) Gami Pubuduwa (GP) or "village reawakening" program provides banking services to households in rural and semi-urban areas in Sri Lanka through GP units operating in 20 administrative districts through HNB's branch network. The report addresses four issues pertaining to HNB's microfinance operations: 1) What motivated HNB to undertake a microfinance program? 2) Can a privately-owned commercial bank successfully downscale part of its operations for microfinance? 3) What adjustments in regular banking operations are needed to build a profitable microfinance program? 4) Is a microfinance operation consistent with a privately-owned bank's profit-maximizing objective?
Thirty years of lessons learned, translated into operational advice for development agencies, foundations, social and commercial investors, international NGOs, and others that help build financial systems that work for poor people. This edition of Good Practice Guidelines seeks to raise awareness of good practice and improve the effectiveness of donors’ and investors’ operations in supporting inclusive finance. Specifically, the Guidelines address the key question: What is the best use of subsidies? To answer this question, the Guidelines capitalize on lessons learned over the past 30 years about basic conditions for successful microfinance, and translate them into practical operational guidelines for staff of funding organizations. The intent is not to dictate one way to support microfinance, but rather to support diverse approaches and priorities within a framework of basic good practice principles.
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ProMiS (Promotion of the Microfinance Sector) is a comprehensive cooperation programme implemented by the Ministry of Finance, Sri Lanka in collaboration with German Technical Cooperation(GTZ), financed by the German Government.