Commercialization of Microfinance: Sri Lanka

The paper highlights some of the characteristics of the Sri Lankan microfinance market are as:

• Microfinance market saturation is high at 80%;
• Cooperatives are the dominant microfinance providers;
• More than once third of the supply is through government programs;
• Few microfinance NGOs are trying to commercialize their services but most are unsustainable.

According to the paper, the commercial status of the microfinance sector is as follows:

• MFIs rely on savings mobilization to fund their loan portfolios, indicating a fairly high level of commercialization in terms of access to funding sources;
• Government policies and interventions discourage new entrants into microfinance and hinder the commercialization of existing MFIs.

The paper lists some of the challenges facing the commercialization process as:

• Weak institutional capacity and over emphasis of social mission curtails the progress of MFIs towards commercialization;
• Pervasive government presence in microfinance with subsidized directed credit programs also hampers progress towards commercialization;
• Inadequate regulatory framework for cooperatives puts savings of clients at risk, and hampers commercialization of the cooperative network;
• Lack of clear profit potential curtails competitive pressure.

The paper concludes by suggesting some positive approaches to commercialization of microfinance:

• Government should create and maintain an enabling policy environment and an adequate legal, regulatory, and supervisory framework for microfinance;
• There should be macroeconomic growth and stability;
• Agriculture sector growth should be promoted;
• Ad hoc debt relief should be stopped;
• Government ownership and controls of rural development banks should be reduced.