New era in people’s empowerment:

Micro-financial banking networks at regional level

by Dr. Ajith Disanayaka, University of Kelaniya

The Mahinda Chinthana and Mahinda Chinthana Forward Vision generated a citizens’ dialogue through newspapers, radio and television discussions, community fora and most crucially at many election platforms of the last Presidential and Parliamentary elections.

Among the issues discussed were:

(a) Priorities for allocation of scarce national resources in pursuit of the Mahinda Chinthana
(b) The Divineguma Bill which proposed the establishment of a Divi Neguma Department (DDD).

The DDD will no doubt usher in a new era of national development and socio-economic progress. It will be a new experience in the history of government departments to mobilise human resources through encouraging financial savings, and creating micro level financial networks for investment projects. This Department will not merely be a bureaucratic organisation where executive powers are channelled from the top to the bottom, but an organisation where peoples’ participation is ensured from the bottom to the top.

The DDD’s ultimate aim is to create a situation where people can stand up on their own feet, leaving aside the mentality of being dependent on food subsidies forever.

Changes in development programs, approaches and policies are vital and they need to be adjusted to fit into international experiences. With the collapse of international financial markets in 2008/2009, changes in new liberal economic policies were advocated by many, including international development organisations. The role of governments in the pursuit of economic development is determined by the specific conditions of each country.

Based on this objective, the Divineguma Bill proposes to amalgamate a number of organisations, namely, the Samurdhi Authority of Sri Lanka, the Udarata Development Authority of Sri Lanka, the Southern Development Authority of Sri Lanka, the Department of Peasant Rehabilitation and the Samurdhi Commissioner General’s Department. These institutions come under the purview of the Ministry of Economic Development.

The Samurdhi Authority is the biggest organisation which is to be amalgamated with other similar institutions under the Divineguma Bill. The workforce of the Samurdhi Authority alone far exceeds 25,000 at present. This Authority has been functioning over the last 15 years.

When the Samurdhi Authority was first established in 1995, the percentage of families living with poverty was in the range of 25 to 30 percent, which is currently around seven percent. The goal was to reduce the number to 13 percent. Surprisingly enough, we have already achieved this target by recording a seven percent figure by 2012. We are confident that this will lead to the creation of a just and fair society through the process of alleviating poverty by empowering low income groups.

National development

However, programs should be put in place to absorb people who are coming out of poverty to contribute to national development through strategically designed development plans. Therefore, it is time to reformulate the role played by the Samurdhi Authority over the years to reflect the current needs of the country.

The clientele of the DDD under the Divineguma Bill will be the socially and the economically disadvantaged across the country. It is essential to secure their contribution to the national economy through a proper development approach at grass roots level.

While the functions of any department established in a ministry span across the country, serving all citizens, its actions would not interfere with the regional political authority and the existing institutional framework at regional level. The aims, objectives, powers and functions of the proposed Department of Divineguma Development have been clearly specified in the Divineguma Bill.

The DDD is not an institution set up for executive administrative functions nor, would it be in conflict with powers and functions of any regional administrative apparatus established under the 13th Amendment to the Constitution.

A community based organisation would be able to function independently, but when they are assigned to implement Government projects or use Government funds, they are inevitably subject to supervision and monitoring by the Department. It is necessary to monitor all department projects to see whether things are heading in the right direction, particularly to maintain the financial discipline of all projects. All projects will be audited by government auditors so that the department needs some kind of authority over supervision and monitoring.

Through strict monitoring and supervision, it is expected that the government funds will be effectively and properly used for socio-economic development of the country.

The Divineguma Development Fund (DDF) is a departmental fund which will be established by the minister under the Clause 35(1) of the Divineguma Bill. As the head of the department, the subject/line minister should have the power and authority to oversee the smooth functioning of the fund. There is no room for any misappropriation of the DDF since all financial dealings associated with the fund are subject to Government auditing.

With the powers vested in the DDD, it is expected to conduct lotteries with the assistance of the National Lotteries Board to boost the DDF. Previously, under the Samurdhi Act, a lottery was conducted by the Samurdhi Authority. By the same token, the ‘Sevana' lottery was introduced by the Premadasa administration for housing development. It is expected to minimise the inequality of income distribution through various poverty alleviation projects. It is also totally justifiable to conduct a Divineguma Lottery by the DDD to strengthen the Divineguma Fund. There would not be any hindrance to conduct, and maintain similar lotteries for the benefit of this fund.

The main objective of the Divineguma Community Based Banks is to create micro-financial banking networks at regional level. It is the Divineguma beneficiaries who save money in these community banks, and receive benefits as well. It is important to note that these Divineguma Community Banks are not commercial banks in the conventional sense and only those who are members of Divineguma Community Based Organisations are eligible to use them. The target group of these banks or the main clientele is those who are excluded from conventional commercial banks for a number of reasons. Individual or group-based loans will be available for those who are disadvantaged by numerous rules and regulations of commercial banks.

Under the Divineguma Bill, the DDD is empowered to establish these non-commercial rural banks with the purpose of providing the much needed banking facilities for the rural poor in particular. It was the same policy under which the Samurdhi Banks were established in the 1990s.

After discussions with the Central Bank of Sri Lanka, it was agreed that the regulations and clauses of the Banking Act in 1988, No 30 and 2D11, No 42 under the Financial Enterprises Act would not affect the Divineguma Community Banks. However, these micro-financial banking networks will be monitored and supervised by a committee of eminent people including representatives from the Ministry of Finance and the Central Bank, director of the Divineguma Community Banks and the Director-General of DDD.

Thus, financial activities will also be audited by the government auditors. It is essential to have a community banking system of this nature for the benefit of rural people who are marginalised by the ‘big banks’.

Under the Divineguma Bill, restrictions will be imposed on collecting personal information from the poor and selling them for financial gains. At the same time, the information collector who collects personal information is liable to safeguard and maintain the confidentiality of all personal information. The DDD should also be exemplary in this regard. This does not affect the transparency of the Department and there is no obstacle whatsoever to question and test the transparency of activities of the Department.

It is very difficult to make a cost-benefit analysis on benefits against the cost of the proposed department at this stage. It would be possible at some point in future to make such analysis on certain specific projects that will be implemented under the purview of the departments.