Paper
Commercialization of Microfinance: Sri Lanka
Assessing the extent of commercialization of Sri Lanka's microfinance market
78 pages
The paper highlights some of the characteristics of the Sri Lankan microfinance market are as:
- Microfinance market saturation is high at 80%;
- Cooperatives are the dominant microfinance providers;
- More than once third of the supply is through government programs;
- Few microfinance NGOs are trying to commercialize their services but most are unsustainable.
According to the paper, the commercial status of the microfinance sector is as follows:
- MFIs rely on savings mobilization to fund their loan portfolios, indicating a fairly high level of commercialization in terms of access to funding sources;
- Government policies and interventions discourage new entrants into microfinance and hinder the commercialization of existing MFIs.
The paper lists some of the challenges facing the commercialization process as:
- Weak institutional capacity and over emphasis of social mission curtails the progress of MFIs towards commercialization;
- Pervasive government presence in microfinance with subsidized directed credit programs also hampers progress towards commercialization;
- Inadequate regulatory framework for cooperatives puts savings of clients at risk, and hampers commercialization of the cooperative network;
- Lack of clear profit potential curtails competitive pressure.
The paper concludes by suggesting some positive approaches to commercialization of microfinance:
- Government should create and maintain an enabling policy environment and an adequate legal, regulatory, and supervisory framework for microfinance;
- There should be macroeconomic growth and stability;
- Agriculture sector growth should be promoted;
- Ad hoc debt relief should be stopped;
- Government ownership and controls of rural development banks should be reduced.
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