Assessment of selected microfinance programs in Sri Lanka

The purpose of the study was to identify small- and medium- sized credit and savings programs that are capable of achieving long- term financial viability and sustainability. The study also identified development needs of such programs to be addressed in working towards sustainability. The NGOs viewed in the study shared a number of traits. All have an abiding commitment by leaders and staff to the rural poor, and all are recent entrants to the credit arena, with most of the organizations having active programs only for the past 2-3 years. Further, credit is only one of the NGOs" many activities; credit is sometimes seen as an adjunct to existing programs. All the NGOs surveyed started with a modest savings program -- an important part of financial intermediation, if savings are accessible. The NGOs see village- level training as an integral part of all their activities, and devote considerable effort to community-based organizational development. The organizational structures of both the clients and the NGOs are quite similar. None of the organizations have a workable management information system (MIS). The systems are geared to reporting but do not lend themselves to management review and response. At present, the credit operations are not self-sustaining. The revenue generated does not cover the costs of operations once the subsidies are removed. A major cost to the system currently is late payments, which can lead to non- recovery of loans extended. If top and middle management have the tools and training to conduct portfolio performance analysis, they can respond more quickly to success and problem areas. These tools and training can be brought to bear on a limited number of NGOs involved in credit. They should be tested on a limited basis and thoroughly reviewed. The mechanisms to conduct this effort are largely available, but USAID/W assistance would be required to reach the objectives of the activity. There is already a local entity, the Sri Lanka Business Development Center, with the interest and capability to conduct most of the work entailed, but it would require limited off-shore assistance, particularly in the start-up phase. Includes bibliography. (Author abstract, modified)