Microfinance Institutions in Sri Lanka

This study analyzes Sri Lanka's microfinance sector characterized by proliferation of traditional products such as savings and loans, with few products and services beyond these, including insurance and money transfer services.The study surveys various microfinance service providers such as thrift and credit cooperatives, cooperative rural banks, NGOs, regional development banks, banks and other financial institutions. It makes a note of:

• Absence and need for coherent regulatory and supervisory framework;
• Lack of external audit and microfinance knowledge;
• Centralized decision making structure and political interference;
• Lack of client data, specific group and gender focus;
• Strong dependence on guarantees, greater collateral requirement, long average processing time and defaulting clients;
• Lack of access to technology, understanding of principles, best practices of portfolio management and operational challenges;
• Lack of innovative approaches in products and marketing strategies;
• Differences in employment types, inadequate remuneration, incentives and lack of training.

The study states that the outreach of microfinance services, particularly savings and deposits, is considerable in Sri Lanka, with financial services often accompanied by non-financial facilities. It identifies strengths and challenges for microfinance providers, policymakers and donors.