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INTRODUCTION
of The microfinancing industry of Sri Lanka.
Microfinance has been considered an
effective tool for governments of developing countries to get positive results
for poverty alleviation. International organizations and donors are working
together to promote microfinancing instruments and bring innovation in a
respective field. Under the term of microfinance, it simply needs to understand
the extensive availability of financial services such as credit, loans,
financial transactions, deposits, and micro-enterprise insurances. The idea of
giving loans to the poor to sustain their micro-enterprises is common in the
market but ongoing arguments are to discuss innovative methods of loan
facilities for a poor.
Small start-up businesses are
demotivated and eventually excluded from the process of getting credits from
formal financial institutions due to their requirements of documentations i.e.
Asset declaration and agreement/deeds documents to use as security.
Over a period of time, different
institutions have been established in many countries to provide microfinance.
The purpose of these institutes is to generate opportunities for poor
households by delivering them short & long term loans and arrangement of
securities against their credits. Many lending model groups have been created and
tested in different countries to evaluate the efficiency of microfinance i.e.
Grameen Solidarity Group Model (experimented in Bangladesh) and Self Help Group
(SHG) model (popular in India). Poor houses have received significant amounts
of financial services from these microfinancing Institutions (MFIs), Data shows
their clientele has significantly increased, in 1997 MFIs have 10 million
registered clients, in 2010 it had reached to over 200 million.
One important question is how to
determine the efficiency of these IMFs and improvement brought by them in
living standards of poor families. Impact studies’ results have been reviewed
to address this issue by several studies, few examples are Bauchet and Morduch
(2011), Duvendack et al. (2011), Van Rooyen et al. (2012), Awaworyi (2014),
Gopalaswamy et al. (2016) and Maitrot and Niño-Zarazúa (2017). These studies
have shown results to determine the demand side of microfinance but no systemic
study has been done to evaluate in a decrease in poverty from the supply-side
because of these MFIs. That is, what
factors determine the success and failure of these institutions? How these
institutes reach out to poor? What are their financial models for financial
sustainability? So far two papers have been written to address these issues,
but they evaluated specific topics related to financial and social performances
of MFIs.
Siri Lanka Financial institutional industry
has been divided into two sectors one is an organized sector and the other one
is the unorganized sector. A diverse range of financial institutions i.e.
commercial banks and financial banks come under the umbrella of the organized
sector. However, the unorganized sector includes small financial institutions
for example Coorperate based banking, the majority of small loan lenders and
pawn brokers. Regulation body of an organized financial service sector is
Central Bank of Sri Lanka (CBSL) which issues licenses to these institutes
(Licensed commercial banks, licensed specialized banks, registered finance
companies and, specialized leasing companies). All banking-related services’
license has only been issued to commercial banks. They are the ones who could
only ensure the provision of liquidity and being accountable for payment
services. Based on it all other financial entities carry out their financial
activities.
According to the 2010 record, there were
twenty-two commercial banks out of which two institutes regulated by state,
privately owned institutions were nine and eleven foreign banks operating with
1,933 branches countrywide.
Cooperative Societies
Act No. 5 of 19721 has permitted CRBs to accept members’ deposits and
does provision of loans. In the rural sector, financial services are being
monitored by Samuradhi banking societies which operate under Samurdhi Authority
of Sri Lanka. However, CBSL does not regulate these small financial
institutions but these institutions played an important role to promote
microfinance in rural areas in the form of development of microcredit demand
and small businesses.
Numerous constraints/barriers are affection the
financial industry of Sri Lanka, such are broadly defined as demand-side
constraints, supply-side Constraints, and regulatory constraints. Demand-side
constraint encompassed financial literacy and education of these microfinance
instruments. i.e. understanding financial inclusion strategy, complex financial
trade-offs, knowledge of financial products and services and limitations of
over-borrowing. Supply-side constraints occur due to conventional banking practices
for example maintenance of minimum balance, documentation and withdrawal
charges. Lack of safe and inconvenient payment systems and high cost of
conventional service delivery mechanism also considered major constrain at
supply end. Regulatory constraints are occurred due to the absence of single
regulatory authority and uniform standards are ignored by the supervisory body. Other factors are the absence of regulatory
infrastructure of microfinance, absence of credit bureaus and inadequate client
protection.
There are a number of challenges that plague the
microfinancing landscape in Sri Lanka. The most vital challenge faced by Sri
Lanka financial industry is financial literacy, a language barrier could create
a big communication gap between financial authorities and their clients.
Financial literacy could only be promoted if financial education breaks the
language barrier among them. Lack of promotion of capacity building exercises
among children and youth hindrance in the creation of financially responsible
citizens. Inadequate resources result in the provision of lethargic
infrastructure which could unable to provide transparent and accurate
information to clients.
Lack of capacity
building for MFIs is also a big challenge for this industry, the scope of
services is limited and there is no regulatory body to monitor new innovative
ways of providing these microfinance instruments. Currently, it is observed
that the majority of MFIs are running with a single product approach instead of
having a range of products. Such development should do new market segmentation
and design products keeping in view of client needs. Limited funding resources
have been a wrong viable approach adopted by MFIs and resulted in financially
unviable.
The focus of this research paper is
to determine the factors which could evaluate the efficiency of microfinance.
We will determine & evaluate the indicators of financial and social
performances of these MFIs. The scope of this study will be focusing on micro-financial
industry of Sri Lanka.
Research Objectives of The microfinancing industry of Sri Lanka.
·
To determine the key factors impacting microfinancing.
·
To illustrate their relationship with each other.
·
To study how efficiency of microfinancing institues is determine.
·
To narrow down the research aim, it will mainly focus on the microfinancing
industry of Sri Lanka.
·
To review relevant literature for microfianing and its efficiency.
·
To determine the efficiency of micro-financing in Sri Lanka.
Research
Question of The microfinancing industry of Sri Lanka.
1.
What factors determine the efficiency of microfinancing institutes?
2.
Which of the factors driving efficiency of microfinancing institutes
relevant in case of Sri Lanka?
3.
Are the microfinancing institues in Srilanka operating efficienctly?
This research hypothesis statement will focus
on the efficiency of IMFs;
H1: is
there a relation between the number of branches and the efficiency (TE)?
H2: is there a relationship between number of
deposit and efficiency (TE)?
H3: is there a relationship between the size of
the deposit (Mn) and the efficiency (TE)?
H4: Is there a relationship between the size of
the number of borrowers and the efficiency
(TE)?
H5: - Is there a relationship between loan
portfolio size (Mm) and efficiency (TE)?
Research methodology of The microfinancing industry of Sri Lanka.
The methodology of this research
mainly focuses on the quantitaaive analysis based on secondary data. The main
focus of this study is to retrieve data from officially published reports. The
problem statement will be analyzed by the available literature and data
employment analysis (DEA) will be done for technical analysis. The relevant
variables will be selected through the review of literature and data collected
for those variables. DEASolver software would be employed for the analysis fo
the data. Data sources will broadly be
discussed throughout this research paper, analysis method shows a considerable
whole section, aspect of data employment analysis (DEA) will set the base of output
and input selection, conceptual framework will be discussed and finally,
results will be deduced to derive a meaningful conclusion.
References of Thesis on the microfinancing industry of Sri Lanka
CBS. (2010). Annual Report of
the Monetary Board To the Hon Minister of Finance.
G Tilakaratna,U Wickramasinghe, . (2005).
Microfinance in srilanak: A household level analysis of outreach and
impact on poverty.
Hudom, & Hermes. (2018). Determinants
of the Performance of Microfinance Institutions: a Systematic Review.
Jayamaha, A. (2012). Efficiency of Small
Financial Institutions in Sri Lanka using Data Envelopment Analysis. Journal
of Emerging Trends in Economics and Management Sciences. 565-573.
kelegama, S. (2014). Kelegama, S. (2014).
Financial Inclusion in Sri Lanka: Issues and Challenges. Seminar of the
Association of Professional Bankers -.
kobbekaduwa, H. (2016). Microfinance institution in srilanka:examination of different models to identify the success factors .
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