Sri Lanka Microfinance Forum ISSN 2012-5666
Volume 2, September 2009
A Microfinance Policy for Sri Lanka Which way to go? FEATURES News Round Training and Events Discussion Forum Case Studies Microfinance Techniques Best Practices
2 3 4 5 6 7
Page 2
Sri Lanka Microfinance Forum
WORD OF THE EDITORS
Niroshani Sawanawadu ICT / Microfinance Consultant
Imran Nafeer Microfinance Consultant
DEAR READER
tional best practices.
Many people have contacted us to congratulate us for the last edition of the Sri Lanka Microfinance Forum (SLMF). This has shown us that there is a demand for this kind of newsletter and that we should continue with it. We are very thankful to all the readers who have taken the time to write to us or to call us. We have received positive feedback from different microfinance networks such as the South Asian Microfinance Network which has proposed a collaboration and exchange of articles. We are happy to hear that readers like the design and content of the SLMF.
We therefore would like to present to you the second edition of the Sri Lanka Microfinance Forum, which will focus on the topic of microfinance policy. Again we have collected opinions and experience from various stakeholders 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?
This has motivated us to continue seeking to collaborate with all practitioners, promoters, networks, investors, regulators, researchers and other interest parties. For them and for all the other microfinance practitioners in Sri Lanka we want to present a discussion platform to explore and address current needs and issues of the sector and to highlight local, regional and interna-
These are some of the questions raised by many people in the sector and the SLMF attempts to bring these to the attention of our readers. We are very thankful to all those who shared their experience with us. We would like to thank Mr. Dulan de Silva from Berendina Microfinance Institute, Mr. Charitha Ratwatte from Sri Lanka Business Development Centre, Mr. Hasitha Wijesundara from GTZ PROMIS, Mr. Paolo Mele from Sewa Finance,
Mrs. Aban Haq from the Pakistan Microfinance Network for contributing with articles to this issue. Of course we would also like to thank the board of advisors for their important support. Further we would like to thank Mr Paolo Mele for his very valuable contributions in setting up the Sri Lanka Microfinance Forum. His help has been vital for us to achieve our goals and we hope that he will further contribute with interesting ideas and suggestions from other countries. We wish him all the best for his future . This issues consists some of the views expressed by pioneers in the industry as well as some case studies. We hope you will enjoy reading this issue. For subscription, queries, comments, article contributions in any language, and others, please write to microfinance.forum@gmail.com Yours sincerely, Niroshani Sawanawadu and Imran Nafeer
IN THE NEXT SLMF ISSUE: FUNDING FOR MFIS – WHERE TO OPEN THE TAP? In the next issue we would like to discuss the topic of funding for MFIs in Sri Lanka. We therefore encourage all microfinance practitioners, regulators, promoters or other interested parties to send us their experience and opinion. From many sides we hear that funding for MFIs is one of the major constraints for the development of the sector. This was also mentioned various times in the previous issue, when
we discussed the topic of a microfinance policy for Sri Lanka. Funding is at the moment one of the most urgent topics for the microfinance sector in Sri Lanka. We therefore would like to know what the experience are and if there are any obstacles.. And of course we are expecting many ideas from you, how we should overcome obstacles in this.
Again we hope to collect local, regional and international experience and best practices. The case of PKSF in Bangladesh, NABARD and SIDBI in India or other examples could be some examples to be highlighted and evaluated against the Sri Lankan background. Please send your comments, suggestions and experience to microfinance.forum@gmail.com
NEWS ROUND LOCAL NEWS NDTF puts interest rate caps for their refinancing loans to MFIs. The cap is set at 15% flat. The step comes as a surprise without any previous consultations. Institute of Bankers Microfinance Diploma Course started. For more information contact Manjula on 0716 822 404 Central Bank of Sri Lank will address gaps in the supervisory framework: According to the Letter of Intent on IMF Stand-By Arrangement, CBSL will broaden the scope
of financial sector supervision: “To broaden the scope of financial sector supervision, greater clarity for the CBSL’s legal authority in enforcing regulations on the deposit taking financial institutions will be introduced through an amendment to the Finance Company Act by endDecember 2009 and Banking Act by June 2010.” It is however not clear whether this will include MFIs. (http://ww w.c bsl.gov .l k/ pics_n_docs/latest_news/ loi_25072009.pdf)
Sri Lanka turns to microfinance to rebuild war zone Sri Lanka's government launched a $26 million microfinance loan programme to spur local agriculture and business in the former northern war zone, part of the President's plan to resettle 300,000 displaced people. (Daily Mirror, 13th of July) www.dailymirror.lk Sri Lanka Microfinance Industry Report published by GTZ ProMiS (Continued on page 3)
Page 3
Volume 2, August 2009
NEWS ROUND (CONT’D) (Continued from page 2) in collaboration with the Banking With The Poor Network. The report provides a broad overview of the sector covering all aspects from the supply of and demand for microfinance, to regulatory and policy issues, donor support for the sector, meso level support and key challenges faced by the sector. You can dow nl oa d th e repo rt fr om www.microfinance.lk The Lanka Microfinance Practitioners’ Association (LMFPA) has sent two of their member institutions’ staff to the Boulder Microfinance Training in Italy. The two persons
will be available as resource persons for the LMFPA after the training. YMCA Batticaloa starts microfinance for physically challenged persons. For more information contact ymcabatt@sltnet.lk A workshop on Linkage Banking was organized by GTZ PROMIS in July with guest speakers from NABARD, LOLC and Oxfam GB. During the workshop the Indian and Sri Lankan experience with Linkage Banking was explained and possibilities for Linkage Banking in Sri Lanka discussed.
Easy Management of Microfinance: A MashUp software application "Hope for poor - Sasrutha" developed by two students from the Faculty of Information Technology, University of Moratuwa, Sri Lanka is selected by the Microsoft Imagine Cup student competition as one of the six finalists to compete at the world competition to be held in Cairo, Egypt from 3rd to 8th July 2009. http://www.pr.com/pressrelease/158803
Software Application from University of Moratuwa, Sri Lanka for
INTERNATIONAL NEWS The Economist Magazine reviews studies on the social impact of Microfinance. The papers are “The Miracle of Microfinance? Evidence from a Randomised Evaluation” by Abhijit Banerjee, Esther Duflo, Rachel Glennerster and Cynthia Kinnan and published by CGAP and “Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila” by Dean Karlan and Jonathan Zinman and published by the Poverty Action Lab, a centre within the Economics Department of the Massachusetts Institute of Technology whose aim is to reduce poverty by ensuring that policy is based on scientific evidence. (www.microcapital.org) 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. http://www.themix.org/ publications/2008-asiamic rofi na nc e-a nal ysi s-a ndbenchmarking-report 2008 Microfinance Technology Survey. The survey was conducted from July to September 2008 and involved 152 MFIs. The purpose was to gather information on how MFIs use technology, identify strengths, weaknesses, and opportunities for management information systems while determining how MFIs approach technology investments. The document can be dow nl oaded from : http:// w w w .c ga p.org/gm/doc ument1.9.34552/2008%20Microfinance% 20Technology%20Survey.pdf Microfinance Banana Skins 2009 Microfinance Managers’ Views on Microfinance risk. The advent of the current global financial crisis has seen a predictable reordering of perceived risks in the microfinance
industry, according to a new survey of microfinance providers, investors, and regulators. View the Banana skins report at http://www.cgap.org/p/site/c/ template.rc/1.26.10907/ SME Rating Agency of India Limited (SMERA) Launches Ratings for Microfinance Institutions. SME Rating Agency of India Limited (SMERA), a joint initiative of the Small Industries Development Bank of India, Dun & Bradstreet Inc., and several public and private sector banks, has launched a rating service for microfinance institutions (MFIs). SMERA-MFI Rating is an independent agency that will assess the financial and social performance of M FI s i n I n di a . (www.microcapital.org) Recycle to Eradicate Poverty The Chiapas Project (along with the Grameen Foundation), a Dallas based 501(c)3 non profit founded by Lucy Billingsley, created a program called Recycle to Eradicate Poverty. www.turnphonesintoloans.org
LOCAL AND INTERNATIONAL TRAINING COURSES AND EVENTS Workshop on “Funding for MFIs” will be organized by GTZ PROMIS in August/September, Colombo. For more information please contact david.bartocha@gtz.de Social Performance Reporting Award: Entries are now open for
this new Award, which recognizes transparency in social performance reporting. The deadline for submissions is Sept 15, 2009. EDA Rural System announce Training course on “Operational Risk Management for MFIs”. It
includes risk identification, assessment, and prioritization followed by effective utilization of organizational resources to diminish, track, and control the probability of risks. At Madurai Meenakshi Bhavan, Chennai from 11th to 13th August 2009.
Sri Lanka Microfinance Forum
Page 4
DISCUSSION FORUM NEED FOR A MICROFINANCE POLICY IN SRI LANKA
Dulan de Silva Chairman Berendina
“In the absence of this (MF policy)…. microfinance is governed by existing policies and laws applicable to other sectors such as Banking, co-operatives etc”
To start with let’s have a common understanding as to what is meant by policy. Here are 2 definitions: “Public policy can be generally defined as the course of action or inaction taken by governmental entities with regard to a particular issue or set of issues.” “A policy is typically described as a deliberate plan of action to guide decisions and achieve rational outcome(s). However, the term may also be used to denote what is actually done, even though it is unplanned”. Policy differs from rules or laws. While law can compel or prohibit behaviors (e.g. a law requiring the payment of taxes on income) policy merely guides actions toward those that are most likely to achieve a desired outcome. In this article what is stressed is the need for a “Public Policy” on microfinance. Background Modern microfinance or more accurately microcredit was initiated in Sri Lanka in the 1980’s by Interna-
tional NGOs as village revolving funds. Then local NGOs most notably Sarvodaya started a microfinance program named SEEDS which was later became a separate NGO. Today hundreds of NGO programs exist. Government entered the sector initially through “Isuru” and later through the Samurdhi program. Government also became a wholesale lender to NGOs through Janasaviya now called the National Development Trust Fund. In the 1980’s and up until the late 1990’s grant funds were available from Wester n donors for microfinance. But now such grant funds are available only for “capacity building” and nearly all funding for microfinance comes through loans. The sector is now 2 decades old but there is neither a policy, regulation or laws that govern it. In the absence of this, currently microfinance is governed by existing policies and laws applicable to other sectors such as Banking, Co-operatives etc.
Why does Sri Lanka’s microfinance sector need a public policy? In my view, there are three key reasons why the sector needs a public policy.
cies which are connected to the microfinance sector. The Ministry of Finance for example, has allocated funds to the Peoples Bank, Bank of Ceylon and the Rural Regional Development Banks, to name only a few government controlled financial institutions, which have extensive microfinance programs. The National Development Trust Fund, (NDTF) is the only public provider of wholesale funds to Microfinance Institutions and it has over 150 partners. In the same way the Ministry and Department of Cooperatives allocates funds for the promotion and supervision of microfinance providers. They supervise Cooperative Rural Banks, Sanasa, Samurdhi, the Ministry of Nation Building and the Gemi Diriya Community Development and Livelihood Improvement Project – Gama Naguma. The Central Bank of Sri Lanka has been authorized to formulate and implement Monetary Policy, which impacts the microfinance sector. The Central Bank is also, in terms of the Banking Act empowered to supervise all institutions which accept financial deposits from the public,
and prosecute those who break the law. The Ministry of Youth Affairs has allocated funds for the functioning of the National Youth Services Council, (NYSC), which has under its purview the National Youth Services Savings and Credit Cooperative (NYSCO). There are many other such institutions and agencies which are allocated funds by Parliament in the National Budget.
1.Savings The single most important reason why the sector needs a policy is that the current laws do not permit NGOs and MFIs to take public deposits. In the absence of a microfinance policy, laws applicable to the banking sector and other recognized non banking institutions govern microfinance too. There has been considerable confusion within the government on the right for MFIs to undertake savings. Adhering to best practice in microfinance the Jansaviya program managed by the Finance Ministry and Isuru managed by Central Bank advocated and pressed NGOs to mobilize savings in order to be eligible to participate in these programs. Whilst on the other hand Central Banks NonBank Supervision divi(Continued on page 8)
POLICY ON MICROFINANCE The dictionary meaning of policy is a plan of action agreed or chosen on a given subject. Taking this general definition – where would you look for Sri Lanka’s Policy on Microfinance?
Charitha Ratwatte Sri Lanka Business Development Centre
“In such an environment – is it viable to raise the question as to whether Sri Lanka needs a Policy on Micro Finance? .
Since the government plays such a big role in Sri Lanka’s economy, the first obvious location would be the government’s current policy document, the Mahinda Chintanaya, which provides an indication of the government’s policy on the subject. But this is an aspirational document, more than a statement of an existing policy, since the government has been in office for a short period of time, which has not permitted the full implementation of the laudable policies laid out in the Chintanaya. The next obvious source of an existing policy, rather than an aspiration, would be the National Budget, which is the government’s spending plan for the financial year, approved by Parliament. In that we find funds allocated to a number of government and para statal agen-
A number of these institutions are creations of statutory law, so it would be reasonable to look at the Legislative Enactments for Laws dealing with microfinance as the next source which indicates the parameters of a policy. A recent study commissioned by the GTZ PROMIS Project and the Lanka Microfinance Practitioners Association disclosed that there are no less that 18 statutes of the National Parliament that affect microfinance. In such an environment – is it viable to raise the question as to whether Sri Lanka needs a Policy on Micro Finance? (Continued on page 8)
Volume 2, August 2009
Page 5
CASE STUDIES STUDY OF LEGAL ASPECTS OF MICROFINANCE INDUSTRY IN SRI LANKA A review of the existing laws and legislations related to Sri Lankan Microfinance sector was done recently by GTZ – ProMiS with collaboration of the reputed law firm FJ & G de Saram. This study was initiated by the Lanka Microfinance Practitioners Association (LMFPA). A thorough analysis was done to see how the different laws affect different type of microfinance providers and the relative strengths and weaknesses of such laws were highlighted. Legal procedure of forming different types of Microfinance institutions were further addressed with the statutory provisions of each enactment. In addition, deposit mobilisation, foreign investment in MFIs, restrictions on foreign loans, obstacles of undertaking pawning, leasing and insurance activities for MFIs and issues relating to Financial VAT
were discussed in detail. The document further made a list of comprehensive recommendations as to how the legal environment can be made more microfinance friendly and ways of improving the governance and accountability of Microfinance providers. Based on these recommendations, practitioners can formulate proposals to alleviate such constrains and facilitate microfinance activities more effectively, to spur the economic development of the country. The study will come out soon in report format and will fill a huge gap in Sri Lankan Microfinance literature. It will be of an immense help for Microfinance practitioners, regulators and other stake holders like donors, academics and consultants. to understand the sector from a legal point of view. Since the vast array of different laws affecting MFIs are analysed, practitioners
will find it helpful to clarify issues regarding which laws affect them and take measures to rectify any shortcomings. One major conclusion of the study is that it highlighted the huge variety and diversity of laws affecting the microfinance industry. Thus a commonly agreed legal framework for the sector will be necessary to standardise and professionalise the Microfinance industry in this country.
For more information about the study and the report: you can contact Hasitha.Wijesundara@gtz.de Hasitha Wijesundara Microfinance Specialist Promotion of the Microfinance Sector (PROMIS)
A COUPON CAN CHANGE YOUR LIFE — ENTERPRISE DEVELOPMENT SERVICES OF BMI Berendina Microfinance Institute (BMI) was established in May 2007 as a non-profit company registered under the Companies Act as a company limited by guarantee in Sri Lanka. BMI is the microfinance organization of Berendina Group in Sri Lanka.
provided together with the loan facilities.
Through its innovativeness, structure and effective operations, BMI has managed to become a very dynamic microfinance operator within a short period of time. It covers four divisions in three districts and provides its services to more than 11,000 clients out of which 62.4% are women. The outstanding loan balance amounts to Rs. 158 m with of PAR of only 1% (1 day). Each field officer handles around 730 clients and the MFI is on course to become operationally self sufficient. At the moment it covers 89% of its costs.
Why have coupons to pay for training? Only few people are willing to pay for training because it costs and people don’t want to spend this money since they usually does not value non-financial services in financial terms due to historical reasons such as free training and they do not see quick financial gain.
Enterprise Development Services BMI believes that just giving loans to poor people is not adequate to eliminate poverty. Along with financial assistance, poor people need skills training as well to start new businesses or develop and expand their existing business activities. Therefore, BMI follows a credit plus approach where Enterprise Development Services (EDS) are also
The innovative aspect of BMI’s EDS is their coupon system: Each client has to buy EDS coupons when she or he takes a loan from BMI. The value of these EDS coupons vary with the size of the loan.
However, when the BMI clients take a loan, they also have to buy the coupons. Clients pay for ED services by using their coupons issued to them, while there are no restrictions for paying by cash as well. If coupons are not used by the client to obtain the ED services, the coupon value can be redeemed at the time of settling of the final installment of their loan. A value amounting to Rs.250 is retained by BMI for some loans. The values of EDS are duly accounted at the end of each month. Clients are not required to pay in-
terest for EDS and monthly installment of the loan has been defined by taking loan capital, loan interest and EDS amount, in to account. The range of ED services offered by BMI is large: e.g. training in agriculture/livestock, non-agriculture (food processing, candle making, soap making, exercise book making, dress making etc.), business development training programs, exposure visits, business club formations and market linkages, to name but a few. These services are promoted by EDS officers who are attached to each branch. The services are also delivered by them in coordination with all BMI’s microfinance officers. So far BMI has been able to carry out its ED services in a sustainable way, as the incurred cost for providing these services is covered by the income earned from the coupons. Therefore it is expected to enhance the quality and the strength of ED services and provide these servicers to more small entrepreneurs in future. SLMF wishes all success in BMI’s endeavor to offer innovative and demand oriented financial and nonfinancial products to their clients.
Hasitha Wijesundara Microfinance Specialist Promotion of the Microfinance Sector (PROMIS)
Page 6
Sri Lanka Microfinance Forum
MICROFINANCE TECHNIQUES BALANCING COMMERCIALITY WITH SOCIAL MISSION
Paolo Mele VSO / Sewa Finance
„MFIs, particularly in Sri Lanka, need to work to a long term sustainable model as donor funding for the activity has already dried up in most areas...“
The practice of microfinance has been around for thousands of years, both in a formal and informal sense. In the old days it happened with families and communities, lending each other small amounts of money to help with immediate costs such a buying seeds, food, feed for animals. The industry has however been taken to another level over the past 30 years with the advent of more formal structures and the creation of companies and systems suc h a s t h os e f o rm e d by Mohammad Yunus at Grameen, dubbed as the father of modern day Microfinance. His story and mission are legendary but its success has introduced a number of trends in the industry which many feel is taking it away from its original purpose. Is the number of customers a good indication of an MFI’s performance? The well publicised IPO (initial public offering) of the MFI Compartaramos in Mexico raised many concerns about acceptable levels of profit, both in terms of how much interest was being charged to clients and how much profit was made by its investors. Many were also disturbed by the fact that much of the infrastructure of the company was set up with public funds. For its pa rt Compa rta ra mos a rgues strongly that its high level of profitability stems from a professional operation and has allowed it to expand rapidly and therefore be able to offer loans to more people
quicker. On the other side many feel that charging up to 100% interest is more akin to money lending rather than Microfinance. There is still a feeling in many quarters that despite the costs involved in delivering small loans to poorer people, the rate of interest should be kept low as these people cannot afford to pay more. This may be desirable but unfortunately it has been shown that this model is not self sustainable and requires regular injections of public or international donor funding to make it sustainable. So, should MFIs make profit and if so how much is enough? A lot depends on the structure of the organisation, be it not-forprofit, cooperative, NGO or a private for-profit company. I would argue that if it is clear how those profits can be used for the good of clients, then as long as clients are not exploited, all profits are good. MFIs, particularly in Sri Lanka, need to work to a long term sustainable model as donor funding for the activity has already dried up in most areas and will do so from the Northern provinces in a matter of a few years. How should we measure the performance of MFIs? Whilst financial considerations are important and the first rule of rule of business is survival, a proper assessment of the impact each organisation has on the lives of the clients and communities it works with is needed.
This area is known as Social Performance Management and it is rapidly growing in significance around the world. It seems like an attempt to change the debate away from commerciality versus social mission by focussing measurement and grading of MFIs on the real purpose of the industry, which is poverty reduction. Social Performance Monitoring could be the answer and there are many companies already collecting detailed information about changes in the lives of their customers. An International body called the Social Performance Task Force has been created to coordinate thoughts and establish a uniform set of criteria to be measured. Social rating of MFIs has also becoming commonplace and a number of the agencies who had already been offering a credit rating are now offering this service. These include M-CRIL, Microfinanza, MicroRate and Planet Rating. These services can be expensive and time consuming but if the result is an accurate assessment of the organisation’s effectiveness in reducing poverty and vulnerability, they seem worth it. Indeed there is much that can be started without them and in the next edition I will go into more detail about what sort of things should be measured and how organizations need to prepare for this change. Paolo Mele VSO / Sewa Finance
USEFUL LINKS www.lankamicrofinance.com www.microfinance.lk www.cgap.org www.themix.org
www.seepnetwork.org www.edacapitalconnect.com www.bwtp.org www.mfnetwork.org
www.afmin-ci.org www.swwb.org www.inaise.org
Page 7
Volume 2, August 2009
BEST PRACTICES EXPANDING MICROFINANCE OUTREACH IN PAKISTAN – THE NATIONAL STRATEGY 2007 The views expressed here are those of the author and do not necessarily reflect views of the Pakistan Microfinance Network.
Context State Bank of Pakistan, the country’s central bank, in consultation with other stakeholders developed the national Microfinance Strategy in 2007. At this time, the microfinance sector served approximately one million active borrowers, and seemed poised to grow. A regulatory framework had been put in place by the State Bank of Pakistan in the form of the MFI Ordinance 2001 which allowed setting up of microfinance banks (MFBs) which would make small loans and would provide deposit and money transfer services to the low income population. In addition, a number of NGOs were operating either as specialized MFIs or multi-dimensional programs of which microfinance was a component.
Strategy – Snapshot The Strategy focused on the key issues faced by the sector such as legal and regulatory anomalies that distorted the market, the complex geographical outreach, sustainabil-
ity of MFIs, lack of specialization, staff productivity and a single product (credit) focus. Based on historical growth and capacity, the strategy set a goal of reaching 3 million active borrowers by 2010, and 10 million beyond 2010. The three key requirements identified to get there were: a) sustainable operations b) raise private domestic capital, and c) build the human resource base. Other steps envisioned included, amongst others, strengthening industry infrastructure, use of technology and encouragement of new players.
Lessons Learnt 1. As in any sector, a strategy can help focus the efforts of the different players on some common goals and guides the efforts of the different stakeholders to compliment each other’s work. Goals should be complimented with a tracking/ monitoring mechanism within the industry (generally through the industry association/network) to watch progress. 2. It helps to have a ‘champion’ who leads the efforts around the strategy. It works well if a regulator takes on this role as they have the influence and authority to push implementation. But the process
must be consultative – involve the stakeholders, especially the practitioners, to create ownership and set targets that are achievable yet challenge the sector. 3. Targets need to be thought out carefully. They may create incentives that become detrimental for the sector. A push for growth, coupled with the pressures to achieve sustainability, may result in reckless lending and MFI’s resorting to short cuts. 4. The level of buy-in needed and/ or possible at the government level may differ from country to country. It helps if the government is on board but sometimes involving the government can mean attracting unwanted attention to the sector. In this case the sector should be prepared to defend its case on issues like interest rates, subsidies and impact. 5. Make realistic assumptions. In projecting targets, the underlining assumptions must be realistic. It is a good idea to ask practitioners for their business plans and build projections around them. Aban Haq Research Analyst Pakistan Microfinance Network
CGAP BRIEF: NATIONAL MICROFINANCE STRATEGIES (EXCERPTS) Typically, national microfinance strategies are publicly approved documents, developed through a consultative process, aimed at increasing poor people’s access to finance. These strategy documents usually include an overview of microfinance, a vision for the sector, strategic objectives, and an action plan for implementation. Developing a national microfinance strategy usually involves four stages: (i) conducting a diagnostic/ gap analysis of the microfinance sector; (ii) consulting with stakeholders (more or less extensively); (iii) drafting a document, usually by a consultant in cooperation with
government; and (iv) adopting and implementing the strategy, including approval by a governmental body and, in some cases, defining action steps to put the strategy into practice. B E N E F I T S Improved dialogue. The broad consultative process that often accompanies the development of a national microfinance strategy has fostered improved communication among practitioners, donors, and p o l i c y m a k e r s . Increased knowledge of the sector. always the first stage of developing a national microfinance strategy— has sometimes led to a deeper un-
derstanding of the opportunities and constraints for increasing financ i a l a c c e s s . Commitment to good practices. In some cases, national microfinance strategies have gotten governments and other stakeholders on the record to adopt good practice principles and abandon unsound policies. In essence, they can serve to establish the rules by which all actors must abide. C H A L L E N G E S Weak diagnostics. Diagnostics of the sector too often lack breadth a n d d e p t h . . . To read more go to www.cgap.org/ p/site/c/template.rc/1.9.4349/
Aban Haq Research Analyst Pakistan Microfinance „Targets need to be thought out carefully. They may create incentives that become detrimental for the sector......“
Page 8
Sri Lanka Microfinance Forum
Translations into Sinhala and Tamil of the Sri Lanka Microfinance Forum provided by:
You can participate
GTZ PROMIS—Promotion of the Microfinance Sector www.microfinance.lk info@microfinance.lk
Send your comments, news, articles, and opinions to microfinance.forum@gmail.com
NEED FOR A MICROFINANCE POLICY IN SRI LANKA (CONT’D)
ADVERTISE? Contact microfinance.forum@gmail.com
Sri Lanka Microfinance Forum International Standard Serial Number ISSN 2012-5666 Contact: microfinance.forum@gmail.com
The Sri Lanka Microfinance Team wants to express its thanks to the Advisory Board Members: Chandula Abewickrama Charitha Ratwatte Dr. Dagmar Lumm Dulan de Silva Nimal Martinus Nina Nayar Rose Cooray Shaklila Wijewardana The Advisory Board is not responsible for the content of the Sri Lanka Microfinance Forum. The role of the advisory Board is to provide comments and suggestions to the editors.
(Continued from page 4) sion proclaimed that deposits can be taken only by Central Bank approved Financial Institutes which clearly did not include NGOs or MFIs. They subsequently forced organizations to return savings. Thus if the sector is to undertake savings which is increasingly becoming even more important than credit to the poor, there should be a policy which will will permit savings mobilization. Inability to take savings also deprives MFIs of an important source of capital. 2. Interest Rates Another key area where the government seriously impacts the microfinance sector is its pressure
on interest rates. Politicians and many senior bureaucrats strongly believe that the most important thing about loans to the poor is to give them at the lowest interest rate possible. Interest rates on Samurdhi loans have been reduced from 24% per annum to 14% over the years purely due to government pressure. NDTF too pressurizes its partners to keep interest rates low. These politicians and bureaucrats believe MFI rates should lower than Bank interest rates as Banks are for the rich and MFIs for the poor! Factors such as that MFIs do not take collateral or that costs in reaching the poor in the field are higher are not taken into account. Based on a serious dialogue between officials respon-
sible in government for the financial sector and microfinance practitioners an interest rate policy which does not hamper the sector should be enforced. 3. Governments Role in Microfinance Today every Ministry appears to have its own microfinance program. Fisheries, Agriculture, Women, Rural Development, Samurdhi and even the Central Bank has its own microfinance program. Is this really the mandate and role of the government? Or should it be the role of the government to create an enabling environment for private sector and NGOs to provide this service?
POLICY ON MICROFINANCE (CONT’D) (Continued from page 4) The documents cited above clearly provide the sources from which a policy can be distilled, and in practical terms, that is the operating environment for microfinance in Sri Lanka.
legislation and violators prosecuted? In a country which has experienced, Pramuka, Golden Key, Sakvithi, Danduwan Mudalali and Dedi Danduwam Mudalali scandals, the answer is clearly “no”.
The question which can be legitimately asked is whether – in fact and in law all these statutes are being fully implemented? For example, are institutions which take deposits from the public supervised in terms of the enabling
Some commentators have taken the position that since policies are not being fully implemented, simply creating a new microfinance policy is not needed and would do more harm than good. They would argue that, even the occa-
sional mass loan waiver, whilst good in the short term for MFIs, can have the effect of killing the credit culture, which has been painstakingly built up by micro finance institutions over generations of dealing with clients.
Hard Copies of the Sri Lanka Microfinance Forum provided by:
Senova Multisystem Solution (Pvt ) Ltd 550 1/3 . Old Kottawa Road , Udahamulla , Nugegoda, Sri Lanka Phone: 0115 649366 Fax: 0115 650509 Hotline: 0716896300 E-mail: senova@wow.lk Web: www.senova.lk Complete MIS solution for Microfinance Institutions in Sinhala, Tamil or English.