High penetration of financial services

The outreach of financial services is high in Sri Lanka with 82.55% of households having use the services offered by financial institutions, revealed the Microfinance Report 2009.

The report said that customer preference is strong for state owned institutions with 47% and 36% of the households saving in People’s Bank and the Bank of Ceylon.

The reasons identified for this trend are safety, stability of the institutions and easy accessibility as most of the State institutions have widespread and extensive branch networks.

Domestic private banks also play a key role and 30% of the households save in private banks, the report said.The report has revealed the important role played by the microfinance institutions in the financial sector. Accordingly 25% of the households have accessed the financial service through the Samurdhi Bank Societies(CBSs), the micro finance institutions established targeting very low income households.

Cooperative Rural Banks (CRBs) with the largest network is ineffective compared to the other institutions and only 5% of the households have obtained loans from CRBs the report said.

State sector banks is the largest lender as well and they have extended their credit facilities to the low income people as well. The data shows that 26% of the households have obtained loans through SBSs.

According to the report 50% of the households have accessed multiple financial institutions for their financial needs. The utilisation of savings facility is 75%, considerably higher to utilisation of credit (47%).

The sectoral disparity in the economy is reflected in the figures. Accordingly, 15% of the urban households, 17.5% of the rural households and 25% of the estate sector households do not utilize the services of the financial institutions.

The average size of the loan is Rs. 84,000 and there are marked differences across the sectors and in the estate sector over 87% of households have borrowed below Rs. 50,000.

It is more than ten times in the urban sector and more than twice in the rural sector. In the western province the average loan size is Rs. 162,000, almost twice the national average and six times high compared to the predominantly agricultural North Central province where the average size is Rs. 27,000.

Close to 30% of the number of loans are taken by households and 40% of the value of loans taken are for construction work. Only 6% of the value of the loans are utilised in the primary sectors of agriculture, livestock and fisheries.

Use of informal credit is believed to be widespread. However, the survey has found that only 18.3% of households have borrowed from the informal sector such as money lenders, family, friends, neighbours and traders.

In the informal credit system money lenders are less important and family, friends and neighbours accounts 62% in number and 72.9% in value of the informal credit. There is no national policy for Microfinance sector in Sri Lanka or an institutionalised mechanism to coordinate Microfinance interventions with other policies which have been formulated for rural development and poverty alleviation.

Microfinance interventions have typically been included in general poverty alleviation programs, the report said.

Lack of vision, regulatory and supervision framework for microfinance inadequate supervision of the savings in the SBSs and CRBs and politicization of them have been recognised as the fundamental issues in the microfinance sector by the report based on a survey that covered over 3,000 households in 22 districts.

(GW)