Impact Assessment of Microfinance in Sri Lanka

This study assesses the impact of the initial phase of the Promotion of the Microfinance Sector (ProMiS) program in Sri Lanka.

The study uses cross-sectional data from a survey of over 760 client households of 5 MFIs from Sri Lanka that received technical assistance from ProMiS during its initial phase from September 2005 to November 2009. It focuses on the impact of microfinance on income, consumption, women’s empowerment, vulnerability to risks and shocks, health and social participation.

The study reveals significant variations in impact of microfinance on client households among the five MFIs that were assessed. Conclusions include:

• Majority of households that used microloans to finance investment in agriculture or livestock experienced increase in income;
• Few clients use non-financial services offered by MFIs;
• MFIs should assess client demand for non-financial services;
• Cash-in-hand is the main source for financing health expenses and shocks;
• MFIs should study the type of insurance schemes demanded by clients, and explore the concept of credit as a substitute for insurance;
• MFIs should target poor households more accurately using tools such as Progress out of Poverty Index (PPI).