Microfinance rescues people at the bottom

A top banker called on the commercial banks to downscale to the ‘Bottom of the Pyramid’ for sustainable economic development – sustenance of the poor and stressed the great importance of banking with the poor.

The plea was made by Chandula Abeywickrema, Deputy General Manager, Banking and Network Management, HNB during a presentation at the recently held Annual Convention of the Association of Professional Bankers, Sri Lanka.

He said “Commercial Banks can successfully down scale its operations for a sustainable microfinance programme and an objective for motivation is core to successful microfinance operations.’

In remarks of the presentation sent to the media by the bank, he said he was convinced that banks could profit from grassroots level banking and called upon the banks to design such products as deposits, micro insurance, etc in conformity with the income and employment characteristics of the rural villagers.

Micro finance should no longer be considered as marginal or niche market. The poor should be considered as valued clients of the financial system of the country where financial institutions would provide them permanent financial services, considered to be at the bottom of the pyramid, though there could be challenges for the financial institutions of maintaining millions of small accounts rather than a few large accounts of the wealthy, he said.

But the significance of loyalty and repayment of loans regularly in time are features that should not be ignored, which indicates that the poor values these services, he added.

He said that traditionally banks in this country derive 80 percent of their income from a 20-percent segment of corporate, high networth, large and medium scale commercial enterprises.

These banks face the challenge of either maintaining or increasing the size of the share of the market in a volatile economy like Sri Lanka.
The competition among the 12 foreign banks and 11 domestic banks to win over the profitable segment of this business has led to a reduction in customer loyalty to any particular bank.

He urged the banks to create attractive opportunities for the majority 80 percent and look beyond the Western Province, in dispelling the economic vacuum and to bring economic revival to the now considered marginalized 80 percent, making the ‘Bottom of the Pyramid’ more viable.

Citing some examples Abeywickrema pointed out that the strengthening of this 80 percent could only be possible if the income generation capacity or the purchasing power of the poor is enhanced.

Citigroup, HNB success
Abeywickrema gave details of the successes in a micro financing project HNB handled with the assistance of the global giant CitiBank, considered to be the largest financial services company in the world, and BRI Indonesia.

In 1973, HNB started rural village uplifting programme at Debara-ara-wewa and in 1979 it commenced SME lending.
This Gami Pubuduwa microfinance portfolio today is Rs 2 billion catering to 15,000 clients in 106 microfinance units throughout the country with a NPA rate of below 5 percent.

“Overall, during the past 17 years loans amounting to Rs 4 billion have been provided to 75,000 BOP customers,” he said.
One of the most difficult places in banking – mobilizing rural poor in Jaffna - stands as an example as the bank has financed 146 entrepreneurs in Arali, Moolai, Mathagal and Pandeterrippu villages in Jaffna.

Migrant workers
He said that though many banks have shown much interest in Migrant Workers Remittances (MWR) as a key business opportunity, their movement is slow in financial inclusion for migrant workers.

He said that migrant workers globally constitute a significant economic entity which needs the attention of the commercial banks, not only for money transfer and remittance but also in the financial inclusion in savings, micro finance and micro insurance.