Microfinance in Sri Lanka: A Household Level Analysis of Outreach and Impact on Poverty

This study makes the following statements:

• Microfinance services in Sri Lanka have a wide geographical outreach;
• The outreach of private operators including non-government organization (NGOs) and commercial banks in rural areas is limited;
• Although microfinance institutions (MFIs) have reached the poor and the poorest groups, a significant proportion of their clientele is from the non-poor groups.
• Microfinance has helped:
  • The middle quintiles to increase their income and assets;
  • The very poor increase consumption expenditure;
  • Poor to inculcate savings habits;
  • Smoothen consumption;
  • Women to improve their social status and economic conditions.
• The informal financial market is pervasive across districts and among different income groups.

The study concludes that to create sustainable micro-enterprises in Sri Lanka, there is a need for:

• MFIs to facilitate or get directly involved in providing ‘credit-plus services to their clients;
• Development of rural infrastructure facilities that would encourage the private and NGO sectors to get involved in microfinance provision;
• Recognition of the heterogeneity of microfinance clients and their needs in designing more effective microfinance instruments.