The rapid development of microfinance in the last decades, characterised by the increasing value of assets and extensive outreach has raised significant regulation, ownership and governance issues according to PROMIS, the Promotion of the Microfinance Sector, a Sri Lanka - German Development Cooperation.
According to a survey conducted on the sector by PROMIS, interference of political interest in the appointments of directors and senior management and in the day to day management of microfinance institutions can endanger their viability. The results from the survey found that microfinance activities in the case of a large number of institutions are intertwined with other types of activities which can result in conflict of interests and objectives.
The PROMIS survey found that one of the major challenges within the microfinance industry is outreach to lower income groups. The same ranking in terms of outreach to the lower income group is maintained even if the threshold income level is raised to Rs.5,000. In the current scenario, only a small share of the microfinance clients falls within the definition of lower income groups.
Banks and other financial institutions involved in microfinance have the lowest outreach among the poorest layer of clients where only 7% of their customers have a monthly household income below Rs.3,000. The survey found that even in the case of NGO microfinance institutions, only half of their clients have a monthly household income not exceeding Rs.3,000.
The survey also found that many microfinance providers focus extensively on savings and do not fully exploit the resources mobilized to extend credit to finance the income generating activities of their clients. The Sri Lankan microfinance market, to a certain extent, seems to be more focused on the proliferation of variations of the same traditional products, lacking innovative approaches which could overcome the inherent barriers in access to microfinance.
According to the survey, the majority of the microfinance practitioners interviewed do not have an adequate mechanism in place to monitor the financial performance of their activities. The lack of comprehensive performance monitoring is a significant barrier to the achievement of long term sustainability.
Although the survey concludes that microfinance providers have an extensive network in the country with over 10,800 outlets covered during the survey, the sector is characterized by significant fragmentation and lack of coherence. The operating microfinance institutions, especially in the cooperative sector, have a large unexploited potential which could be channeled in the right direction through the adoption of an articulate development strategy.
|
E-mail