Promoting the microfinance sector
Programme description
Title: Promoting the microfinance sector
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Sri Lanka
Lead executing agency: Ministry of Finance and Planning (MoFP)
Overall term: 2005 to 2012
Context
Sri Lanka currently has few providers of the (micro) finance, training and advisory services that foster the socioeconomic participation of marginalised population groups on a sustainable basis while taking into consideration not only the effects of the civil war that lasted until 2009, but also promising international examples. The main reasons for this are the post-conflict situation and the microfinance sector itself. The level of provision of microfinance services, advisory services and training differs markedly from region to region. Major and well-established microfinance institutions (MFIs) frequently restrict their provision to economically successful regions, in particular those in the west of the country, leaving the north and east – which are marginalised and directly affected by the conflict – still underprovided with efficient microfinance services.
Objective
The services of selected microfinance institutions and of providers of training and advisory services reach marginalised population groups, enhancing their sustainability and their contribution to building peace.
Approach
The ProMis project supports marginalised groups such as internally displaced persons, returnees, lone parents (most of whom are widows), unemployed young people, and economically marginalised micro-entrepreneurs. The microfinance institutions help them and other impoverished population groups to (re)integrate into society financially, economically and socially.
Since December 2009, the project has stepped up its supply-side support to providers of microfinance services, training and advisory services. These measures, which include training and advice on both technical issues and processes, boost the ability of the institutions being supported to extend their financial and non-financial services to cover marginalised groups. On the demand side, marginalised groups are supported by advisory measures on basic financial education (‘financial literacy‘), income-generating measures and training in areas tailored specifically to the groups and individuals involved. Advisory inputs ensure that participation, support for dialogue and the conflict-sensitive planning and implementation of measures are increasingly and systematically integrated into service providers’ offerings and that these providers step up their use of group-based approaches.
Advisory services delivered to the Ministry of Finance and the Central Bank of Sri Lanka on issues and topics in the microfinance sector take the form of long-term dialogue, which also includes collaboration with the local microfinance network.
Results achieved so far
During the initial phase of the project (2005-2009), the priority was to strengthen the microfinance sector in institutional terms and to extend its regional base. Twenty microfinance institutions were successfully supported to improve their efficiency and sustainability and to widen the range of financial services they provided. With around 420,000 new clients from across Sri Lanka who were not directly affected by the armed conflict, they were also able to expand microfinance services in disadvantaged areas of the country. A range of local training and advisory services has been put in place, and this operates sustainably in institutional terms and complies with international standards. A total of 350 employees of partner organisations used these services during the initial phase of the project. A microfinance network established by the project represents the interests of more than 80 member organisations. The Central Bank and the Ministry of Finance have included suggestions made by ProMis in proposals for regulating the microfinance sector. A corresponding regulatory law was scheduled to enter into effect in 2011.
During the second phase, financial and social services tailored specifically to the needs of marginalised groups will enable members of the target groups to (re)integrate into their respective communities and play an active economic and social part there. This will neutralise the potential for conflict that is inherent in marginalisation. Women and men are treated equally as a matter of, but with women given priority in order to counteract existing economic disadvantages.
Efforts are being made further to professionalise the institutions of the microfinance sector, which is particularly important for creating sustainability, competitiveness, a better regional balance in the provision of (micro)finance services, and social cohesion.