Urgent need to support NorthEast microfinance sector - GTZ

[TamilNet, Tuesday, 23 November 2004, 11:57 GMT]
German Technical Cooperation (GTZ)said in a press release issued Tuesday that ''higher levels of funding are required at this time and that many micro-finance service providers are in need of significant strengthening and capacity building if they are to provide effective services to the entrepreneurial poor,'' in the NorthEast region.

Full text of the Press Release issued by the German Technical Cooperation (GTZ) follows:

A new study has found that micro enterprises in Sri Lanka’s war-battered north and east continue to lack access to meaningful credit and savings services nearly three years after the guns fell silent.

The study entitled “Developing Microfinance in the North and East of Sri Lanka” has found that commercial banks have largely yet to move away from the risk-averse lending policies of the past and start to provide much needed credit to the region’s entrepreneurs.

The study, which is the result of over one years’ work, is the first ever comprehensive review of savings and credit activity and the micro finance sector of the north and east since the commencement of the peace process.

While shedding new light on the levels of access to credit and savings services in the region, it highlights microfinance as an important development tool in rebuilding local economies devastated by the affects of armed conflict.

“This study is an enormous asset to the post-conflict development strategy of our country,” said Dr. P.B. Jayasundara, Secretary to the Treasury, at this week’s launch of the report.

“It provides valuable information, both on the present supply of micro finance services, and on the existing deficiencies and the demand yet to be met,” he said.

According to Dr. Jayasundara, the study comes up with clear recommendations on how to improve the quality and quantity of micro finance services in all the eight affected districts and by this, provides a valuable base for those institutions and donor organizations that are already engaged in the region or are planning to do so.

At the request of the Sri Lankan government, a micro-finance study of the north and east was commissioned by the Swedish International Development Agency (Sida) and the German Federal Ministry for Economic Cooperation & Development through the Rural Banking Innovations Project (RBIP), which is a joint initiative by the German Technical Cooperation (GTZ) and the People’s Bank to develop commercial demand-driven micro-finance products for entrepreneurs in Sri Lanka.

The study was undertaken by a team of national and international micro-finance specialists between July 2003 and November 2004.

The study argues that significantly higher levels of funding are required at this time and that many micro-finance service providers are in need of significant strengthening and capacity building if they are to provide effective services to the entrepreneurial poor. It says that this is especially true of the co-operative sector, which represents the traditional savings and credit base in many parts of the north and east and also the NGO sector, many of whom are used to giving micro-credit for purposes of relief and so have not really been focussed on making their products grow in outreach or become more sustainable. It maintains that the nature of service delivery varies very widely in each district of the region and, as such, that ‘bottom-up’ approaches are now required alongside more traditional ‘top-down’ measures. Accordingly, the central recommendation of the report is that integrated financial service and enterprise development programmes be developed at the district level in order to more effectively co-ordinate micro-finance activities deliver better, more suitable, products.

It also notes that where it is present, the Samurdhi programme has been very effective at mobilising savings with the poor and that the programme should continue to expand and look to provide more micro-credit facilities as a matter of urgency.

The study is concerned with developing more effective micro-finance service provision in the north and east of Sri Lanka. The overall aim of the study is to assist funders, policy makers and practitioners of micro-finance by providing them with sufficient detail about the nature of micro-finance activity in the region to enable them to make more knowledgeable, considered and effective decisions about the planning, financing and implementing of micro-finance development activity in the region at this time.

The product of a major grass roots level research exercise, it identifies a diverse range of practitioners currently undertaking different kinds of micro-finance activity, including INGOs and agencies, government, NGOs, cooperatives and community based organisations. The majority of these practitioners have been in the region for some time and are still largely on a relief and rehabilitation footing having, with one or two exceptions, failed to make the transition to more development based approaches. Relatively few new organisations or projects have entered the region or commenced micro-finance activity since the ceasefire began late in 2002.

A limited number of copies of the study are available at the RBIP office at telephone 081-238-9945.